There’s not an individual or business that hasn’t felt some level of impact from the COVID-19 pandemic and the hospitality industry is no exception. With mandated reductions in seating capacity coupled with the government's forced closings, the hospitality industry is struggling to survive.
According to the National Restaurant Association (NRA), industry sales, including restaurants and food service operations, have reached $215 billion in losses for March through October (National Restaurant Association, 2020). With the uncertainty of what lays ahead, the food service industry continues to make adjustments and rethink how to make the most of the current level of business.
In a June 2020 article published on businessinsider.com (Jiang, 2020) the Independent Restaurant Coalition in their report forecast that as high as 85% of independent operations may be forced to close their doors for good as the result of the impact of the pandemic. Independent restaurants makeup approximately 70% of all restaurants and heavily rely on dine-in business (Jiang, 2020). With a reduction in seating to allow for the proper distancing of patrons, restaurant owners are forced to find alternative methods of service to recoup the lost revenue.
Restaurants continue to evolve as they look for new ways to attract and retain business. They make adjustments to how they operate and serve guests, setting up tents in parking lots, and expanding takeout menus and curbside pickup. Additionally, businesses are increasing the number of ways for customers to place orders as well as expanding delivery options by utilizing such companies as GrubHub and DoorDash.
While all of these measures are important in attracting and retaining business, they also come with an additional expense. You need to ask yourself what steps have you taken to ensure you’re maximizing revenues and profits?
Bringing business in the door is important, but maximizing your profits is critical
With all the challenges the food service industry is faced with, there is no better time to review a few very crucial points in your operation
· Menu Prices
· Verify Portions
· Contribution Analysis
We tend to forget about menu prices once the initial costing of the menu has been completed. I see no better time than now to ensure your prices are hitting your target food cost.
The pandemic forced many production operations to close, thus creating a shortage and driving up demand, and increasing the cost of many goods.
Operational closures created a domestic beef shortage which led to an increase in demand for imported meats. This domestic shortage caused a 16% increase in beef prices in May 2020 (bls.gov, 2020).
While many operations are dropping prices to attract business, leaving a even few pennies on the table can quickly add up. Taking the time to verify that all of your menu items are properly priced is one of the easiest ways to maximize profits.
Another easy way to make sure you are not needlessly losing money is by verifying portion sizes. This is a perfect exercise to complete while you’re in the process of verifying pricing. It may be time to conduct some retraining with the staff and remind them that every extra ounce of a product is reducing the bottom-line profit.
Recipes are costed based on specified portion sizes and amounts. When recipes and standard operating procedures are not accurately followed, the hard work you’re doing to get the people in the door could be costing you money.
While an additional ounce of a product doesn’t seem like much when you have over-usage for multiple products this additional cost adds up quickly.
With a reduction in staffing, hours of operation, and even operating days it may be time to look at reducing your menu offerings to streamline the operation if you haven’t already done so. Does it make sense to continue to try to operate at the same level if everything else has been reduced?
By conducting a Contribution Analysis you will be able to see what your top-selling products are and which ones are returning the greatest profit margin. Additionally, a contribution analysis will provide you with the information you need to make the necessary adjustments to your menu.
The most popular dish on your menu may be returning the least amount of profit
If you need to reduce the size of your menu, it makes sense that you eliminate the products that are selling the least and return the smallest margins. In the process of conducting your analysis, you may also determine that there is room for price adjustments, whether an increase or decrease.
By evaluating your competition, you can now make an informed decision as to whether or not you need to raise or reduce prices to remain competitive.
Reducing the size of your menu during this difficult time will help make the staff and operation more efficient and will eliminate the need to purchase unnecessary products that are tying up money by sitting on the shelf. You will only purchase the products that are moving, giving you much greater cash-flow opportunities.
You can find a copy of the Contribution Analysis form on the Downloads tab.
The COVID-19 Pandemic will most likely get worse before it gets better. With the uncertainty of further reductions in seating capacity regulations or even more mandated closings, we will continue to be challenged to make the most of all our sales.
While we are forced to re-think the future of how we conduct business, let’s not overlook the items that we can control now to make our operations more profitable.
Restaurant Sales Recovery Stalled in October (2020, November 17) National Restaurant Association. Retrieved from https://restaurant.org/articles/news/restaurant-sales-recovery-stalled-in-october
Jiang, I (2020) 85% of Independent Restaurants May go Out of Business By The End of 2020, According to The Independent Restaurant Coalition. Retrieved from https://www.businessinsider.com/85-of-independent-restaurants-could-permanently-close-in-2020-report-2020-6
The Impact of the COVID-19 Pandemic on Food Price Indexes and Data Collection (2020, August) U.S. Bureau of Labor Statistics. Retrieved from https://www.bls.gov/opub/mlr/2020/article/the-impact-of-the-covid-19-pandemic-on-food-price-indexes-and-data-collection.htm