Grow Strategy for cafe and restaurant — Finance Review

finance review

Lock-down of Australia bring a dark and challenging time to hospitality industry like restaurant and cafe and the uncertain make it even more hopeless. Yet at this time, it’s a good moment to escape from daily rush of operation and sit down to review the business strategy for growth and profit.

Facing the uncertain, instinctive reaction of most restaurant and cafe owner is cutting the cost, and expanding to online taking away business. Is that good? Yes but you can do more to review from finance and optimizing your operation including online and offline.

Finance review will give a whole picture of your business and you can find clue of optimization. You don’t need to go to complex accounting table but just focus on profit & loss report (P&L).

profit & lost

Profit = Sales – Cost. So what we should focus here is 4 items: sales, Cost of Sales (Material Cost), Labor cost and controllable cost. Improve sales and reduce other 3 will make your business better.

Sales or Income

  1. Sales number: sales is the key to drive business. How is the business doing? Sales is index of business especial under this situation.
  2. Sales by product: What product or menu contribute your sales most? The change of different product. During locking down period, food easy for delivery will become more popular. You can adjust your menu to adapt for the situation.
  3. Customer profile: Who is your customer and who will come more. Local community customer will become mainstream for a shop.
  4. ASP: averaging sales price. Any change on this period, what can we do to improve that.
  5. Channel: Online order or order by phone call ,what’s the share of different channel.

Material Cost

Sales cost (food/material) contribute about 1/3 of total cost in most restaurant in Australia. The good thing in this period is that material cost normally follow the trend of sales. But what we need to do is not only just cut the cost. We may adjust the structure based on the sales product trend.

  1. Reduce some material for dine in food.
  2. Improve material for taking away
  3. Develop new Frozen/Ready meal. Pre-pack meals that your customer can store in fridge or freezer.
  4. Refill the stock in new way to reduce waste and labor cost.

Labor Cost

Based on ATO report, the share of labor cost is 38% average in cafe industry which is the biggest single share. The labor cost will be flat if you do not take actions. But the good thing is that we can get help from the government to cover some cost. But there is still some more we can do:

  1. Reconsider the labor in long run and adopt to the trend of taking away and delivery. Maybe you can keep you staff or even add dedicate part time delivery staff to avoid high rate from delivery company.
  2. Review the whole process of your restaurant and find the bottle neck. Yield rate of kitchen = Dine in + Take Away/Pick up + Delivery.  Most of restaurants’ kitchen can not catch up with front end and vice versa .
  3. Adapt technology to reduce the labor cost including self order Kiosk, more efficient POS, half automatic food machine.
  4. Remove dishes from menu for high labor cost and low run rate.

Controllable Expense

Majority controllable expense is operation expense and administration cost. Most of cost will also be reduced in low activity business period. But better not cut the cost to helping you connected with your customers.

  1. Build online presence like you own website, Facebook, and google business. Normally, customer will spend more money on delivery platform like Uber and Menulog. But there are 2 issues on this:
    1. Most of restaurant use this platform. It’s not cost effective on this time.
    2. Traffic here is not your traffic, you have no customer information and gain position here.
  2. Improve your order system to improve conversion rate. If customer saw promotion on Facebook/Instagram or Google, how can they order from you. You need to have good system supporting customer ordering online for pick up.
  3. Marketing. Apply tools that can help you monitor the status of result to make sure you spend you money on the right way.

Others like none controllable cost like rent and equipment leasing cost, better to leverage the policy from government. Like in Melbourne, if you have new equipment for online business, you can get half subsidy from government.

A good finance review will help you understand the situation and is the start point to optimize your business. We will share more tips for sales grow and efficient operation in blogs following on.

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