It’s the eleventh hour for many independent restaurateurs. Battered by COVID shutdowns, record inflation and ongoing staffing shortages, thousands of dedicated homeowners are just a bill or two away from turning off the lights permanently. At the best of times, many restaurants scratch month to month with little or no cushion to withstand repeated setbacks. So when things go wrong, many businesses cannot survive.
According to the Independent Restaurant Coalition, more than half of independent restaurants and bars that have not yet received federal subsidies plan to close within the next six months. Many pinned their hopes on new funding for restaurant revitalization. But, even if Congress had agreed, more federal money would not change how the restaurant industry works or protect independent restaurants from the next unforeseen challenge.
To change the industry and move more restaurants from “just average” to thriving, owners and managers must tackle the fundamental issues: profitability and cash flow. To address these systemic vulnerabilities, improving access to reliable and actionable cost data and advanced analytics is essential. Large restaurant companies have benefited from this valuable information for decades, but smaller restaurateurs struggle to compete without it. Unlike large restaurant groups, which employ dedicated CFOs, accounting firms and finance departments, independent restaurants typically have a single manager who juggles all the responsibilities front and back of the home (BOH). And the average independent restaurateur is too time-strapped to spend hours uncovering hard-to-find data points that might help.
With no relief in sight and margins tighter than ever, independent restaurateurs need quality analytics like never before. Let’s look at three ways to get what they need.
Collect the right data
For the restaurant’s BOH to benefit from analytics, it must first aggregate its cash flow data. The average independent restaurant can deal with more than 10 food suppliers each month, which imposes short and different payment terms on them. Given that the restaurant industry still largely operates on outdated payment processes using paper invoices and physical checks, it’s no surprise that many restaurant managers attempt to track cash flow in a ledger. manual. For the average independent restaurant that pays 40-60 bills a month for restaurant expenses alone, using a manual ledger leaves room for human error and is time consuming.
Conversely, managers who adopt centralized BOH technology to consolidate all food payments find multiple benefits to increase their margins. This not only eliminates the need to “reinvent the wheel” every pay period, but the technology can also prevent overdrafts and make more accurate budgeting possible. Reducing the number of hours spent tracking expenses also reduces staff costs. Perhaps most importantly, aggregating food purchase data at the SKU level is the essential first step in its analysis.
Historical food spend patterns are important information that restaurants need and can only get if they have properly aggregated their cash flow data. If a restaurant knows how many products and supplies it actually uses, it can avoid under-ordering and over-ordering, which are two easy ways to save money.
An under-order can cause a restaurant to run out of a popular menu item or have to buy ingredients from a local market at a much higher cost. Overordering creates waste and thinner margins. Insight into historical spending patterns also reduces labor costs by eliminating time spent manually assessing the number of products and supplies available at any given time or scrambling to make last-minute purchases.
Together, reducing product waste and unnecessary labor decreases a restaurant’s “core cost”: total cost of goods sold plus total labor cost. The cost of primary labor accounts for up to 70% of some restaurant expenses, so this is a great place to save money.
Putting analytics to work
One of many studies quantifying the benefits of data analytics found that respondents increased their profits by 8% while reducing their total costs by 10% (BARC, 2019). Analyzing food spend data can provide insight into a restaurant’s market prices, especially insight into food price fluctuations.
In this current landscape of food inflation, analysis is essential. Unlike corporate restaurant groups that purchase goods and supplies directly from end suppliers, independent restaurants generally receive their prices from the last-mile distributor. In turn, independent restaurants are unknowingly liable for vague markups and prevented from comparing their costs with the wider market. When independent restaurants fully understand their food costs and how they compare to the broader market, they are armed with the information needed to lower their food costs and expand their margins. If a mid-tier restaurant spending nearly $100,000 a month on food costs can save even a small percentage, that could equate to an annual salary for the entire staff.
The right BOH software solution should solve all of these challenges. But restaurant managers shouldn’t have to become data scientists or go through a long and complicated onboarding process. They should be empowered to focus on their core competencies: making great food and providing great customer service. So, when comparing solutions, restaurateurs should evaluate BOH technology based on three things:
- Ease of use and adoption into their workflow
- Automated collection of relevant data
- The value of simple and applicable information generated by technology
Combined, these three variables reflect how quickly and easily the savings in time and money will impact their bottom line.
For many restaurants struggling to maintain profitability or free up cash, there is no time left on the counter. According to National Federation of Independent Businesses, small business owners report that inflation, which is now at its highest since 1980, continues to be their biggest problem. With a bleak outlook and optimism at its lowest since April 2020, now is the time to turn BOH data into real savings.
Dante DiCicco knows the problems of small restaurateurs all too well because he experiences them firsthand in his own restaurant. He learned about the restaurant industry from A to Z at DiCicco’s independent restaurants in Fresno, CA. As Snap’s CEO, co-founder and restaurateur of Zitti, Dante is building Zitti with tools that update day-to-day operations and help restaurants thrive no matter what’s happening in the world around them. His mission through Zitti is to make the food supply chain work for everyone. Learn more about Zitti.com.