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Archive for the ‘Food Costs’ Category

AbacusWhile there are some signs that we may be emerging from the recession, I think you’ll find that consumer behaviour has been changed, perhaps for many years to come.  Even your “well-off” customers are much more price conscious that they have ever been before.  Actually, they are more value conscious.  In order to “survive and thrive”, you have to continuously monitor your restaurant’s value proposition.

While there’s more to the value proposition than your menu and prices, these are the two aspects that can be adjusted fairly easily in the short-term.  These are also the two areas that most restaurateurs fiddle with first, when times get tough.  We could probably add labour into the mix, too.

Recessions always harm the restaurant industry.  People lose their jobs (or worry that they will lose them), cut back on meals outside the home, and spend less when they do go out.  Most restaurants experience a drop in both volume and check averages, often severely reducing (or eliminating) their profits.  To cover their fixed costs, restaurateurs will try everything to keep the customers they have and steal their competitors’ customers.  Most start with price reductions, either through coupons and discounts or with across the board price reductions.  It doesn’t take long to realize that quality or portion sizes have to be reduced to maintain profitable margins.  Easier said than done!

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I’m sure all restaurant consultants and accountants advise their clients to count inventory regularly.  Depending on how many menu items and ingredients in use, and how many times you count inventory, this simple procedure can represent a very significant time commitment.  Let’s take a closer look at inventory counts and see whether they’re worth the time and effort.

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I’ve been scouring the net for useful information on a variety of topics related to restaurant cost control.  I have to tell you that it is a pretty discouraging task.  The vast majority of the web sites and blogs offer very little useful information for a restaurateur who wants to manage his or her operations better.  Many blog articles are far too simplistic to be of any use.  It is a waste of time reading (or even scanning them)!  Others  offer a huge number of articles, videos and templates, but usually require you to sign up as a “member” (i.e. customer).  A quick review of their offerings suggest that you are not likely to get your money’s worth.  A few sites offer advice that is, well, wrong.  I hope to correct this deficiency, with an ongoing series of blog entries on this site.  In the mean time, you might consider Joe Dunbar’s blog, Food Cost Control.  Joe’s blog is one of the best I’ve come across so far.  Maybe I have a soft spot for his site, because he’s so analytical!

Today’s topic is restaurant costs.

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When the economy went into a tailspin, a lot of restaurants experienced an alarming drop in sales.  Not only were guests spending less, fewer were dining out and those that were, dined out less often.  Pretty much every restaurant that I knew saw their sales drop by a minimum of 20% – some as much as 40%.  Understandably, this put severe pressure on the bottom-lines of a lot of restaurants.

Restaurateurs were willing to do just about anything to bring a customer in the door.  Many began offering coupons, some for the first time.  Done properly, coupons and other discounts can be a valuable marketing tool, but too often they seriously harm the restaurant’s brand.  Today’s article is not about whether they are useful.  Instead, I want to talk about how we account for discounts and what it means to our analysis of costs.

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I’ve been involved in the restaurant business for over 20 years, both as a chartered accountant advising restaurateurs and as an owner operator.  I started this blog to help restaurateurs improve their operations with practical information.  While I have advised a variety of different restaurant operations from fast food to fine dining, my focus is mostly in the area of licenced, full-service restaurants. 

Despite being “small” businesses, restaurant operations are surprisingly complex.  They offer a wide variety of products, using hundreds of ingredients, purchased from numerous suppliers.  The product mix needs to have some uniqueness to distinguish one restaurant from the multitude of competitor operations.  There are huge number of small sales from a team of changing salespeople.  Many of the products are “manufactured” and the prices of many ingredients change frequently.  Manufacturing needs to be closely matched to sales, because many of the ingredients are perishable, yet sales volumes are notoriously difficult to forecast.  Restaurants must comply with a variety of laws and regulations covering virtually every aspect of their business.  All this, and we haven’t even touched on how restaurants attract and retain customers.  Finally, there are several catastrophic risks that need to be managed every single day. 

The complexity of restaurant operations means that there is no shortage of topics to discuss!  As an accountant, my specialty is cost control, and you will find a wealth of practical advice to help you better manage costs in your restaurant.  The recent economic downturn has made effective cost control the single most important aspect of operating a successful restaurant.  My experience is that very few restaurateurs establish and maintain effective control over their costs.  My hope is that this blog will motivate more owners undertake this very important activity. 

My sister blog, Canadian Restaurant Tax Advisor, provides a comprehensive source of information about restaurant taxes and how to prevent unfair tax audit reassessments.  If you haven’t visited this site, I strongly urge you to take advantage of this valuable source of information that could save you thousands of dollars.

I’ve started a Linked-in Group for Canadian restaurateurs to discuss important issues.  You can join by visiting Linked-in and searching for “Canadian Restaurateur”.

I welcome your comments and questions.

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