Category Archives: Restaurant Consulting

The Profit & Loss Recipe

There’s little better than enjoying each and every savory bite of a made-to-perfection entrée at your favorite restaurant. But have you ever really sat and thought about how many ingredients go into creating that amazing dish? Looking at the dish, it doesn’t look that complicated. Like every entrée, it’s pretty straight forward. There’s a protein, a starch and some vegetables. Steak and potatoes, right? Well if you’re in the biz, or have a strong desire to be, then you know just how complicated it is to create something so pleasing that looks so simple. Because steak and potatoes isn’t just steak and potatoes when it’s an 8oz hand-cut filet with a hazelnut-espresso rub served with quattro formaggi gratinati, cippolini onions, oyster mushrooms, sweet baby carrots, plum compote and 20-year aged “Malvasia” madera demi-glace! There are many recipes that go into creating each component of this steak and potato dish. To get the perfect flavor and an emotional reaction to each bite, each recipe for each component must be followed perfectly and precisely. No corners can be cut. No guess-timations made. Every step must be executed perfectly in order for the dish to become memorable. No great chef or restaurateur will waiver from the standards that require every step, in every recipe for each component of this simple steak and potatoes dish be followed to the letter every time. After all, this unwavering executional standard is what brings in the rave reviews and repeat diners. It’s what causes one person to boast to another about how great the dish is, and how they haven’t dined until they try it. It’s what builds reputations.

For those of you in the business reading this, you are all nodding your heads in agreement. You would say that this is the foundation upon which all great restaurants are built. I would agree with you – I would, however, change the word foundation to the word pillar.

It would be fantastic if our businesses were simply built upon one solid foundation, but in reality they are built upon a couple of pillars. The one that is often over-looked and treated as an afterthought is our Profit & Loss Statement (Income Statement). It is a pillar that is often allowed to deteriorate because, in some operators’ minds, it does not affect the business today. Many operators only see the P&L as a look into the past rather than a tool to predict the future and plan for tomorrow. In truth, it has a similarly complicated recipe as our steak and potato dish. It has many ingredients. It has many steps – all of which need to be followed to a tee in order to receive the same excited reaction.

Like our steak and potato entrée has three primary components, so too do our P&Ls. There are Costs of Good Sold (COGS), Labor Costs, and Operating Expenses. The basic understanding of each is that if you hit 30% in each category, then you will have 10% left over as profit. But how do you hit 30% in each category? You follow precise recipes. Each category is broken down into very specific formulas (recipes) for success. For example, in COGS, hitting 30% means understanding how much of that 30% is food cost, how much is beverage cost, and how much needs to be allocated for waste. Then break it down further, how much of your food cost is in proteins? How much is in dry goods? How much is in dairy, fresh veggies … even freight? A purchasing tool will help organize all of your purchasing information and report to you on a weekly basis where the money is going once it leaves your bank account. Also, getting your hands on a pricing tool will help you understand which dishes cost more to create than others and allow you to adjust your menu pricing as the cost of commodities dip and spike in the market.

Similar to the recipe for COGS, Labor Costs have a specific recipe for success too. Hitting 30% Labor becomes easier when you know the target percentages for each component of Labor. Labor costs have multiple components, such as management salaries (static labor), back-of-house labor (BOH), front-of-house labor (FOH), payroll liabilities, insurance (worker’s comp), benefits, payroll processing, employee meal credits, etc. Each part has a specific target percentage of total revenue that needs to be realized in order to hit the 30% Labor cost figure. Utilizing a proactive tool for scheduling will help keep your hourly labor numbers in line with your forecasted revenues. That, combined with not over paying management salaries for the amount of revenue your restaurant brings in, is a good start to following the recipe for Labor Cost management.

As for a recipe to follow to ensure 30% (or less) in Operating Expenses, a few of the high points would be: 1) Ensuring total occupancy costs (rent, NNN, utilities, etc.) do not exceed 8-10% of total revenue; 2) holding marketing and advertising to 3% or less of total revenue; and 3) keeping maintenance and replacement costs to 2% or less on average.

Like an amazing entrée, an amazing P&L statement won’t appear out of thin air. It requires knowing what the recipes to each component are, and the sternness to hold firm to the decision-making that requires those recipes to be followed. Also like an amazing entrée, once your company becomes known for having consistent and profitable financial statements, word will spread of the quality of your financial results. It will be what causes one person to boast to another about how great the investment in the growth of your business could be, and how they haven’t experienced a restaurant industry investment until they’ve tried you. An amazing P&L statement will be what builds your reputation and what leaves them wanting to come back for more.

If you would like more information on Restaurant Consulting Services provided by Caprock, please feel free to email Zach Hopkins at zhopkins@caprockservices.com.

Starting at the Core: The Importance of Core Values

Starting at the Core:

The Importance of Core Values

The other night at one of our restaurants a young family had just come to the end of an enjoyable dinner experience for their family.  The server had done a fantastic job.  All food arrived on time and all orders were exactly the way they had been placed; even the complicated vegetarian order from the family’s young teenage daughter.  Adorable girl.  The family had praised their server and their experience to the manager at a point close to the end of the meal.  The manager could tell that this was a genuinely enjoyable evening and that dining out as a family wasn’t a weekly event for this family, but possibly more of a monthly or bi-monthly occurrence.  The server was of the personality that truly enjoyed delivering a memorable experience, so it was good to receive the positive feedback.  All roads were pointing to the creation of a great memory for the family.  At the conclusion of the meal the server dropped the check and said that she would be happy to take care of it whenever they were ready.  Moments later she returned and could see dollar bills poking their way out of the check presenter.  The server informed the guests that she would return in just a few moments with their change.  The content family let her know that no change was needed and they all exchanged big smiles and gratitude for the experience.  Upon returning to the server station, the server began counting the money that was left for the tab and found that a $100 bill was stuck to one of the $20 dollar bills.  Without the inclusion of the extra $100 the tab had been covered and a very generous tip was left.  The server instantly knew that the stuck $100 bill was not intentional.  She was instantly faced with a moral dilemma … to return the money, or to keep it?  Who would ever know?  Only she knew that a mistake had been made.  Moments later the server catches the still smiling family as they are walking out the door and hands them the $100 bill.         

We all want to believe that our restaurants are built of teams that all possess a great set of internal values that drive their decision making.  But how do you really know whether the values you want to believe exist within your restaurant are actually there?  The only way to know for sure is to put them there.

One important fact to remember is that our restaurants are entities of their own.  And like any entity, they have their own unique and individual purpose.  That purpose is driven by a set of core values, in the same way that any individual’s purpose is driven by a set of morals or values.  But we, as the business owners and leaders, have to define those values and then ensure that the values are not simply known by the teams that run the restaurants, but that they are living and breathing day by day.

Often, restaurant owners will try and retro in a set of business values based on the characteristics of the individuals that they select to their management team(s).  Essentially, the values and culture are determined by the values and culture set forth by the GM’s unique personal values. For example, if the GM is always 30 minutes early to work, then punctuality could become a de facto core value.  Whereas punctuality is not a bad thing, it may not be a true driver of the business or as strong as Integrity, Commitment or Passion in terms of deep and meaningful core values.  And then what happens when the GM moves on to another opportunity? A new GM arrives that believes coming in 15 minutes early for a shift is more than sufficient.  Now culture confusion sets in because the values of the restaurant were tied up in the exiting GM’s characteristics.  They were not clearly defined and attached to the restaurant. Therefore, the restaurant’s values begin to shift with the passing of each leadership team.  The long term result of this is often cultural paralysis that leads to high turnover and eventually a fractured and unidentifiable brand in your marketplace.

Successful restaurant owners will begin with their brand’s visual identity to the public (both potential team members and guests) in mind, and then work backwards.  They relate their restaurant entity to themselves.  They ask themselves, “If the restaurant was a standalone person, how would it want to be viewed?  How would it want others to perceive it?  Would it want the world to see it as honest?  Consistent?  Reliable?  Passionate?  Committed to excellence?  What makes it a brand people will believe in?  Why would a guest return, and moreover, why would they recommend it to someone else?”

From there, 3-5 core values are established that clearly define the restaurant’s purpose.  These core values are then etched in stone for the life of the restaurant.  They become the foundation for the culture that will grow to support that unique and individual purpose.   All managers will be recruited and hired based on their alignment to these core values.  The best fit managers will be those who already embody the same values in their own personal lives.  This makes value alignment much easier.  All of their future decision making for the restaurant will then pass through the filter of the restaurant’s core values.

Now a team of 3-5 leaders (managers) will develop a “culture-fit” hiring process that empowers them to recruit and hire staff members that also embody the same values as the restaurant.  Once a full staff is aboard, and all have taken up the cause of the restaurant as their own; over time, through constant reinforcement of the core values, a sustainable culture which is rooted in those simple, yet powerful values will be what defines the restaurant’s brand out in the market.  If successfully executed, what emerges is a customer base that is grounded by the same values. People who believe in the same set of values traditionally support each other.  Alignment now exists from the founders of the restaurant brand, all the way through the business, to the guests dining at each table.

If your ultimate goal is for your restaurant to be known as a reliable place which guests can trust to deliver a consistent experience every visit, and prompt them to share their experience with their friends and family, generation after generation, then you have to start at the core.

If you would like more information on Restaurant Consulting Services provided by Caprock, please feel free to email Zach Hopkins at zhopkins@caprockservices.com.

Planning a New Restaurant?

They say success is 90% planning and 10% execution – opening a new restaurant is no exception. As you begin planning for your next restaurant try this approach:

Demand:
Discovering whether or not there is a demand for your concept in your market is the first step in deciding if the concept will survive. Do your market research to determine if your idea has merit. Ask yourself if there is already a successful brand delivering your idea? If not, what neighborhood in your market has the demand for your offering?

Outlook:
Once you’ve determined there is a demand in the market for your concept, develop a 5-year financial proforma to determine if your concept can financially succeed through the first 5 years. It’s known that the mark of a successful restaurant is one that survives beyond 5-years, so plan intelligently. Use total covers, turns per meal period and per person averages to calculate projected daily, weekly and monthly sales. Use these figures to reach your projected annual sales.

Location:
It’s now time to scout potential restaurant locations. Find neighborhood or mixed use developments in your market that will foster the traffic you need to hit the financial projections outlined for your business. The ability to draw your desired covers per meal period is a key financial indicator (KPI) to your success. Don’t pick a location that can’t produce the needed traffic.

Lease:
Once you’ve selected your location you will have to negotiate your lease. Don’t settle. Never settle! That’s a non-negotiable. Your monthly rent is a “make it or break it” financial fact. When negotiating, regardless of the tenant assistance or rent abatement offered, don’t fall into the trap of a base rent that exceeds 8% of your total sales. 6% is the target, but 8% is survivable. The triple-net rates will push it closer to 10% of total sales. 10% is the maximum. Don’t exceed that amount.

Accountability:
Next you must define your company’s ownership structure. Seek the aid of a professional tax attorney to help you structure your restaurant’s entity in the way that best fits the desires and needs of the investors and members of the company. It’s important in the operational agreement to outline roles and responsibilities, so that no one is confused as to who will be performing which role in the business, and what they will be held accountable for.

Reaction:
You’ve now thought through just about all the preparations for your next restaurant opening. Now it’s time to take a step back. Share the concept, the financials & the location with your inner circle(s) or confidants. See what their thoughts and opinions are, and where you may have consumed too much of your own Kool-Aid. Let the advice of those you trust help you determine if this is truly a concept and location worth pursuing.

Start-up:
If you’ve passed the sniff test with your closest advisors, then it’s time to talk start-up costs. How much will it truly cost you to get the restaurant off the ground? That’s the $100,000 (or more) question. For construction costs on a 1st generation location, try not to exceed $100/sqft. For a 2nd generation location, try not to exceed $60/sqft. For Furniture, Fixtures & Equipment (FF&E), it’s important to identify what new items you will actually need and what you can get used. These dollars will be your “make it or break it” dollars.

Once you’ve completed this exercise, and if all of the D.O.L.L.A.R.S. makes sense, then go ahead and generate a business plan. Break a leg!

If you would like more information on Restaurant Consulting Services provided by Caprock, please feel free to email Zach Hopkins at zhopkins@caprockservices.com.