Restaurateurs have been forced to face a perfect storm of economic pressures on their businesses. The deferred rates re-valuation is now taking full effect and many high streets businesses are facing crippling rent rises as landlords seek to retain the value of their property. Restaurants are now spending on average 21% of turnover on rent where historically businesses were modelled on 12%. The proportion of the turnover spent on rent has increased by 70% in the last 5 years and by 140% in a decade.
Guiding restaurants out of the storm
It seems perverse to use the term ‘fixed costs’ for something that appears to rise with such velocity, but as with annual budgets, these costs are set. They are extraordinarily high, but at least we know what we’re up against. For operators, focus should turn to the moving elements of the business; the rise and fall of revenue and the control of costs below the GP line.
In fact we’d argue that both revenue growth and increased efficiency are weapons in fighting rent, rate rises and other ‘fixed costs’. Simply because, both revenue growth and operational efficiency are conducive to profitability. By implementing better controls, “variable costs” become easier to predict.
Improved operational efficiencies help restaurants ride the economic downturn
Regular stocktaking, line checking and implementing other necessary F&B controls are all key to monitoring revenues and profit. They’re also key to giving your staff helpful goals and the necessary tools to maintain costings. The gross profit of food and beverage lines must of course be maintained against rising material costs, but not to the detriment of quality.
Payroll costs too are rising with restaurants fighting the two-headed beast that is offering a living wage whilst trying to encourage staff to see catering as a viable career. Churn increases recruitment costs and gaps in staffing are filled by expensive agency employees. Not ideal when facing other significant cost increases. So, monitoring sales and forecasting wages hour by hour is advisable. It takes bravery to book staff in so close to peek need and then management strength to reduce staff levels as necessary, whilst maintaining morale.
Maintaining the expected standards
So how do we maintain the expected standards of service and menus whilst ensuring that management are running the business as efficiently as possible? The answer that many in the industry are turning to is compliance monitoring and loss control.
Revenue, however, will not grow if standards drop below customer expectations. That’s where third party monitoring can ensure a business is being run both efficiently and to the expected internal standards. Checks should be made on service quality, cost control, loss prevention, allergens and cash & stock management. Many companies choose to employ an in-house audit team, but you shouldn’t underestimate the benefits of third-party monitoring and the added layer of scrutiny that can bring.
By monitoring the controls of a restaurant estate, you ensure that the costs previously seen to fluctuate – with true costs only becoming evident after the event – are predictable. This enables more effective forecasting and becomes a light to guide restaurants out of the storm.
Here at Venners we offer a host of services to ensure effective stocktaking and compliance monitoring; combined with expert advice from our consultancy team where necessary. With over 200 stock and compliance auditors across the UK our team can offer regular effective reporting and benchmarking recommendations to raise standards. In certain cases our consultants can be called upon too, to help your management teams identify and implement essential changes on a project-by-project basis.
By Duncan Colvin – Senior Operations Consultant