Know Your Food Cost Percentage. Know Your Restaurant Profits.
Calculate Food Cost Percentage
The restaurant industry faces swift changes that bring numerous challenges. Owners are wrestling with restaurant industry challenges, from labor shortages to digital shifts. These obstacles demand intelligent, effective strategies.
For instance, the biggest challenges are increasing overhead costs for franchises, implementing future ordering systems, and managing smart inventory. Moreover, restaurant owners often struggle with analytics and tracking due to a lack of integrated systems. They find it challenging to consolidate data from various sources, like sales, inventory, and customer feedback.
Keeping up with these shifts and challenges requires constant vigilance and adaptation. This blog covers the top 8 restaurant industry challenges owners face today. We'll focus on solving these eight major restaurant challenges volume points with the right strategies.
Here is a quick summary of the eight significant challenges in the restaurant business and practical solutions to address them.
The core challenge for restaurant owners is deciding whether to partner with delivery services and third-party apps. The online food delivery market is massive, with 161 million users in the U.S. alone in 2023. And it is projected to rise to 173 million by 2028.
While these platforms can increase a restaurant's visibility and order volume, they also come with a cost. High commission fees can significantly eat into profits and pose a financial dilemma. On one hand, joining them can boost sales; on the other, it can decrease overall earnings. This balance between gaining exposure and maintaining profitability is challenging for restaurant operators.
Solution: Multi-chain and midsized restaurants can consider exploring in-house ordering and delivery systems. These systems give you more control over the customer experience and provide better profit retention. Launching your service might seem daunting. Yet, the right strategy could turn into your competitive edge.
High turnover rates and finding staff with the right skills require constant attention. Restaurants are feeling the pinch, with a 62% staff turnover rate seen in August 2022. When skilled staff leave, it means training someone new, which costs time and money.
Moreover, the new law, signed by Governor Gavin Newsom last fall, mandates fast-food chains with 60 or more locations to pay workers at least $20 an hour, above the state's $16 minimum wage. This rule protects workers' right but adds another layer to the operational complexities of running a restaurant.
Solution: Focus on promoting from within to boost retention and develop a culture that values employees. Competitive pay and flexible schedules are a good start. But there's more to it- create a place where people want to work.
Boost your team's performance by offering extra training. Empower managers, drive accountability with data, and enhance communication to ensure a cohesive team effort. Show them they're valued, not just with words, but with actions. You can also consider creating a referral program with rewards for staff to recommend quality hires.
Most restaurants struggle to make enough money while food costs keep going up. Plus, unexpected events can push costs even higher and make it more challenging to predict expenses.
At the same time, customers look for good deals, which puts pressure on menu pricing. Finding the sweet spot for prices attracting diners and covering costs is tricky. Wasting less food and managing inventory better can help, but these are just pieces of the puzzle.
Solution: Focus on intelligent menu pricing, cutting food waste, and thinking outside the box for extra income. Manage costs effectively by leveraging POS and accounting software for detailed financial insights. Use real-time data to adjust promotions and manage cash flow efficiently.
You can increase revenue by introducing DIY meal kits, catering, and branded merchandise. Make sure to optimize your menu to highlight high-margin items and reduce inventory by streamlining ingredients.
Keeping customers coming back is another big problem. With so many options, diners can easily switch to the next place without thinking twice. This makes it hard for restaurants (especially multi-chain restaurants) to build a base of loyal customers.
You need to find new ways to connect and make each visit memorable. Without this connection, you risk losing out to the competition.
Solution: Boost customer loyalty with a loyalty and reward program. Over 40% of diners say these programs make them stick to a restaurant. Even if you change the program, more than half will keep coming. Personalize messages for targeted promotions, like family deals.
Moreover, engage actively on social media to acknowledge and thank your followers. This way, you create a bond that keeps them returning for more.
Every day, there's something new in the technological world. Apps, online ordering, social media, and digital payments are just the start. It's no surprise that your customers expect these conveniences. They want to click a button and have their meal ready or booked.
But for many restaurants, jumping into the digital world is challenging. It's not limited to getting new gadgets. It's about changing how things are done, training staff, and, sometimes, significant investments. This digital leap can test a restaurant's ability to adapt and thrive.
Solution: Investing in an integrated restaurant management system can help to tackle the tech challenge. This is where OneHubPOS comes in. Our centralized Android POS solution is designed to streamline your operations from orders to inventory management and secure payments.
With 33% of diners steering clear of establishments rated below four stars, the stakes for online reputation are high. Moreover, the influence of social media is undeniable, as 45% of U.S. diners have ventured into restaurants for the first time inspired by a post.
Each review and social media interaction holds the power to attract or deter potential customers. As a restaurant owner, you are in a constant battle to maintain a positive online presence. You must know that their success hinges not just on the quality of their food but also on digital identity.
Solution: Watch social media and review platforms closely to manage your online reputation. Always respond quickly to customer feedback. View negative reviews as chances to grow and improve. This proactive approach shows customers you value their input and are committed to enhancing their dining experience.
Going green is no longer about the planet only; it's what your customers want. Research shows that 43% of diners will pay more for meals from eco-friendly restaurants. Nearly half would pick a different menu item to eat more sustainably. But making your restaurant more sustainable? That's a big task.
It means finding suppliers who get this, reducing waste, and saying no to plastics. Plus, you have to keep serving delicious food while doing all this.
Solution: Start by choosing suppliers who share your commitment to the planet. Cut back on plastic from straws and packaging. Get serious about recycling—it can make a big difference. These steps help the planet and show your customers you care.
Customers today want more from their dining experiences. They have diverse tastes and dietary needs. Vegan, gluten-free, and keto aren't just trends; they're preferences that stick. Most restaurants face the challenge of keeping up.
Menus that stay the same might seem outdated. Not offering a variety means missing out on customers. Plus, people love to see their feedback turn into action. It shows a restaurant listens and adapts. This constant evolution in customer preferences pushes restaurants to stay flexible and innovative.
Solution: Keep your menus fresh. Add new dishes that cater to various diets. Listen to what your customers say. Their feedback is gold. Use it to tweak your menu. This approach ensures your restaurant remains a favourite spot for everyone, no matter their dietary needs or preferences.
Other strategies include enhancing in-home dining by offering lunch deals for remote workers, grocery upsells, or family meal bundles. Form partnerships with local wellness centers for post-exercise refreshments. Ensure your website and loyalty programs are mobile-friendly to cater to tech-savvy customers.
Running a restaurant today means more than serving up delicious meals. Each of the eight restaurant industry challenges we've explored requires a thoughtful approach and a readiness to adapt. Whether it's fast-moving delivery services, the importance of online reputation, or changing customer preferences, you must be ready to change and leverage it to your advantage.
Engage with technology, listen to your customers, and never underestimate the value of a strong, cohesive team. The strategies discussed here are your toolkit for leaping over the hurdles. Your restaurant's journey, resilience, innovation, and customer connection are your best ingredients for success.
Federal law allows including only employees who customarily and regularly receive tips. This typically excludes back-of-house staff like cooks and dishwashers. However, some states might have different regulations.
Tips are typically collected throughout the day and pooled at the end of the shift. The pool is then distributed among eligible employees based on the chosen method.
In some states with allowed tip credits, employers can take a portion of the minimum wage based on tips received by employees. This essentially allows employers to pay tipped employees a lower base wage.
Non-compliance can lead to fines and penalties from the Department of Labor, wage-and-hour lawsuits from employees, and employee morale issues.
Tip sharing is voluntary. An employee might choose to share some of their own tips with colleagues. Tip pooling is a mandatory system where all tips are collected and then distributed among eligible employees based on a predetermined method.
No, managers and supervisors cannot participate in the tip pool.
There are no standard percentages by law. However, 15-20% is a common tipping range for good service in the USA. Tip pooling eliminates the need for individual tip calculations.
Tip pooling can be beneficial for restaurants of all sizes. It can foster teamwork, ensure everyone benefits from good service, and simplify tip distribution.
Yes, tip pooling is legal under federal law (FLSA) with some key restrictions. However, some states might have additional regulations. Always check your state's Department of Labor website to ensure compliance.
Pricing is a balancing act! You need to cover your costs (including the food cost per portion) while offering a price point that feels valuable to your customers. Consider factors like competition, target audience, and the overall dining experience you create.
Food cost calculators are great for initial estimates, but consider restaurant management software for ongoing success. This software tracks inventory, automates cost calculations, and generates reports to identify cost-saving opportunities.
Absolutely! Many online food cost calculators can handle various cuisines. Look for tools that consider ingredient types, portion sizes, and even regional pricing variations.
Consider your food cost percentage your restaurant's financial fitness tracker. It's the total cost of recipe ingredients divided by your total menu sales. Ideally, calculate this regularly, like weekly or bi-weekly, to monitor profitability and adjust pricing or portions as needed.
The standard costing model is like a recipe for consistent pricing. It uses historical data and market trends to predict ingredient costs, allowing you to budget, purchase, and maintain profit margins even when prices fluctuate.
Food cost per portion is the actual cost of creating a single serving of a dish. It considers all ingredients, including spices, garnishes, and even waste! This number helps you understand your profitability and set menu prices effectively.
Satheesh Kanchi is the Founder and CEO of OneHubPOS, He is the restaurateur behind several popular Indian restaurants in California and India. He started his career as a technology CEO, bringing that same level and learnings innovation and drive to the restaurant industry.
