RESTAURANT BUSINESS MODEL (2)

The building blocks of setting up and operating a successful restaurant 

This is the second in a four-part series of articles (2 of 4) focused on exploring the building blocks of a restaurant Business Model. These are what I believe form the foundation for setting up and operating a successful restaurant. In this article I discuss, Sequence of Service, Food Cost (COGS), Human Resources, Technology and Data Analysis / Sales Trends.

Article 1 of 4Article 2 of 4
P&L (Profit and Loss Statement)
Know Your Customers 
Positioning (your place in the market)
Revenue Streams

Sequence of Service (service style)
The Product 
COGS (Cost of Goods Sold) – Food Cost
Human Resources
Technology
Data Analysis and Sales Trends 
Article 3 of 4Article 4 of 4
Marketing / Distribution Strategy
Adaptation
Phygital Strategy
Neighbourhood Strategy 
Location


Support Services
Breakeven Point
EBITDA
Financing
Growth
Effects of Business Model on Design

RESTAURANT BUSINESS MODEL ARTICLES 1 to 4 – Contents

Sequence of Service 

A major component of the customer experience is your sequence of service. This links to your positioning in the market and what type of service offering you want to deliver to your customers. It has a direct correlation with the number of employees it takes to produce and serve the food and your overall manning levels, which are related to your price point and average spend per person. 

If you are setting up a new restaurant, these are questions you need to consider from day one as they affect everything from your hiring strategy, menu pricing to even your design and layout of the venue. 

  • Counter service or table service?
  • Is your kitchen production part of the entire sequence from a customer’s perspective? Open kitchens and counters where chefs serve customers. 
  • Do you have runners or does one person takes care of the entire table experience?
  • How prominent is the beverage experience?
  • Do people order directly through the use of technology or do you still have human interaction with your employees? 

If you are an existing restaurant, you need to ask yourself a couple of basic questions:

  • Is your sequence of service in line with where you position yourself in the market and does it add value to the customer experience?
  • What are you doing that is different and memorable?

This links not only to the customer experience / value proposition delivered, but is directly related to your HR costs. 

Numbers to Consider

Sequence of Service Numbers food business design

The Product

Yes, this is obvious, but worth the mention here. Refer to my “The Business of Food article” if you haven’t done so already. In it, I put forward the question: know who you are cooking for. This ties in with the above point of knowing your positioning, which will inform the “product” you will produce. The article also discusses the points to consider maximising the potential of making profit from the product you sell. I am referring to the food and beverage offering of your business as product just to give context from a business lexicon perspective. We are not in the business of selling products or services, rather in the business of delivering memorable experiences.

Your offer (food and beverage) links directly to your Business Model.

  • What you can charge for it
  • What it costs to produce in terms of ingredient costs
  • The number of hours your team needs to produce
  • Speed in which your product can be served
  • The frequency in which your customers will consume your product per given period (say per month)
  • The eating experience from a customer perspective
  • Whether you can deliver it
  • Daypart in which your product can be consumed
  • Kitchen equipment required to produce your product 
  • The list can go on…

All these points relate to the financial performance of your business and things you need to take into consideration to ensure success. 

Let us not forget as well that the offer “product” is part of your artistic expression in the world of culinary arts. It is where you deliver your point of difference, express your own perspective, and set yourself apart from the market. Why be in business otherwise if you are not giving your customers something different. 

COGS (Cost of Goods Sold) – Food Cost

Perhaps one of my favourite subjects under the Business Model header and one that I recommend every owner / operator has a strong handle on, even if you are not a numbers person. This, along with your HR cost, make up between 50% to 60% of your cost base (depending on the category of restaurant you are involved in). It is a topic which requires one of my deep dive articles. I also elaborate further on this in my Business of Food article. Here, I will include a high-level intro to the components I believe are key to grasp. 

To highlight the importance of proper management of this cost centre, I will share an example from a recent project I completed. The company is a multi-unit operator that has great brands in the market but was struggling with cashflow and profitability issues. The finance team was quick to say: “reduce number of employees”. While, occasionally, there is merit in this approach, it is very tricky to pull off. The implications from a culture perspective, human impact, and organisational structure are complex and the initiative takes time to execute.   

With a one week exercise that involved a deep dive into the procurement strategy, we saved (over a 12month period) the equivalence of a full month wages of the entire team.

Numbers to Consider

 

COGS Numbers food business design

HR (Human Resources)

Not the first, nor the last person who will say this. Your team is everything. We are a people centric industry. It is imperative to have a clear vision on the number of team members required to deliver the experience you set during the initial stages of your concept creation. You will also need to take into consideration the ongoing training and development you will need to invest in your team. 

There are many questions with your manning pertaining to the type of organisation you own/operate.

  • Is it a multi-unit concept?
  • Franchise set up?
  • Chef driven concept?
  • Fast casual or fine dining?
  • Full service or counter service?
  • Hourly or monthly wages?
  • Does your business required highly skilled / specialised team members or can you operate with entry level skill sets that are groomed and developed?

There are more questions that arise with your organisational structure, such as; will you have a single “in charge person” or will you give even authority to the front of house manager and the chef? I will dive into all these questions in a separate HR focus article. 

From a Business Model perspective, my recommendation is to get your numbers right prior to opening. Have a clear idea on the number of employees you need, their salary structure, skill set required and what that means to the number of customers you need to break-even. 

There are some initiatives you can consider that can improve your manning levels once you are already operational:

  • Training, retraining, and training once more 
  • Cross training between different roles and positions
  • Efficient usage of tech
  • Longevity and lowering your employee turnover
  • Scheduling control and linking manning levels to sales volumes
  • Avoiding the mushroom effect (top heavy) with too many “sayers” and not a lot of “doers”

Numbers to Consider

Restaurant HR Numbers food business design

Technology 

Tech can have a dual effect on your business which is why I have a love hate relationship with it. On one hand, I love technology because it can come with many benefits. A few include: 

  • An enabler to optimise the operation
  • Link the various business silos together
  • Provide valuable intel to develop informed strategies
  • Improve sales opportunities
  • Deliver better customer experience and service
  • Help you work smarter not harder

Those benefits come when tech is well adopted and implemented. On the flip side, tech can paralyse a business if not integrated and implemented properly. I have seen many cases where the owner/operator would benefit from getting rid of their IT infrastructure and operating the business manually. My motto is, if not fully implemented, integrated, and executed, you are better off using a calculator.  

My advice is adopting an analogue approach to your digital strategy, making sure your core hospitality values are experienced by your customers. The ideal scenario is when tech is woven into all parts of the business to act as the skeleton upon which everything else is built upon. Use it as a foundation on which you build both customer facing experiences and operating systems. 

Technology can be split into two main categories: 

  • Customer Facing Tech
  • Operating Systems Tech
Restaurant Tech food business design

Customer Facing Tech

Customer facing tech can be further split into:

  • E-commerce
  • In-house experience 

E-commerce

While I address social engagement and informative content in other sections of this series of articles, digital presence should also be geared towards e-commerce. The most effective, although not the easiest approach, is to close the entire loop and customer journey. The entire cycle which includes; identifying and knowing your customers; database management; creating tailored offers to retain, reward, and increase frequency; measuring ROI.  

Depending on the business and concept you own, of course, I suggest you look at your website beyond being merely a digital brochure. Think of it as an e-commerce and data capturing platform. 

E-commerce need not be limited to online deliveries. It can also be bookings, events, gift hampers, books, merchandise, classes, and workshops. 

In-house experience 

Once again, used with caution and depending on the restaurant you own or are developing, you can use technology to enhance the in-house dining experience. The aim is not to replace the human aspect of the hospitality experience, rather complement it. The adoption of tech innovations, if well implemented, can add value to the customer journey.  

You can streamline the entire customer journey and have it become tech enabled. Search, reserve, select, order, pay, receive rewards and give feedback. As long as you do not fall into the “gimmick” trap, a well balanced tech enhanced journey that still has a human touch can add value to the overall customer experience. 

Your primary objective needs to be to deliver a personalised, hospitality driven tech enabled customer experience in line with your restaurant ethos which conveys your unique story

Operating Systems Tech

The list is endless, from POS systems to inventory management, HR, accounting software and the list goes on. As mentioned earlier, unless properly implemented, these technologies can do more harm than good. Done well, they can be seen as the vital back bone of your business. It is one thing to have systems that can handle large amounts of data, it is another to make results easily accessible, instantaneous, digestible and usable

Another consideration is your IT infrastructure, depending on the size of your organisation. Always be mindful of potential crashes and faults in the system. Have a robust and reliable back up system in place. I highly recommend you train your team on operating the business “the old-fashioned way”. Yes, with handwritten papers. Carry out some trainings on such a system, they will be extremely handy in the rare but likely event of an IT mishap. 

Today, you can find an app for anything and everything.  If it does not already exist, you can create one for a fraction of the price it used to take just a couple of years ago. Explore efficient ways technology can enable and improve communication and collaboration amongst your team members and between your different departments. 

Data Analysis and Sales Trends 

There is data all around us and it is easy to become overwhelmed if you are not someone used to or enjoys large amounts of data and numbers. It is easy to get overwhelmed, even if you are. There is a reason there is big money in big data and why, as a profession, data analysts are highly sought after. 

The basic premise of this is simple. Know your numbers in order to know your customers. Data will help you better understand your customers.  Now more than ever, with constantly evolving market dynamics, it is crucial to monitor, adapt, plan, react and pro-act with the use of informative data. The key is to monitor, assess, implement and reassess.  

Demand Patterns food business design

Demand patterns tell a story. You can literally paint a picture with them. Doing so will enable you and the team to drive the business and be in control of demand patterns, this will allow you to predict and adapt to operational requirements. Furthermore, this will help you to adopt a more tailored approach to promotions that focuses on flattening the volatility curve. Finally, and the most important aspect of painting this picture is that this exercise will help you understand the behavioural nuances of your different customers.

Numbers to Consider

Restaurant Sales Data food business design

Continue reading article 3 of 4


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LINKS TO OTHER RELATED ARTICLES 

If your enjoyed this article and found it useful then I would recommend you check out the following : 

THE BUSINESS OF FOOD What it takes to turn your food passion into a successful business 

ULTIMATE GUIDE TO RESTAURANT DESIGN What it takes to design a successful business not only a beautiful space  

GET IN TOUCH

I am keen to hear from you. Listen to your stories, challenges and experiences in the industry. I would also like to know if you found this article useful and whether you had a specific question or subject you wanted me to tackle in the future. Get in touch with me

ABOUT THE AUTHOR 

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