Food for Thought
This years Food for Thought Conference—an event sponsored by the International Council of Shopping Centers (ICSC)—took place last month in New Orleans. Moderators and panelists touched upon many topics that are relevant to the changing restaurant industry of today. From the latest trends to managing costs, experts in the field took a look at what is emerging and what the rest of 2018 is expected to bring.
Polished Casual Trend
While fast-casual was making the headlines in 2017, another segment was inching its way forward in its take of the piece of the consumer pie. Polished casual lies somewhere between fast casual and fine dining and has also been called “fine-casual.” What is the difference between fast casual and polished casual? Think Panera, Chipotle and Noodles & Company. Now add exceptional, though informal, table service, a wide selection of craft beers, and entrees that are so beautifully created they’ve got customer’s snapping off photos, and you’ve got the right picture for the polished casual dining experience.
Of course, consumers will be paying for this upscale experience. While fast casual usually ranges between $10 to $20 per customer, polished casual often lies somewhere between $25 to $50, making this venue one of the most lucrative. And, apparently, people are willing to pay the price. Sales for restaurants reached $799 billion in 2017 with full service restaurants making the most—about $263 billion compared to limited service restaurants estimated intake of $234 billion.
Are you consider jumping on the polished-casual bandwagon? If so, consider the fundamental aspects of this type of restaurant:
- Top-quality cuisine. Chef-driven, locally sourced, ethnic foods with bold flavors are top performers in this industry. Restaurants that are willing to offer customized dishes that take into account the newer generation’s increasing request to go gluten and dairy-free, and organic are also in demand. These types of restaurants tend to focus on smaller, specialized menus instead of your all-in-one four-page monstrosities that can still be found in some casual dining eateries.
- Design. Say good-bye to white table cloths and hello to inventive and creative décor that is socially conscious. Polished casual restaurants are stepping up to consumers demand for unique experiences with contemporary ambiance. Many offer open kitchen designs with centrally located wood-burning ovens or grills. Others offer vibrant bars that specialize in sharable menus (think tapas). What they are not: chain-like cookie cutter duplicates. As the name implies, they are polished, yet casual, in their demeanor with a hint of sophistication.
- Size. Polished casual concepts can often operate in smaller spaces than traditional fine dining establishments. This is one way that operators cut cost in this market, particularly in high-rent districts.
- Speed. As consumer’s multitasking to-do lists expanded, the need for a quick, yet healthy and enjoyable meal, became evident. A polished casual venue veers away from fine-dining’s multiple course offerings that can often exceed two-hour dining experiences. These restaurants focus on quick service without making their patrons feel rushed.
- Location. You can find these types of restaurants in just about any location from the corner neighborhood eatery to the anchor tenants in America’s destination malls. In fact, as developers and investors reinvent shopping centers and retail chains such as Macy’s and Sears drop like flies, it is often the polished casual restaurant that brings in the traffic and becomes the hero in the face of retail’s demise.
Examples of the Polished Casual Restaurant
Scott Lark is the Director of Real Estate for Uncle Julio’s—a leading polished casual Mexican restaurant that focuses on a cook-from-scratch kitchen and handcrafted margaritas.
Lark has built many of today’s favorite polished-casual brands including Ruth Chris and California Pizza Kitchen (CPK). CPK is known for it’s high-quality, fresh and seasonal menu that includes hand-tossed artisan pizzas and a wide selection of craft beers. Here’s an example from their Sarasota-location menu: Shareable small plates such as Charred Shishito Peppers, seasonal inspired dishes that include Wild Mushroom Strozzapreti, and main dishes like their wild-caught North Pacific Hearth-Roasted Halibut.
They’ve embraced the open kitchen with the centrally located open-hearth pizza oven. Their design includes material such as reclaimed wood and skateboard tile. They seem to have incorporated just about all the attributes associated with the polished casual restaurant profile.
CPK currently has 300 restaurants in 16 countries.
Ruth Chris reported a net income of $110.4 million in the first quarter of 2018, an increase of 11 percent when compared to the $99.5 million in the first quarter of 2017.
Uncle Julio’s, one of Technomic’s Top 500 restaurant chains, posted an annual sale of approximately $170.5 million in 2016 and was recently purchased by the private-equity group L Catterton.
Need we say more?
Probably not, but let’s share one more success story for inspiration’s sake.
Flagship Restaurant Group launched in 2002 with Blue Sushi Sake Grill, a polished casual Asian venue. First year sales reached $1 million. They now have 14 units in 8 states. Nick Hogan, CEO, believes that there is safety in the polished-casual end of full-service dining as guests continue to look for venues that are exciting, experiential, and a little more refined.
All restaurants, be they fast casual or full service, face the same challenge when it comes to making a profit from exceedingly tight margins. The research group TDn2K found that top performing restaurant brands grow average checks at a higher rate than under-performers. This implies that understanding your value can help you stay afloat despite the increasing expenses such as labor and cost of goods.
Another action that profitable restaurants undertake? They track their prime costs and sales every week instead of waiting for the month-end P&L statement. To maximize profitability, you must know your two most significant costs, their percentage as they relate to the total food sales, and understand the control measures you have in place that manage them.
Breakdown of Restaurant Costs
The Formula: specific cost/gross sales x 100
- Occupancy includes rent, CAM, building insurance and real estate taxes. While space in premium shopping districts often runs as high as 10 percent, many restaurants find their occupancy as low as five percent of their overall costs. Occupancy costs higher than 10 percent of your sales can make it difficult to generate an adequate profit.
- Labor. First, let’s look at what labor costs use to be. Standard industry benchmarks claim labor costs average out to about 28 percent with 18 percent going to hourly workers and 10 percent applied to salaried employees. 2018, however, saw the rise in minimum wage in 18 states and 20 cities. Add this to the increasing difficulties that restaurants are facing in obtaining and retaining staff, and you’ll find typical restaurant labor costs are on the rise with some nearing 35 percent.
- Food. Food costs vary dramatically depending on the type of restaurant. Generally, this percentage of your total sales comes in at about 28 to 32 percent. For some upscale restaurants, food costs can go as high to 40 to 50 percent. It’s interesting to note that some of the most profitable restaurants have higher than average food costs. This is why it’s important to look at the gross profit margin each menu item generates.
In order to understand how well your restaurant is controlling food costs, consider comparing your theoretical food cost versus your actual food cost. Otherwise known as the actual versus theoretical variance, your goal is to align these two numbers as close as possible.
Your theoretical food cost is what your food cost should be in an ideal world and is calculated for each menu item by tallying up the quantity and cost of each ingredient. It’s “theoretical” because it assumes no breakage or shrinkage or theft and, of course, perfect portions. There is a reason why it’s called “theoretical.” It does, however, give you an idea of how far off the mark you may be and where investigative procedures may be warranted. Theoretical costs are calculated by multiplying the food cost for each menu item sold by the number of units sold...for every item sold. As you can imagine, it takes someone with massive patience to undertake this calculation.
- Alcoholic Beverages. Alcohol costs can vary from 15 percent for draft bear to 40 percent for wine. The industry standards on average for all alcoholic beverages comes in at around 25 percent.
- Cost of Goods Sold. This figure represents everything you had to purchase to sell your product. It is determined by this formula:
Opening Inventory Value + Cost of Purchases – Closing Inventory Value= Product used.
Product Used / Total Sales = Costs of Goods Sold (%)
Let’s look at a simple example. Your receiving staff takes stock of your inventory on Monday morning. It is valued at $10,000. You purchased an additional $5,000 by weeks end. Your closing inventory (at the end of the week) came out to $8,000 and your sales for the week brought in $21,000.
$10,000 + $5,000 - $8,000= $7,000
$7,000 / $21,000= 33%.
- Prime Cost. Prime cost represents those costs that are the most volatile and require the most control. This percentage combines your three biggest costs—food, beverage, and labor. A Prime cost above 70 percent is considered a warning bell for many in the restaurant industry.
Controlling the Prime Cost
Even a one percentage point drop in your prime cost results in an increase in profits. Restaurant operators that track their prime cost on a weekly basis often increase their profits by 2 to 5 percent. Let’s take a look at the industry’s latest trends to control costs and raise profits.
- In this age of robots and predictive analytics, it comes as no surprise that technology is making cost control easier and streamlined. Some of the companies that are at the forefront of these advancements include Compeat, CTUIT and Consolidated Concepts.
- Compeat. This software is your inventory’s best friend. It offers mobile inventory and bar code scanning. By entering data only once, it counts inventory, assets, and forecasts alcohol and food costs. In addition to inventory control it analyzes recipes, provides menu costing, and determines actual versus theoretical food costs. It also recommends prep production and portioning and fully integrates with your vendors.
- CTUIT. Two SaaS restaurant management software market leaders became one when CTUIT merged with Compeat in 2017. In addition to accounting, inventory, and intelligence reporting, they now offer myWorkforce Mobile App and the Ctuit Manager Log that focuses on workforce management. Using technology and forecasting to optimize labor and service has been shown to decrease hourly labor costs by more than 4 percent.
- Consolidated Concepts. A team of experts in the restaurant industry make up Consolidated Concepts reduction specialists. They offer solutions, savings and support in the prime areas where restaurants often struggle: supply chain, operations, distribution, product management and spend management technology. Working with a company with a vast network gives you better buying power, increasing both revenue and internal control.
- Driving New Revenue. Increasing profit isn’t just about cutting costs, it’s also about increasing sales. Technology, once again, is helping restaurants achieve this without breaking the bank with a full-blown marketing strategy. Did you know that it costs five times as much to attract a new customer than to keep an existing one? Yet only 18 percent of companies focus on customer retention while 44 percent focus on customer acquisition.
So, just how do you get customers to stay? Customer experience is a key factor in driving customer loyalty.
Tipzyy, a mobile platform, is one company that drives revenue by increasing the sales from your existing customers. Mobile technology educates staff, sharpening their food and beverage knowledge, and incentivizes their performance following each shift. Suddenly, your wait staff have turned into sales gurus and your customers receive a better experience. It is estimated that 54 percent of your staff’s recommendations turn into sales and 65 percent of customers would pay more for a staff recommended product.
Restaurants are also seeing increased revenue with the massive uptick in companies supplying both marketing and food delivery services.
Demand for convenience continues to fuel the carry-out and home delivery services and, while it can be challenging, they can also add much to a restaurant’s bottom line.
The difficulty many restaurants face is creating dishes that travel well. Limit your menu items to those that maintain the same high quality after packaging and transportation. You’ll need to do your research regarding packaging—what items hold heat without making your meal soggy? How can you place your logo so that it is front and center? How much sauce or dressing do certain dishes require? And how can you ensure that every item that is ordered is delivered? The last thing you want is your customer calling the delivery service to tell them that an item is missing or that they need more sauce.
The other challenge that arises is space. Every food delivery service requires it’s unique ordering system. Walk into some restaurants and you are faced with rows of computer screens and tablets that coincide with the many delivery services such as Caviar, GrubHub, DoorDash, Eat24 and Uber Eats. Which leads us to our next suggestion—more is not always better.
Aligning with the right delivery partner for your particular brand and venue can be much better for both you and your customers. After all, it’s your reputation that’s at stake. Make sure the company you choose adheres to best practices in the food delivery business. This includes using insulated food carriers and not placing extreme delivery burdens on their drivers that then leads to cold food that arrives an hour after the order has been placed.
Younger generations are the driving force behind this online ordering trend, which is growing 300 percent faster than dine-in traffic. As is the case with most explosive business models, there seems to be some revamping and consolidation. Just last year, GrubHub purchased Yelp’s Eat24 for $287 million.
Redesigning with Food Delivery in Mind
A food-delivery system can increase your business by as much as 25 percent. That being said, joining the online ordering revolution will require some alterations in the structure and function of your restaurant. Consider the following: counter space for to-go orders, space for drivers to wait for take-out orders, and kitchen areas that are delegated to fulfilling these orders which includes more space for hot boxes and heat lamps.
If this line of revenue starts impacting the area of your restaurant designated for in-house customers, you may find yourself developing a dedicated to-go space as did the popular Big Star—a taco mega-star in Chicago.
The Ghost Kitchen
Some restaurants are taking this remodel a step further and opening ghost kitchens in order to fulfil their online to-go orders. Others are using existing kitchens to fulfill orders for their “ghost” restaurants. One such Chicago-based restaurant group is Lettuce Entertain You Enterprises. While maintaining dozens of restaurants, they have recently opened up two takeout-and delivery-only spots that operate out of a sister property’s kitchen. One is called Seaside’s and the other delivery-only service is ASAP Poke.
And then there are the ghost kitchens designed to house as many as a dozen or more restaurant operators. One such venture is Kitchen United. Operators can rent space by the hour or month and, in addition to POS, back-of-house and in-bound order technologies, the cost also includes laundry as well as dishwashing services.
Delivery companies such as Caviar are helping some of their partner restaurants, such as Honey Butter Fried Chicken in Chicago, expand their reach by helping set them up in delivery-only kitchens.
Restaurants Starting Their Own Delivery Services
Yet one other option in the food delivery segment is choosing to start your own delivery service. This avoids third-party costs and gives you the driver’s seat in terms of quality control. Bloomin’ Brands, creators of Outback Steakhouse, Bonefish Grill, Fleming’s Prime Steakhouse and Wine Bar as well as Carrabba’s Italian Grill, with more than 1,400 restaurants in 49 states, has decided to do just that. They are expected to offer delivery at 115 of their restaurants and see this as one of the biggest opportunities to increase traffic in recent years.
They are taking it slow and steady—a good protocol to follow in a business that can be made or broken with a few bad reviews from disgruntled consumers at the receiving end.
Technology Affecting the Hospitality Industry
Online restaurant reviews have exploded in the last decade. Yelp, one of the big restaurant review sites, began in 2004 and has since been the home of about 142 million business reviews. With 145 million monthly visitors, a restaurant’s reputation can be born or die on the pages of this online review source. And that doesn’t even account for the many others such as TripAdvisor, Zomato and Dine.
Over five years ago, two economists made it clear the impact that social media and online reviews would have in the hospitality industry. Comparing reviews and reservations of 328 San Francisco restaurants, the two concluded that moving from 3 starts to 3.5 starts improved a restaurant’s chance of filling up during prime dining times by 13 to 34 percent.
While we all know how to respond to a review that favors your business, “Thank you...thank you very much,” it can be difficult finding the right words when you are faced with a negative review, be it earned or a figment of the reviewer’s imagination. Knowing that 67 percent of consumers are influenced by online reviews can leave a trickle of sweat beading up on many an operator’s brow.
Almost no one can escape the wrath of some people that seldom leave good reviews and jump at the chance to offer their negative opinion. Fortunately, there are steps you can take to minimize the effects from a negative review.
- Set-up Google Alerts so that you’ll receive an email when someone mentions your restaurant’s name online.
- Respond to both good and bad reviews. This increases engagement and lets your customers know that you care about their opinions and are on top of your game when it comes to customer service.
- When a negative review hits, respond with due diligence by investigating the reviewer. Did they bring up a good point, like you have a server that needs additional training or another job, or are they serial disgruntled patrons with a chip on their shoulder? Don’t take it personally and respond with angry undertones. Let other readers know the events from your perspective and, if the reviewer was warranted, apologize and let them know that you have taken steps to rectify the situation.
- Incentivize your regular, and appreciative, guests to provide reviews in order to bury the bad review under words of praise.
Chef’s Using Social Media
According to research conducted by Mars Foodservice, over 90 percent of the chefs interviewed reported they were social media savvy with 84.9 percent using it for work. Surprisingly, Twitter was the most used social network with Facebook coming in a close second. Chefs are using social media to connect with their customers, build their brand, and even share a recipe or two. For the photogenic, consider posting an online cooking video.
If you’re a chef that hasn’t tapped in to their social media genius just yet, consider joining forces with one of the many social media professionals such as Social Media Chefs that provides guidance and structure in creating digital engagement.
Technology’s Evil Twin
Technology has certainly changed the very bones of restaurants in some remarkable ways such as POS systems that monitor labor costs, food costs, and restaurant sales while integrating online ordering, loyalty and gift card programs as well as employee scheduling. Apps are using mobile wallets as a means to order, pay and even link to rewards programs. Geo-fencing uses GPS from mobile devices to send location-specific ads and to let restaurants know when their guest that is picking up food is in a certain range and they should finish preparations. Remarkable. But, as always, there are two sides to the same coin.
The written word is powerful. If you’re a chef who’s enjoyed a few glasses of wine following an especially busy dinner service and then turn to your social media channels to engage—beware. It’s best to be clear and concise when sharing your thoughts with your guests. As an example, consider our current President.
As always, your guest’s first impressions will be lasting ones. From your first online communications to the first time they walk through your doors, these will be defining moments that can lay the groundwork for a lifelong brand-loyal customer. After all, “You never get a second chance to make a good first impression.” –Will Rogers.
If we could put on glasses that would allow us to see places, people and things as if for the first time, we would probably walk around in awe. Instead, our senses and brains create memories that often cloud what we would otherwise see. That is why it’s so important to get outside, unemotional opinions from others when creating your restaurant design. A study reported in the Cornell Hotel and Restaurant Administration Quarterly revealed that changing the ambiance of a restaurant changed patrons perception and even what they ordered.
The challenge is that different generations see restaurant décor in a different light. Younger generations tend to appreciate bright, loud colors while older generations often prefer lighter shades and undertones. Therefore, knowing your market and who you are trying to appeal to is your first step in the design process.
A restaurant’s ambiance affects how fast your patrons eat, how much they spend and even if they become repeat or one-time customers. Pretty important stuff.
Ambiance is the mood or atmosphere of your restaurant. A mood is created by lighting, color, design, music and attitude. Just what atmosphere do you want to create in your restaurant?
“The U.S. has entered an experience economy in which a customer no longer solely wants a product or a good, but also an overall experience accompanying the service that is provided.”—Amy Ciana—A study of how lighting can affect a guest’s dining experience.
- Dr. John Flynn conducted a study on how lighting affects our moods. For a restaurant, good lighting can mean an increase in sales. Though subtle in nature, lights project hues—yellow promotes feelings of warmth while blue brings a chill in the air. Amber is considered a desirable choice for the varying color temperatures as it creates a comfortable and warm atmosphere. There is also a fine line between the bright lights found in fast food establishments and the dim lights of a quiet, romantic setting. You want to make sure there’s enough light to see the meal clearly while promoting a pleasant mood.
- Color has a dramatic effect on how a customer perceives your restaurant and is a defining factor in setting the tone. Red has long been used in the fast food industry due to its tendency to increase turnovers by prompting guests to eat quicker. Yellow reminds us of the sun, but too much can make us feel on edge. Like red, it is not the color you want to go with to prompt guests to linger for that after dinner dessert. While blue may be the color of a tranquil sea, restaurant designers often use it for accents but steer away from prominent displays. This color has been shown to reduce customer’s appetites and can cause reflections that do not do any service to your delectable entrees. Light pastel colors including white and beige promote a relaxing atmosphere, making them an excellent choice for upscale restaurants that profit from guests lingering a bit longer.
- If you’re looking for quick turnovers, loud fast-tempo music is definitely a good choice. On the other hand, subtle classical music tends to prompt guests to eat slower and taste the full flavor of your food. The Association for Consumer Research reported that guests spent about 23 percent more when listening to slow-tempo music.
We know that listing attitude as a contributor to the mood of your restaurant may have thrown some of you off a bit. What does attitude have to do with atmosphere? Your staff’s general “attitude” in many ways determines if your restaurant is seen as bubbly, friendly, and effervescent or subdued, slightly aloof, and a little arrogant. And nothing is wrong with either “attitude” depending on the type of patron you are hoping to attract.
“…everything can be taken from a man but one thing: the last of the human freedoms—to choose one’s attitude in any given set of circumstances—to choose one’s own way.” –Viktor E. Frankl.