I predict that in the future more restaurants will be managed via online services that not only help with the accounting of revenue and expenses, but assist in predicting what menu items will do well for a given profit.
Two weeks ago I posted a blog entry about the basic ideas behind predictive analytics. One of the examples I used was a restaurant on Main Street in the college town in which I live. I wondered how data about the weather and the college calendar might be used to predict sales and therefore help in setting menus and ordering supplies.
Every once in a while I look at the hits I get on the site and noticed that someone had landed on that blog entry looking for “restaurant predictive analytics” in. I just repeated that search and my entry was number #2 in the listing. That’s nice, but I didn’t actually say how to do the predictions based on the data analysis.
That got me wondering about software for restaurants in general. It’s a Sunday afternoon so I poked around the web a bit. A good place to start to see what is out there is RestaurantSoftware.com. Much of what is there has to do with POS (point of sale), staff scheduling, and accounting. It makes a big difference whether you are running a small restaurant or a chain of a few hundred locations in determining what software you need, want, and can afford.
In theory what you want is a great big model of the restaurant taking into account all the expenses and all the money generated. The idea is to generate a profit, and probably the bigger the better. If you own the restaurant, you need to pay yourself as well.
An interesting article to read is “How to Price Your Restaurant Menu” by Lorri Mealey at About.com. This is a good place to start because for a restaurant, food and drinks are your primary revenue makers and you better get that pricing right. Mealey states that in general the cost of the food ingredients should be about 30-35% of the price of the dish on the menu.
Let me assume 33% and we’ll look at this two ways:
- If the total food cost is $1 then the menu price should be $1 / .33 = $3.03. You might round this down to $2.99 but you’ll make more money if you round it up to $3.25.
- On the other hand, if you know a dish should cost no more than $10 because of local prices (e.g., the restaurant across the street), then your cost of ingredients should be no more that $3.30. If your food cost is more, you lose money, if you can spend a bit less, then you can make money.
This is Business 101: you make more profit if you charge the most you can and spend the least you can. Note that you don’t have to be 100% capitalist about this as you can donate part of your profits to local charities or you can voluntarily increase your expenses to pay your workers better wages or provide better benefits.
For a restaurant, the expenses are not just for food. You have to factor in what you are paying for your people, the expense associated with customers paying by credit card, the rent or mortgage on the property, taxes, water, heat, gas, electricity, non-food supplies, IT equipment and services, and any payments you make to service other debt you incurred to start the restaurant. You may have done some construction, installed new furniture, upgraded the kitchen, etc.
So when all is said and done, if you charge too little for the food you sell, you will not be able to pay all your expenses, and you may eventually go out of business. If you run the business well, charge the right amount, drive enough traffic through the restaurant, you should do well. Good luck.
This blog entry is supposed to be about software, so the key question is what software can you run to help you with all the above? Note you can do this by hand or with a spreadsheet, though it might be a lot of work.
For many restaurants the center of the IT infrastructure is the POS, or point of sale, terminal. Basically, this is a fancy electronic cash register that is connected to a back office database. It allows the cashier or wait staff to enter exactly what was ordered and what was paid. Whatever else it does, it lets you know how much food of what type was sold and how much money you made. (It can also help you understand, for example, the relative sales efficiency of different members of your wait staff.)
Given that you know how much money you made on a given day, you need to connect that to how much you spent on food inventory. Did you buy too much of the wrong ingredients because people did not order those menu items? Could you have made a lot more money on a highly profitable special if you hadn’t run out of the ingredients? Should you have known that on days where the temperature is below freezing that customers usually buy more chili?
So looking at the complete picture of the software you might want, you not only need something that looks at all your expenses and revenue and helps you manage those, but you then also want to mine this data to make smart decisions for the future.
The system should tell you what menu items to drop because they aren’t selling or are unprofitable, rather just a hunch by someone on your staff. The system should tell you what menu items are likely to sell more on what days and how many supplies to order to handle the expected demand.
If this software (and the hardware on which to run it) is too expensive, you might be better off with the spreadsheets and the guessing. I think the future here will be similar to what is happening elsewhere: more and more restaurants will be using online services where all transactions are done through a browser. The complete service will do everything I spoke of above, handle payroll and accounting, help in ordering inventory, assist in making menus, and schedule your employees.
This assumes that you have an internet connection, of course, and that the cost of the service matches your budget. Indeed, the service should help you manage all your expenses, including that of the service itself.
P.S. Don’t even think about starting a restaurant until you have read Anthony Bourdain’s Kitchen Confidential Updated Edition: Adventures in the Culinary Underbelly. You are not a good restauranteur candidate because you like to cook for friends.
P.P.S. When I was a teenager I worked bussing tables and then as a short order cook at Maggie Muffet’s Country Kitchen in Carmel, NY. That restaurant is long gone, which is exactly the way it should be.