A restaurant only makes money when customers are paying their bills, having sat on the seats and eaten from the menu.
NB: This is an article by Ian Graham, an independent advisor to the international hotel industry and owner of Nymet Ltd.
Often restaurant menus have catchy descriptions, gorgeous photos and an attractive layout. But what is sometimes missing from the overall design of the restaurant are key elements that add profitability to the mix.
The principal revenue generating asset under management in a restaurant are the seats and tables – and this applies whether the restaurant is a stand-alone business, is in a mixed-use development, is in a theme park, is in an airport terminal, is in a hotel, or even is a pop-up business in a yurt. The seat is a hugely perishable asset – every minute that it is unoccupied there is a missed revenue generating opportunity. If you don’t fill the seats this meal period, the revenue (not to mention the profit that you could have made) is gone – and probably elsewhere!
So, it’s clear that a key metric for best practice is Revenue per Available Seat Hour. RevPASH is calculated by getting the revenue for the hour and dividing it by the number of seats that you have. If the restaurant is only half full, your RevPASH will be lower than it might be; if everyone orders one course only, your RevPASH will again be lower again.
Caroline Wilce is Finance Director and shareholder at Black and White Hospitality Management Ltd (the franchisor of the Marco Pierre White brands – Marco’s New York Italian, Marco Pierre White’s Steakhouse and Grill, Wheelers Oyster Bar and Grill Room, Mr White’s English Chophouse, Bardolino). She says “the main key KPIs used by successful restaurant operators include:
- Revenue per available seat hour (RevPASH)
- Revenue per available square metre (RevPASM)
- Cancelled / No Show Covers as a % of Reserved Covers
- Time per Table Turn”
The common ways to increase RevPASH are to
- decrease the amount of time each party spends at their table and/or
- increase the average spend and/or
- decrease the time that a table stays empty after a party leaves.
Here are some ideas to increase your RevPASH.
1. Breakfast, Lunch and Dinner.
Stelios Haji-Ioannou made a success of easyJet by first filling the aircraft then raising the price. Sweat your asset; how often do we see hotel restaurants closed for lunch. And branded restaurants closed for breakfast. Yet, one rarely sees small privately run restaurants closed – they are open all hours. The entrepreneurial owner/operator knows that the asset must be sweated.
2. Seven days a week.
By increasing available seat hours, you give yourself the opportunity to spread your fixed costs. So, if there is a market, keep the restaurant open all week, all meal periods. If there isn’t an obvious market, create one. Many hotels have found success with (champagne) afternoon teas. Pre-theatre dinners are a similar reaction to creating a market that enables the restaurant to be more successful.
3. No more quiet nights.
Capitalize on menu trends. The industry is seeing a need for more organic, healthy locally sourced options. In some cases, and locations, customers value these options and are willing to pay for them. You need to understand your customers, though, as opinions can vary depending on the market or region. Sundays and Tuesdays are traditionally toughest nights for a restaurant, so running promotions to fill the seats will at least get some revenue. Maybe link in with a local cinema, or run a series of promotions to encourage people to come out on your quieter nights.
4. Increasing the number of turns.
The number of turns is the number of parties that sit at a table each night. Depending on your clientele and target market, you may be able to get another sitting in. Some restaurants do fixed sittings, say, 6pm and 8pm so that customers know if they are in the 6pm sitting, they need to be out by 8pm This works well if people are going to the movies or the theatre.
5. Create a pool of ready diners.
The bar is a great way to increase your RevPASH. Customers have a couple of beers before dinner and are sitting there ready and waiting as soon as a table is cleared. The in-room TV, the lift walls, are opportunities to promote the hotel restaurant to guests. Better still, a recommendation by the receptionist at check-in can generate business that might otherwise walk out of the hotel for dinner.
6. Increase your prices.
Make sure your prices are right. Check the local competition and see how you compare. The big thing is to look at each sitting individually and try to optimise the results. Some restaurants do this without thinking about it. It is why there are separate lunch and dinner menus. After you evaluate what other restaurants are doing to drive sales a review of customer data might show that demand indicates that some menu prices could be increased without hurting sales.
7. Table optimisation.
Some restaurants and cafes attract more singles and couples, others larger groups. If all your tables are for 4, it means that every single and couple is wasting seats and decreasing your RevPASH.
8. Last minute offers.
If you are having an unexpected quiet night, why not Tweet a special or post it on your Facebook page. Work hard to get those extra couple of tables in. It can be the difference between a loss for the night and breaking even. Customer traffic is one of the key metrics restaurant operators use to measure success. When traffic is down, many restaurants turn to new promotions or even consider lowing prices, but will these actions reverse the trend? Before you act, first take time to understand the change in traffic and the underlying causes. Two key steps in deciding how to address traffic issues are to determine if it is a sustained problem or a short-term trend and to determine whether the decrease is caused by internal or external factors. Guest count problems can be addressed in many ways. Once you gain an understanding of what causes traffic issues at a specific location, you will be better prepared to create solutions that address the true, underlying problem.
Ally Dombey Northfield is a Director at Revenue by Design, creator of revenue management solutions for the hotel industry. In respect of restaurants, she says “..the focus needs to be on optimizing profitability through contribution margins, differential pricing, menu mix and price blending”
Restaurant technology can and should be leveraged to provide better information to inform better decisions. Such tools provide insights into restaurant customer purchasing behavior enabling prediction of their reaction to future initiatives. Technology can be harnessed to:
- measure the effectiveness and impact of limited time offers
- understand the impact of coupons and deciding on the most profitable offers
- quantify the impact of testing a new menu line or a new service concept
- help selecting the most representative restaurants to test brand innovations
- review loyalty programmes and recommend marketing initiatives
The National Restaurant Association in the USA believes that over 60% of sales in fine dining restaurants and 80% of sales in casual restaurants come from repeat business. So, remember that it is existing customers who are your most likely future customers – and through social media they can influence potential customers who have not yet experienced your restaurant. Leverage the database of existing customers (respecting GDPR of course).
I hope some of these thoughts help YOU improve your profitability.