24 – Profitable Hospitality – Building a profitable Restaurant, Cafe or Take Out business

James Eling: Hey, it’s James from Marketing4Restaurants and welcome to episode 24 of Secret Sauce, the restaurant marketing podcast. Profitable hospitability. Creating profit in your restaurant, café, or takeout.

Voiceover: Some restaurants are quiet, lose money, and the owner works 70 hours a week. Other restaurants are busy, profitable, and the owners work a few hours a day. What’s the difference? They have a secret sauce. Join James from Marketing4Restaurants as he helps you come up with your recipe for restaurant success, your Secret Sauce.

James: Hey everyone, welcome back. I hope you got a lot out of the unique selling proposition podcast. We had a lot of feedback from people who’ve listened to it, and it has really got some people thinking about some fundamental issues that they’ve got in their go to market strategy around the way that they sell their restaurant. So, and that’s good. All I really wanted to do with that one was to start that thought process about how you are marketing your restaurant. Because a USP (unique selling position) can be a fundamental part of it.

And, as we said, you don’t have to have a USP but I think the process of going through thinking about a USP can be really, really helpful for a lot of restaurant owners. It’s been a very exciting week for me in the Marketing4Restaurants team, because one of our team, Donna, has been jet setting around Europe for a couple of weeks. So, I’ve actually been on the phones a lot more than I usually am responding to enquiries. And so, I’ve been making lots and lots of phone calls everyday to lots of restaurant owners, which has been really, really exciting. I’ve picked up so many interesting tips about the industry, about what’s going on.

And the thing that I’ve been really, really surprised at is the number of people who I’ve been talking to and I’ll say, you know, “Have you heard of Marketing4Restaurants team before?” And the number of people who are either using the five-minute-a-day restaurant marketing MBA or listening to Secret Sauce, which is just awesome to be able to talk to people who are listening to the podcast. So, that’s fantastic. And on top of that, we’re coming up with some great solutions for some of our customers around how they can find more customers and turn them into repeat customers.

Today’s podcast is something that we’ve been thinking about for quite a while. So, we’re not really going to be talking about marketing today, but we’re going to be talking about something that’s a lot more important. And it is tied up to the marketing. And that is profitability. At Marketing4Restaurants our BHAG–our big, hairy, audacious goal–is to make a meaningful difference in people’s lives. And for a restaurant owner, that means helping you to build the profitability that you need in your business to be able to better manage to get the kind of things that you want out of your business. And profitability is a really important part of that. if you have profitability in your business, then you’re able to do things like not work as long hours as you’re working now. You’re able to take some time off, you’re able to spend some time with your family. You might be able to take a holiday. And too many of the restaurant owners that we talk to don’t have that ability, you know. They’re just so pressed for time, they’re working really, really long hours. And I think the number one reason that the hours are so long is how do you earn $100,000 in hospitality?

Well, it’s easy, you take two $50,000 jobs and you do both of them. But the problem is that that works out to be 80 hours a week. Really hard. And the other thing that I find really interesting is that people then struggle, because they’re working so long, you know, front of house, back of house, wherever it is that you’re working, because they’re working so many hours there, they’re working too many hours in the business and not on the business. So, should be an interesting episode. I’ve done quite a bit of research into this, we’ve got a few ideas. And these are ideas of things that I know a lot of restaurant owner aren’t doing. When they first call up to us and we first have that initial conversation, a lot of these questions, a lot of the things that we talk about, restaurant owners aren’t doing them. And it can really, really destroy profitability. Something that you really to be on top of.

Before we talk about that though, I want to highlight some really exciting things that I saw at a restaurant that we visited a little while ago. So, one of our customers signed up to one of our products, can’t remember which one it was and it was a restaurant called Big Huey’s Diner in Melbourne. And so, one of the marketing team was going through it, had a look, and they went to the website and we see a lot of restaurant websites, and we see a lot of restaurant menus. But this one really stood out. So, just having a look at it there’s Aussie Poutine, which poutine’s one of the things that I’ve always been really interested in. And I’ve never actually had the opportunity to get it. There was a couple of other things that was on there. What was there? Let’s just have a look. A popcorn prawn po’ boy. Gumbo Elvis smore, an ice cream sanga of toasted banana bread and caramelized marshmallow topped with Jock’s peanut butter and jelly ice cream. A whole range of really interesting things in there. More than you could eat in one trip to the restaurant I thought.

And it really stood out. Lots of innovative things that I thought, “Wow, that’s awesome.” So, we actually went there, which is really unusual for us because we see great menus all the time. But this one really caught our eyes. And one of the questions that I had is, “Is this something that he has just licensed his name to and, you know, he never turns up? Or, you know, kind of like the Jamie Oliver type restaurants, where they come out, they probably do the menu but it’s run under management for them and they just license out their name? Or, is this actually his restaurant?” And I was pleasantly surprised to find the Huey was there. And for those of you who aren’t from Australia, Huey was a big sort of TV chef. He was probably in the first wave of TV celebrity chefs back in the day, and I’m talking probably 20 years ago now, kind of showing my age.

So, TV cooking was quite the rage and he was really, really sort of famous for cooking good food that was really quite simple. A lot of the recipes are, and I’m talking about when I was, you know, 20, 25, they were the kind of things that I could cook. So, you didn’t require a lot of cooking skill, but one of the recipes that has stuck with me to this day was a fish hoge. So, kind of like a salad roll with a piece of grilled fish, you know, battered fish. And I thought, “Wow, that’s really quite strange,” you know. A bit of mayo in there. And I cooked it up, the first time I cooked it up I thought, “Wow, that’s really nice.” And it’s perfect on a summer’s day for lunch. And I’ve cooked it a few times for people and people are really surprised by it. It’s a little bit inventive, not the kind of thing that you would originally think of. And it tastes great, as well. So, perfect kind of item and that has stuck with, I probably haven’t seen that for, you know, 20 years. So, quite an inventive chef is Huey.

And so, we went out there. He was there, front of house, and sort of running the pass as well. Had a great meal, the food was, you know, sort of as expected. Really, you know, great drinks as well. I took my son William there, he had a great time. Just looking at your drinks menu, do you have something like this? He had a lemon meringue pie shake, which that sounded awesome. We ended up getting an Elvis Would Have Loved This, a shake of Jock’s peanut butter and jelly ice cream, whipped with peanut butter choccys, and topped with Chantilly cream and grilled bacon. Yeah, we had bacon in a shake. Awesome. Fantastic menu. Really, your menu is one of your great sales tools. And he has got a great tool there. The other thing that I thought was really interesting about his restaurant is he’s got his cookbooks there to be able to sell. And he’s also got some special sauces that he’s cooked, as well.

Looking for all of those revenue opportunities that you can really drive incremental sales with each of your customers. So, really great experience. And sort of, really inspirational from, and I’ll put a link on it because I think everyone really needs to have a look at it. Now, this is an American diner kind of place. So, you’ve got a bit of freedom there but I just think far too many people aren’t entrepreneurial, aren’t inventive enough and don’t experiment enough with their menu. And he’s come up with some things that are really, really eye catching. There’s a Turkish Delight spider in there, as well, with Bundaberg ginger beer, you know. That just sounds awesome. Lots of things, I’ll probably have to go back there. But enough of that, I’m getting hungry now.

Restaurant profitability. So, the first thing to think about is that revenue is vanity, profit is sanity. So, there’s a lot of restaurants out there that aren’t busy enough, so they need to be busier. But there are some restaurants, and we’ve seen this a few times, that are really busy but they’re not making any profit. And I know, if you run a restaurant that doesn’t have enough customers you’d be thinking, “Wow, you know, that would be a great problem to have, to have more customers in there.” In some respects, it’s even worse to have all of those people coming in, doing all of the work around that and not getting the financial benefit of it.

So, what we’ve done is we’ve come up with seven really important areas that I think too many restaurant owners skip on. Too many restaurant owners don’t go through the process of being able to tick off all of these areas, to say that they’ve done the work required. So, I am sure that maybe 99.99 percent of you will be able to have at least two or three things in this podcast and go, “Yup, that’s something that I need to work on.”

Restaurant hospitability # 1: Your business plan and the sample PNL (profit and losses)

Now, number one, have a business plan, including a sample PNL. And I bang on about this all the time, but far too many restaurant owners don’t have a business plan. They don’t have a sample PNL, so how are you going to make money? “I don’t know.” Well, if you don’t know, that’s a problem, you know. How many customers do you need to have in every night? What is the revenue that you need to be able to break-even? What is your break-even number of customers? How much profit do you want to get out of a customer? There’s lots of metrics and I think we’ll actually reach out to an accountant to look at some of the metrics that you need to be thinking about.

There’s some basics ones, you know, like wage costs as a percentage of revenue and that’s very different across a lot of countries. But there’s a lot of other things that you should be doing, you should be planning this. So, you should have a target. We need to turn over this much. Food costs as a percentage of revenue needs to be this. If you don’t have those kind of numbers, then how are you expecting to drive a profit? How much profit can you expect to drive? And I’ve actually seen it that when you sit down with someone and you say, “Okay, so, what is the lease, what are your wages? How many seats have you got? How many hours are you open? How do you expect to turn a profit?” You go through just those basic metrics and it’s impossible. They will never turn a profit.

With the amount of money that they’re getting, and the number of times they can turn a seat, and the number of seats that they’ve got available, and the lease that they’re paying, and the wages that they’re paying, and the food that they’ve got to bring in. They cannot be profitable. And it’s really quite heartbreaking when you go through those numbers with people and they just go, “Well, how do I make that work?” And it’s like, “I don’t know. I don’t think you can. But you probably should have done that before you took the lease out on this place.” And then they go through the process, they’ve done fit out and everything, and then they have to dramatically change direction because they are playing a game that they will never be able to win. So, make sure that you’ve got a business plan, make sure that you’ve got a sample PNL for the month, you know, with budgets in there of how you’re going to be profitable. So, plan to be profitable. If you don’t have that plan, then it’s going to be really hard to turn that profit.

Restaurant hospitability # 2: Have a marketing plan

The second one is have a marketing plan, alright. And so, you should always have three plans: your personal plan, your business plan, and your marketing plan. Know who your customers are, know who your competitors are. Your distribution, where is the location? Are you going to do delivery? What promotions are you going to run? Are you going to run promotions? How many nights are you going to be open? They’re all elements of your marketing plan and, you know, how you’re going to drive customers to your restaurant.

Once again, too many people don’t have a marketing plan, which I find really amazing. Now, and the interesting thing is, I spoke to lots of restaurant owners yesterday, but two of them really stood out and I think they stood out because of the fact that I spoke to one woman who runs a café and she kind of inherited the café, and she said, “I haven’t done any marketing at all for the last 12 months.” And I said, “Wow, so how’s it actually going?” And she said, “You know what? It’s really quiet, we are struggling. I should do some marketing.”

And the other one does quite a lot of marketing and it’s interesting. This guy’s got two restaurants and he’s about to open a third. It’s that fundamental, and he knew exactly where his customers are coming from, he had his favourite channels that were working for him. Know exactly how to use those. A marketing-heavy business, as opposed to another, the first one where they weren’t doing any marketing at all. And one of the things that is really distressing is seeing great restaurants with great food, great, value, great prices just being out marketed by everyone else. And the first part of that is having a plan, because it is really easy, you know, the mistake that we see a lot of people do is either outsource their marketing and then you’ve got someone, if you don’t have a marketing plan, it’s very hard to articulate what you want. And if you don’t articulate what you want, then you’re going to get just any old thing from someone. A lot of the times, those marketing plans tend to be very expensive and highly ineffective.

Or, they’ll do the marketing but they won’t be testing and measuring, they won’t actually be trying to make their marketing responsive to what it is that the business needs. So, they won’t say, “We’re going to spend $1,000 with the expectation that we’re going to bring, you know,” how many people would you want to bring in? Maybe, you know, a really good campaign might bring in 1,000 people. So, they don’t have a plan like that, and they’re just ticking that box. “See how we do lots of Facebook marketing? We don’t find it very effective. We run ads on Google AdWords, we don’t find that very effective.” And it’s like, “Well, you need to be planning.” Because the difficult thing that we find is that it is hard to get your marketing right, and you’re always adjusting it, you’re always refining it. You’re always getting a better idea of what works for your customers. Now, if you’re not actually testing and measuring and if you don’t have a plan, then you’re never going to really know what sort of metrics you should be getting.

Restaurant hospitability # 3: Hiring and training

Number three, hire better and train better. Too many people will just hire anyone with a pulse, and I’ve heard this from multiple restaurant owners. “It’s really hard to find people, we’ll take anyone with a pulse.” And one of the fundamental things that you need to be thinking about in your restaurant is, “How am I going to attract great people?” Because great people are a part of your great business. And of the things that you can do that I think, like we use it here, is Facebook. We use Facebook for hiring. One of the things is when you go out and, you know, you put an ad in the local job website, you’ve people who either they’re looking for their first job and they’re expecting you to train them. Or, they’ve just lost their job because they’re no good at it.

So, are they the kind of people that you want to be trying to attract. You can use demographic targeting to hire people who work in hospitality who are a waiter or a waitress. You can target people by job title. And so, you run that ad for Facebook to say there’s an ad available. The other component of it is what is that makes your restaurant unique and special? We’ve gone back to USPs haven’t we? But what is great about your restaurant from an employees’ point of view? So, we do this all the time, our Facebook page is it targets, you know, often it will target the people that we partner with. Or, it will target potential employees. And so, you know, because we want to have the smartest and the brightest people working in our company. So, for instance, yesterday we had Sha, our massage guy, comes in. So, we have corporate massage day once a fortnight. You know, just one of those little perks, so that everyone knows that the work that they’re doing is appreciated.

Now, I’m not saying that you do that sort of thing, it’s a totally different value proposition where, you know, an IT/marketing company. So, it’s a very, we’re hiring different people and we have a different system of hiring people. Very different to hiring front of house, or chefs. But do you allow the chef the autonomy to be able to experiment? Is that something that you, you know, if the chef has control if the specials board? Is that something that would be enough to entice a young up and coming chef to work in your restaurant for two or three years, because he knows he’s going to have the artistic freedom to be able to experiment with some dishes? Now, if he’s doing that, and see, this is just a win win situation. Because you’ve got artistic freedom, that is what you’re offering a chef, and he is going to be creating something every week or every night that’s not on the menu, that is different that you can take a photo of and put up on Instagram. Gold. I mean, people are really interested in seeing that sort of thing. It’s difficult to solve these problems, there’s lots of problems out there. If you can kill two birds with one stone, that’s a really exciting proposition. Front of house, you know. What are the things that make your restaurant fun, quirky? Are you a family-friendly restaurant? What are those things out there? So, you can target.

The more unique you are, the easier it is to target the kind of people who you want to get into your restaurant. A lot of people say, “You know, the way it is, they come and go. You know, it doesn’t really matter.” Well, I think it does, because they’re your sales people. They’re going to be trying to sell all of the products that you’ve got in your restaurant. And if they’re not really motivated, if they’re not excited about what it is that you do, they’re not going to really be engaged with that. And so many people say, “Wow, you know what, we’re in hospitality. It’s really hard to do that.” It is hard to do that, but it’s not impossible and you should definitely listen to the podcast with Nick Sorello, and I’m going to do another podcast about it because we’re actually able to eat at Nick’s pizza and pub. He is probably the master at building a very strong culture in a restaurant. And it’s one of his key competitive advantages. Having a poor culture in your restaurant is expensive.

And I don’t think most of you can afford to do that. It’s expensive in, you know, the time that you waste in hiring, firing, training your staff. It’s expensive in the number of customers who get turned off. We’ve gone into, like I’m a pretty easygoing guy and sometimes when you know that it’s going to be a bit of a bumpy meal at a restaurant. I’ll stay there just to see, you know, just to see how it pans out just out of idle curiosity. But we have walked out of some places just because the front of house staff is just so ordinary. Just really disinterested in doing their job. And it’s like, there’s plenty of businesses out there who would be excited to have a family of four come in for a meal. So, we don’t have to put up with that. Is that the person that you hired today?

So, put a little bit more effort into the thinking about the culture in your restaurant so that you can hire better. One thing that we do here, hire slowly, fire quickly. Don’t underestimate the negative impact that having a poor employee can have in your restaurant. If they’re getting away with things, other people see them getting away with things and think that it’s alright, think that it’s allowed, think that they can get away with it and it really does drag the team down. And it’s interesting, in our team we’ve fired people and it’s like, “Wow, you know, this is a key person in the team, but they’re not pulling their weight.” You fire them and then other people say, “Thank God you got rid of him, he was really hard to work with.” And it’s hard for the team to say, you know, “This person’s awful, you should fire them.”

If you’ve got that level of open communication, that’s awesome. But often it’s not forthcoming, and communication is one of the four key values in our company. We struggle with that. So, you know, particularly when you’ve got people working different shifts and all of those sort of things. Just be really mindful of it. And training. You know, how do you know that your staff know what you want them to do? And one of the things that, you know, people say, “You know, we don’t have time to train everyone.” Could you do a YouTube video? Now, you don’t have to publicly publish, but this is, you could do your orientation. We’ve done this. We’ve got a series of YouTube videos that our team watch whenever they start in the company. And they give, you know, a bit of the lay of the land. It’s a fairly generic type introduction, we’ve actually put them on YouTube and we’ve left them out there.

Open communication is one of the things that we talk about all the time. So, we don’t hide anything. Those are available for anyone to watch. We say, when someone starts at Marketing4Restaurants, “Watch these videos.” And we’ve saved hours and hours and hours because, at the end of it, we sit down and we have a 15-minute chat about what was covered in the video and we’ve got discussion points already written down. That’s part of the process of onboarding. So, there’s lots of ways that you can decrease your training costs in the menu, you know. Do you have photos of what each meal should look like so you’ve got that consistency? Lots of things that you can do. And each one of those little tiny pieces they start adding up to the profitability.

Restaurant hospitability #4: Wage costs

One of the things that they say is that hiring a new person is between a third and a half of their wage. Now, for front of house it might not be that much. But if you’re working, you know, 60 hours a week, do you really want to be running another set of interviews? Do you really want to be running someone through, you know, the way that your restaurant works? And do you really want your customers to be saying, “You know, gee they don’t really know much here. That woman didn’t know anything.” You want to try and avoid that.

So, you want to try and retain your staff as long as possible. Hiring the right staff, that’s the first thing. And so, yeah, use targeted ads in Facebook to reach out to the job roles that you want. But also, use Facebook to communicate the kind of place that you are. That can make a really big difference. Rent. Rent is a significant cost in most restaurants. What is there that you can do to manage rent? And so, there’s a couple of things that I like to think about it. Because a lot of people say, “Well, rent is rent. You have to pay it regardless.” One of the things I like to think about is what is the rent per hour? Because everyone says, “Our lease is $8,000 a month.” Let’s say it’s $9,000 a month, okay? So, it’s $9,000 a month. That is $300 a day. Now, if you only do an evening service, that is $60 an hour, if you’re open for five hours that is $60 an hour. So, the first $60 of profit each hour goes to paying your lease. One of the interesting conversations I had this week was with a restaurant owner who runs two businesses out of his restaurant. So, he’s got a morning and lunch business, and then he’s got a dinner restaurant.

One of the interesting things about that process is that you’re actually splitting your rent across a lot more hours. So, if you break, in the first example where you’ve got the lease costing $60 an hour. If he was open for five hours in the morning, then that comes down to $30 an hour. That makes a really big difference. And not enough people think about that. Now, I’m not saying that you need to be open 24 hours a day, although there’s 160 hours in a week. If you’re open 24 hours a day in that example that’s about $12 an hour that you’re paying. Now, obviously it’s going to be tricky to drive people at 3 o’ clock in the morning, you’d want to be very, you know, you would want to be in a large bustling city to be able to make that happen. But just think about how many hours you’re open and what the lease component of that is. Because it can make a big difference.

Now, so let’s just think about what we’re trying to do here. You’ve got your personal plan at the top of all of your plans and your personal plan shouldn’t include working, you know 12 hours a day. Very important. So, how do you manage that? And you could get someone to run a coffee and sandwich bar in the morning, if you’re like a dinner restaurant. That is one way that you could do that. I mean, could you put in a little café and get that self-managed? That’s another thing that you could potentially do. There would be less work and, you know, can you get someone in to be able to do that? But you’re spreading your costs over a significantly larger number of hours. Just a little thing to think about. Now, the other component of that is some restaurants owners they do have the foresight to think, “Well, at the rate we’re going we’re going to be out of business in six months’ time.” Now, it’s very sad.

Restaurant hospitability #5: Rent

The saddest part of that, though, is we see that far too many people just run out of cash and it’s like, “Didn’t really see that coming but we have no money, we need to close.” That’s sad. You should never be in that situation. You should have some sort of financial literacy so that you can see how things are tracking. Now, if things aren’t tracking well, reach out to your landlord and try and negotiate. What kind of area are you in? Because I was at a seminar last year in San Francisco and Westfield we’re talking about all of the money that they’re pouring into new ventures to try and drive people into shopping centres. That’s because they really struggle to get people to go into shopping centres these days, you know. Everyone’s buying online which means that people are going shopping far less often than they used to.

Now, so if you look at in Westfield, you’ll see that they’ve got a lot of restaurants. Those restaurants always at the top of the shopping centre because people have to walk past all of the shops. They are desperately trying to get more people to go into the shopping centre, and having signature restaurants on the top floor is one way that they can get all of these people to go there. Interesting. When you’re negotiating deals in those places, often there’s significant opportunities around fit out that the shopping centre will pay for. Because of the fact that their value proposition, they’re not a straight landlord. They look at the restaurants as an enabler for the rent that they charge to the shops.

So, if you can run a good restaurant and get heaps of people coming in, that’s perfect for them. They’re much less interested in the rent that they’re charging you, because they’re going to be charging the rent to all of the shops in that area. Same same with, you know, just an individual shop in a street. How many vacant shops are there? Because you’re really going to struggle once you close the doors, a new restaurant goes in in two weeks’ time if there’s a lot of demand. It’s very hard, you don’t have a lot of bargaining power. But we speak to a lot of restaurants which aren’t in that situation. And after a bit of thought, they’re able to go to their landlord and say, “Look, we’re really struggling. We don’t think we’re going to renew the lease because we’re not going to be around then.” There’s always that opportunity for the landlord to come back and say, “Well, would it help if I cut the lease by $2,000.” And so, some restaurant owners have success with that employer. And at the end of the day, they’re $2,000 a month better off. That’s a fantastic, now I think the big trick then is to, you know, you’ve just freed up some money to create a marketing budget, you know. And you probably don’t need a $2,000 marketing budget. But $1,000 or even just a $500 marketing budget in Facebook, wow, that could be really effective. And that’s the kind of thing that’s really going to move the needle. So, you’ve created a marketing budget out of lease payments that you’ve saved because you’ve been able to negotiate with the landlord. A couple of ways of thinking of your rent that, you know, are really important. Next one. So, what are we up to.

Restaurant hospitability #6: Managing food and beverage costs

Number six: food costs. So, food and bev costs. Okay, so how often do you stocktake the alcohol in your restaurant? This is a really important question. The stocktake needs to be done and it needs to be seen to be done, because far too many places have, you know, what is euphemistically termed shrinkage. Now, it’s not shrinkage. It’s theft. People in your staff could be stealing alcohol. It’s usually alcohol because, you know, a bottle of spirits or expensive wine, it’s relatively easy to get out the door just slip it in your bag and it’s fairly high value. So, you’ll find that the bottle of spirits goes walking. Now, it’s really sad but this kind of thing happens. And it’s much more likely to happen if the stocktake never gets done. If the stocktake gets done and someone says, “Well, hang on a sec, there’s two bottles of tequila that we’re missing. Where are they?” Now, that is a question that starts to get a bit uncomfortable and people start to worried about that.

And so, they’re less likely to take your tequila. I’ve heard lots of stories about food disappearing, about the junior chef who on a Monday night will cook a barbeque for 20 of his closest friends. He provides the meat, where do you think the meat’s coming from. Now, obviously a little bit harder to, you can’t sneak 20 steaks just in your jacket or in your bag but, you know, what are the controls like around? They’re high value food. Wagyu steaks. I’d like some free wagyu steaks. Who wouldn’t? So, what controls have you got to make sure that it’s not just walking out the door. Now, that’s one component of food costs.

The other component is wastage. How much food gets prepared and then gets thrown out? How much is cut off and isn’t used? What can you do around the food costs? What are the numbers that you’ve got and how can you make them better? Far too many people don’t look at that, you know. Can you negotiate better with your suppliers? That’s one thing that you can do. You don’t want to get ripped off by your suppliers. I’m always of the opinion though, what can you do to see if your suppliers can value add. Talking to the guys at Sysco at the NRA show in Chicago, they’ve actually got tools to help restaurant owners do this.

Now, so if you’re buying from Sysco, they’ll come in and help you look at all of your good costs and look at where you can save on your weekly food bill. That’s a really big advantage. You should be doing these sort of things. You need to be running these numbers, you can’t just be ad hoc going out and buying food and not accounting for it. You need to know that you bought 20 kilos of steak and you sold 20 kilos of steak. You bought it for this price and you sold it for this price. Ideally, you’re going to know what food is as a percentage of revenue. That’s pretty easy to do from a PNL point of view, because you’ll know what you bought and you know what you’ve sold. But it’s really a lot harder to delve into it on a line item by line item. So, bought this much steak and sold that much steak. That’s where you need to integrate your pos system, and there’s quite a bit of work involved with that. But absolutely critical, because all of your revenue is made up of basically food and bev. You want to know how much profit you’re making on it. Now, we’ve talked about a few things, we’ve talked about the business plan, the marketing plan, hiring better, wage costs, rent, food costs. If you put most of those together you will get number seven, whoa, which is my favourite, favourite, favourite topic to talk about. And that is menu engineering.

Restaurant hospitability #7: Menu Engineering

So, menu engineering, the art and science of developing a menu that is profitable, okay. So, some of it is a straight up science. It costs this much to produce this meal. And it’s complicated to do that. It’s very, very complicated to do that properly. Some people will have a rough idea. Far too many people will have no idea. I would have thought 75% of the people that I asked that question to, “Have you costed your menu?” would say, “No, I haven’t got ‘round to that.” Now, what is the cost of not costing your menu? We’ve talked about the restaurant that we used to go to for dinner and breakfast. We’d been there on multiple occasions and probably the second or third time, I spoke to the owner and said, you know, I was kind of suspicious because the menu didn’t drive me to anything. And the waitress, who was his wife, she never really drove us to anything. So, I suspected that they didn’t know what their highest profit product was. And he hadn’t even costed out the menu in any way, shape, or form.

So, he didn’t know what the really profitable items were. He didn’t know his food costs. The next time we went in there, which was about three months later, he said, “You know what, I costed everything out based on what you said and I was shocked. We’ve just put our prices up 20 percent.” I said, “Good, how’s it going?” And he said, “Look, fine. It was amazing. No one left. All our regulars kept on coming because they love the food.” I said, “That’s fantastic.” Four weeks later he shut up shop and he made that mistake for too long and he fixed it too late. He basically just ran out of cash. And, you know, he spent $150,000 on fit out. That’s money that just disappeared. That’s really sad. So, this is a really, really critical thing.

Go through your menu, cost everything out, and then work out what is selling really well. How do you describe it on the menu? What are the items? So, when we talked about hiring the right people, you’re going to want that the right people, like, they’re your sales people. So, in the kitchen people should be coming up with inventive things that sell well, you know. I think that that’s a really big thing. How much entrepreneurial spirit is in the kitchen to try and come up that can draw extra people in? That’s the first step. But front of house, they’re your salespeople. Now, “Can I take your order now?” I hear that all the time. So, you’re going to have no say in what I order? That’s fine. It’s my choice, hurray. Compare and contrast that with, “So, today’s specials are this, that, and the other thing. Although, before we started today the chef cooked food for the crew this evening, and he cooked the risotto. The mushroom risotto tonight. I’ve got to say, it was spectacular. So, if you’re undecided, why don’t you go for the mushroom risotto? It’s awesome.” Just that one little statement.

Now, I’m assuming that you’ve costed your entire menu and I’m assuming that the mushroom risotto is the highest profit margin item that you’ve got. It’s mushrooms and rice so, you know, it’s probably up there. Now, that’s going to work on my because I don’t really, my wife cooks a pretty good risotto and I always like to get something that I couldn’t get at home. So, if I wanted risotto I’d just say, “Tina, could you cook some of your awesome risotto?” But if anyone’s unsure or is looking for some guidance, that’s that perfect way of approaching that. Now, how much risotto do you sell? Could you double that by having the right person pitch the risotto to your customers? Probably. What is your signature dish and how profitable is it? Do you want to drive people to the signature dish? Do you want to drive them to the other things? What is one of the most profitable phrases in restaurant marketing in the world? “Do you want fries with that?” Now, everyone thinks that that’s a joke.

And everyone, you know, people refer to that phrase in other industries, you know, “Do you want fries with that?” Why is that? It’s because that upsell is just so ridiculously powerful. Do you want fries with that? Fries are a high margin item. So, you’re taking a burger which you’re making good money on and you’re upselling with the fries to make sure that you make really good money on that. And billions of dollars of profit has been generated with just that one phrase, and yet I hear the equivalent, what should be the equivalent in your restaurant, so rarely. “Would you like to try the putin today? Now, we’ve got a, do you want to try one of our milkshakes?” I mean, how ridiculously profitable are milkshakes? “Would the kids like milkshakes today? The chef does a really good Oreo milkshake.” It’s not that hard to come up with an idea like that.

So, it’s one of the things that I think people need to be putting a lot more effort in, you’ve got to make sure that your menu engineering is right. It’s such an exciting process because you’re actually going to be driving a lot more profit to the bottom line, and it should bring out your creative talents, you know. Come up with some items that are going to sell well. Make sure that they’re presented well in the menu, you know. Have them highlighted, “Our signature dish.” You know, is there a photo of it? Is it written, does it sort of stand out from the rest of the items? Don’t make people hunt for the most profitable item on your menu. That’s crazy talk. Lead them by the hand to order that, because you should be thinking, “Ka-ching, ka-ching, ka-ching,” every time someone orders it. It just beggars belief the number of restaurants where people do not know what the high margin items are on their menu. Crazy talk.

Now, the last one on building a profitable hospitality business. So, this is number eight on my list of the top seven ideas to build a profitable hospitality business. And I do get caught out on this a couple of times. A lot of people say, “Why do you do top seven?” I like top seven, I think there’s a psychological thing. It always, you know, people can usually think of three or four of them, they’re wondering what the other three are. And I think seven is one of the, I don’t know whether it’s a lucky number or some sort of psychological underpinning, but I know that when we’ve tested it and measured various numbers of lists. Seven always seems to work quite well. But we like to under promise and overdeliver. So, what is number eight?

Do some marketing, okay? Do some marketing. Do some proper marketing. Sit down, come up with an offer, and it doesn’t have to be a discount it might be a, you know, wine pairing degustation menu with a sommelier. There’s all sorts, we’ve talked about lots of things. And then run a campaign through Facebook, or put it up on your website. Do some SEO work on your website, you know. Get a new website. And test and measure it. Now, this is a no-brainer. And people go, “Yeah, I should do that,” and then they don’t. And I am just amazed at how people think that things are going to change. I spoke to a restaurant earlier this week, a really interesting story from my point of view. A lovely lady, very experienced, cross cultural, she’s worked in Canada, the UK as well I think. Multiple countries she’s worked in, quite eclectic, very, very smart restaurant and great in the kitchen, as well.

Running a kind of takeout kind of place now. The thing though that, for me, was really amazing was that she’s 76 and she’s doing 12-hour days, because it’s winter. So, it’s winter here in Melbourne, it’s pretty cold. And she said, “I can work 12 hours and do $100.” And I said, and she doesn’t have a website, and she said, you know, “We’re not going to do any marketing until it starts to pick up.” Why would you not start marketing now? And I said to her, “Are you serious? You’re 76, you’re on spring chicken,” she described herself as not a spring chicken. I said, “You’re 76, that’s not fair. You shouldn’t be working 12-hour days, we should be able to build the profitability in so that you can cover the costs of it. You can draw out the wage that you need and you should have someone in here at least for two full days, and you shouldn’t be working 12-hour shifts.” And she said, “I know, but what can I do?” And it’s like, “Do some marketing.” It’s a new place for her, she’s concerned about the location and she said, “It’s winter and it’s this location and it’s just very quiet.”

Well, I walked for 200 metres after I had dinner there and look, I’ve got to say, the food was really nice. I liked it, it’s not, she’s a little bit out there. Like, flavour wise, really nice. So, there’s nothing wrong with the product and it was a quite a cheap meal, nothing wrong with the price. So, good food. It’s takeout, so I wasn’t expecting all the bells and whistles, but beer battered chips which were really nice, so an upmarket takeout kind of experience. Should definitely be a lot busier than what she is now. And along that street there were restaurants, yes, no one was pumping, no one was super busy but there were people who were doing fairly good trade. And you can’t expect things to change without you being the driving force.

You’re the restaurant owner, it’s up to you and that’s one of the things that, you know, I’ve been running businesses for 17 years and that’s the really big thing that I’ve learnt. And it took me a long time to learn it but, at the end of the day, whatever happens in my company it’s my responsibility. If the culture’s good, then that’s because I built a good culture. If it’s bad, and at times we’ve had a bad culture in other businesses that I’ve run. We’ve really struggled with our culture, and it’s been a lot of work to change that culture. I would have been better off firing everyone and hiring again in a 12-month period rather than doing what we did, which was try and change the culture little by little. It was very, very hard. But if you’re not getting, if you’re not hitting those targets that your businesses plan says, if you’re not getting the results that you’re marketing plan, or if you don’t have those put those in place and then market.

Market the crap out of your restaurant, please. Because, like it’s so sad when you talk to someone who, you know, 76 and, look, she’s very happy about it but – she appears happy. She’s one of those happy go lucky kind of people I think. But when you’re 76 and doing 12-hour days, that’s not right. When you’re working 60 hours a week and not seeing your family, that’s not right. You need to look at what is going on in your business and take responsibility for it. And it’s one of the things that I’ve been thinking about quite a lot. I’ve been watching quite a lot of Bar Rescue. And, look, there’s some interesting things in there and I find it really quite interesting because, you know, we’re not really good inside the restaurant. You know, we’re good at numbers and all of those sort of things and definitely, you know, marketing. And, of course, building websites, that’s one of our key strengths.

But really interesting the approach that John Taffer takes in Bar Rescue, and it’s because he’s got a very limited time to change people’s behaviours and they’d been acting that way for so long. And he needs to really get inside their head and make them think in a different way so they’re going to change their behaviours. You can’t expect a lot of people to just miraculously turn up one day. If you’re not hitting your revenue numbers, you need to change something and it might be front of house is awful, they’re getting a really bad experience. It might be that your menu is no good. It might be, you know, the way the restaurant looks is not inviting to people. You might not be getting the walk-in traffic that you should be getting. You might not be doing the marketing. You might be the best restaurant that no one has ever heard of. So, really, really think about that.

Because, and this is the thing, you need to understand that if you’re not doing marketing, sure as hell there is someone else who is running a restaurant who is doing the marketing. We see the budgets of what some people are doing, and some people are spending a fortune on marketing. Now, they run really successful businesses and they run really successful businesses because they built it up to the point where they could spend a bit on marketing. And then they spend a bit more, and then they spend a bit more. And then, before you know it, they’re spending $1,000 a month or maybe $2,000 or $3,000 and they’re generating so much business out of it, because they’ve worked out that secret sauce for them and there’s lots of ways of doing it that allows them to market and pick up new customers reliably and for a known cost.

When you’ve worked out what that known cost is, and it’s less than the profit margin that you’re making, you’ve almost got an unlimited marketing budget. Now, obviously your constrained by, you know, the number of burners in the kitchen, the number of receipts in the restaurant, all of those sort of things. But you’ve got the ability then to be a lot more in command of the profit that you’re going to make. And I think that that’s the really important thing that everyone needs to be thinking.

So, have a look at your restaurant marketing. Have a look at your website, make sure that the marketing component that you’ve got is meeting the goals for the business and meeting the goals for your personal plan. Are you getting where you want to go. And if you’re not, you need to start changing something with it. Have a look at the website. A lot of people think that they’ve got a great looking website and in a lot of respects they’re falling well short. If you’ve got any questions about your website, please reach out to us. We’re happy to just answer some general questions, you know, “What do you think of the website.” I do that, fairly often people will say, you know, “Have a quick look at this. We’re not going to get a new website, we just want to fine tune this one.” That’s completely fine.

If you do need a new website, though, please think of us. It’s really sad, someone who’s been reading the five minute a day restaurant marketing MBA called us and said, “Now, we’ve got a new website and we want to, what else is there that you can help us with?” And the website wasn’t from us, it had just been done by some local person. Look, it looked okay, it wasn’t fantastic, and there was a lot of things that were missing with it. And so, there was a long list of stuff that she had to go back to her web developer with. And it’s just going to add more and more cost to it. And I think she’s ended up paying about three times the price of what she would have paid with us. Our websites, for all of the features that we put in there, are a lot cheaper than anyone else’s websites because we know when you’re building restaurant websites there’s a whole range of things that you must have in them. We know what they need.

And more importantly, very few people are driving Ferraris in the restaurant industry, so the price point needs to be right. And so, we’ve worked really, really hard to get the price point down as low as possible. That’s it. Look, I really hope that you got something out of this. There’s lots to think about when it comes to profitability and I know some people, I’ve got some feedback about one of the earlier podcasts and someone said, “There was just so many things in there that I realize I’m not doing. And I got really quite depressed about it.” And I said, “Well, you know, just make a list. Prioritize them and work through them one issue at a time.” Some of the things in there. Do you need to cost every single peanut? No.

Look at the big costs and start working through them, you know, start doing, you know, you might want to get to the point where you’re doing a weekly or daily stock check of your spirits. You know, do one now. Make that the thing that you’re going to do this week. That’s going to start changing behaviours. You start earning that little bit more money, you’ve got a little bit more room to maneuver, and things start to get a little bit easier. It’s often it’s taking those first steps that’s the hardest. But how do you eat an elephant? One bite at a time. So, just one step in the right direction. That’s all you really need to do, I think. If you got anything out of this podcast, please, please, please share it on Facebook, introduce the restaurants up and down the street from you. Tell them about the podcast and please leave a review in iTunes, it really does help us to get the word out. Super excited because, as I said, it’s been downloaded in over 100 countries and it’s really exciting, the traction that we’re getting with it and I’d really appreciate it if you can share it out. Apart from that, I hope you have a busy day. Bye.

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