The foodservice industry is incredibly competitive. Add to that the restrictions on trade due to COVID-19 and many restaurants, cafes and takeaway venues around the country are struggling to make ends meet. Unfortunately, on top of all this, it’s well known that profit margins are tight across the industry.
Unfortunately, profit margins are also dwindling across the restaurant industry. Accurate statistics are difficult to find, but the Australian Taxation Office says most restaurants make about 5 per cent profit and the Restaurant and Caterers Association says 4 per cent.
According to a report from The Australian Financial Review a few years ago, out of every $30 a person spends on eating in a cafe or restaurant, the operator makes an average profit of 60 cents.
Obviously, there are several factors to consider when you’re tackling low profit margins in your own venue. Today we’re looking at just a few that you may be able to implement in the short term.
There are two ways to approach the problem – increase the volume of your sales (which is difficult with current social distancing requirements across a number of states) or decrease overhead expenses. Let’s break this down…
First up, it’s critical to calculate food costs
Do you actually know the cost of each amount, of each ingredient, in each meal on your menu? Or are you just coming up with menu prices based on your past experience, what your competitors are doing down the street and what your customers expect?
This is the most important place to start. It makes no difference whatsoever if you have the most popular burger offering in town if with every sale you’re losing money.
A general rule of thumb is that you need to keep food cost percentage between 28% and 35% on average to make sure you stay in the black. This means you need to keep an up to date record of how much each ingredient is costing you, and make sure that your kitchen staff are keeping an eye on portions (so your hard calculation work isn’t for nothing).
Think about your mark up
While this 28-35% number isn’t directly profit margin, it allows room for other overhead expenses. You know the ones: labour, rent, utilities. Remember, you’re not just paying for the food. You’re also paying for your employees’ time (and effort and expertise) to prepare, cook and serve the meals and to keep the lights on in the venue itself.
Make sure you have a healthy mark up to cover these expenses.
Decrease other overheads
Another overhead that you need to account for is food waste. Rather than increasing your prices to allow for a certain amount to be thrown out, why not try to reduce or eliminate it altogether? In Australia over 5.3 million tonnes of food that is intended for human consumption is wasted each year – costing the economy over $20 billion.
If you’re calculating your food costs carefully, and controlling your portions down to the nearest gram, it’s not ideal to be throwing a portion of that food (and profit) away.
Consider buying frozen ingredients (like our full range of foodservice specific bakery products) that you can thaw only when needed (instead of throwing out your fresh bread delivery when demand doesn’t eventuate.
Next up, simplify your Menu
This one is for those budding psychologists. There are actually ways to design your menu to increase profitability. We explored 12 of them here and you won’t believe the tactics that might work for you.
Simply though, ensure you draw attention to your most profitable dishes and remove the others (no matter how much your head chef loves them). You’re aiming to double down on dishes with high popularity and high profitability, increase sales of those with low popularity but high profitability all while removing or repricing those with low profitability and popularity.
It’s a real balancing act for restaurateurs today, but those that get it right will be set up for years of success. If you’re looking for products that help with profitability, get in touch with us via our facebook page today.