Put bluntly, Pat Phelan recognizes the two paths to improved profitability: sell more or spend less.
While Phelan, owner of The Jacobson, an upscale restaurant in Kansas City, Missouri, knows capturing higher sales is an enduring battle, he remains uber-mindful of different ways he might trim costs without hampering the quality and service that have become his 6-year-old establishment’s hallmark.
“I have no idea who is going to walk in my doors, but I do know there are certain things within my control that I can manage in a more fiscally sound way,” he says.
Phelan, of course, isn’t alone. Restaurant operators across the country are dealing with rising expenses related to labor, food, real estate, and more. Prudent cost management isn’t optional; it’s downright necessary.
With labor costs escalating at an annual clip of 5–9 percent and prices on items such as crab meat and french fries reaching all-time highs, Greene Turtle Sports Bar & Grille CEO Bob Barry says leadership at his 47-unit chain continues exploring intelligent cost-cutting measures to trim the budget.
“We cannot absorb these hikes simply by raising our prices, so we must cut costs,” Barry says.
Leveraging historical data
For most restaurants, food and labor costs remain the two largest expenses, and yet they too often get rubber-stamped week after week. By using historical data and generating informed sales forecasts, restaurants can rework staff schedules and purchasing to settle those costs.
“If things slow down seasonally—the week before Labor Day when people are on vacation or in January just after the holidays—adjust your staffing and purchasing accordingly,” says Shaun Clancy, owner of New York City’s Foley’s NY Pub & Restaurant.
Adjusting menus to seasonality
While many restaurants tweak their menus to support local producers and to ensure fresh goods in the kitchen, adjusting menus to seasonality has the added benefit of lowering food costs. The Jacobson, for example, shifts its menu twice each year based on the seasonality of fruits and vegetables.
“When you’re aware of seasonality and when costs fluctuate, you can definitely get more bang for your buck,” Phelan says.
Few staff understand the financial elements of running a restaurant and that, Barry notes, can lead to unnecessary waste and inefficiencies. Being transparent with restaurant staff about restaurant finances can drive margin-protecting attentiveness across the operation.
“We can’t shy away from sharing this information,” Barry says. “Most team members think restaurants run 30–40 percent profit margins. Once you explain the actual math, they seem to tighten up in a good way.”
Leaning on long-term partners
Vendors will often work to secure more favorable terms for restaurants and people with whom they enjoy longstanding relationships and contracts.
Cy Sadaka, owner of King Crab House Chicago, for instance, is in regular conversation with some of his long-term liquor reps. Together, they review past orders and explore smarter purchasing opportunities, including discounts or “first dibs” on new products.
Grabbing vendor deals
Suppliers sometimes offer enticing volume discounts. Clancy suggests exploring such deals, which can reduce per-unit costs and boost profit margins.
“If your restaurant has ample storage, you can stock up on liquor, for instance,” Clancy says. “The key is to not buy too much. Otherwise, you wind up looking at cases of whiskey for the next three years.”
Installing a cash-discount program
With credit cards representing about 90 percent of all transactions at The Jacobson and the accompanying charges eating into the restaurant’s bottom line, Phelan is contemplating a discount for cash-paying guests.
“We might publicize cash discount prices on the menu and note at the bottom of the menu and receipt that there’s a 4 percent fee for the convenience of using plastic,” Phelan says.
Aware that such cash-discount programs are gaining traction elsewhere, Phelan is watching competitor and consumer response to such initiatives.
“This is something that could take off given how restaurants are constantly having to eat these costs,” he says.
Managing the little things
While food and labor costs consume much attention, savvy operators monitor all expenses. From paper goods to utilities, the basics add up, and it’s important restaurants study the numbers and find competitive vendors.
The Greene Turtle, for example, contracted with an energy company that helped the chain save 9 percent on its gas and electricity costs.
Phelan, meanwhile, reviews The Jacobson’s expenses at least every six months and challenges costs accordingly. During one recent analysis, he noticed linen costs had tripled due to a rather vague inventory fee.
“If you don’t ask questions, you will continue to get charged,” Phelan says. “You can’t just be worried about how much is in your bank account.”