Restaurant Profitability

Restaurant Profitability

Restaurant Profitability

Success in the restaurant industry isn’t easy.

Statistics are not good: 60 percent of restaurants do not make it past their first year, and 80 percent leave the business within five years. Despite the challenges, restaurant owners and employees believe that as long as they make money, they are 
“doing good enough.”

The failure in this approach is that it doesn’t account for universal truth—costs increase.

According to a report by IBISWorld on full-service restaurants in the U.S., 67 percent of restaurant costs go directly to salaries and purchase costs. In addition, the average profit on a restaurant, after deducting all other expenses, is only 6.2 percent. With this low-interest rate, unfortunately failing to pay the bills.

The most significant risk to the restaurant industry is rising wages and food costs. If you do not regularly improve profits and increase your income, prices will take their toll. It would help if you reduced costs consistently and consistently to maintain your current level of success. How can you do this? Improving efficiency.

More Restaurant Competition, Lower Menu Prices

Competition in the restaurant industry has been on the rise lately. Sales at the regular, sound and fast restaurants will grow faster this year, according to a forecast from Technomic. And restaurant sales were expected to reach $ 825 billion by 2018, the 9th consecutive year of sales growth in the industry.

The most significant risk to the restaurant industry is rising wages, including food costs.

It is a typical supply and demand economy – the more widely offered, the lower the prices. Competition between restaurants in the United States both lowers menu prices and makes it very difficult to add. And it’s not just competition from the same concepts. 

Restaurant Wages are Rising

Wages represent the bulk of your operating costs – 34.6 percent, according to IBISWorld – and you can expect that number to increase for several reasons:

Our national unemployment rate is at the lowest level in decades.

Minimum wage laws in 18 states and other cities and many states increase wage costs.

Due to the high rate of return and the low unemployment rate, it will become more and more difficult for restaurant owners to keep people without raising wages. If your restaurant is in 1 of the eighteen states with new remuneration rules, you may already be facing a collapse. All of these things create unique opportunities for those who want to work in the restaurant industry, but it’s not so good about your bottom line.

You’re Paying More for Ingredients

Did you know that 32.5% of your restaurant expenses go straight to buying food and drinks yourself? We all know how flexible these costs can be and how challenging it is to convey differences to customers. As of August 2016, the food price index (PPI) – a change in food costs – increased by 7.7 percent, according to a February 2018 report by Credit Suisse Equity Research Restaurant. In addition, increasing consumer demand for healthy, organic, and local ingredients puts more pressure on restaurants than ever before. Those products produce premium milk, and the cost of protein adds up quickly.

Reduce Costs to increase Profit rate: 3 Tips from successful Restaurant’s Owners

Based on what we now know about restaurant costs, let’s make a minute.

If you do not regularly improve profits and increase your income, costs will take their toll.

Assume that your menu prices do not change; the cost of food increases by 3 percent and your earnings increase by 4 percent. You will start the year with 6.2 percent of the profits and close the year with only 3.8 percent. The price of unemployment will set you on the fast track to a “sufficient” trap.

Working with thousands of restaurant owners and employees throughout the industry, I have found that the most successful retailers continue to improve their business and find opportunities to reduce costs & increase profit rates. These operators may not only stay in business but also continue to open new and successful facilities. Here are three good habits I’ve learned from you that can help you avoid falling into the trap of “enough”:

Hire seniors and add profit bonuses to their compensation framework. Incentives like these will adjust everyone’s focus on the bottom line of your restaurant.

  • Always check your ingredient costs, start with your most common kitchen ingredients and bars, and update your cost-effective menu.
  • Always check software and service offerings that can save time, increase profits, & increase efficiency. The most successful operator I work with is always looking for an edge, constantly checking for new offers that can help.
  • There is no guarantee that your restaurant will survive and thrive. But if you stick to all of these ideas, you may have a better chance of success.