Case Study: Restaurant Profitability in an Established Operation

Jim Lopolito

By Jim Lopolito

Jun 27, 2018

A Case Study: Increasing Restaurant Profitability in an Established Operation

This is a summarized version of the restaurant profitability case study. The full Case Study is available at: www.LopolitoHospitalityConsultants.com

Restaurant One – For financial and business confidentiality the actual business name has been replaced in this study.

Assignment Outline:
Restaurant One in Orange County New York desired improved restaurant profitability, as well as Front-of-House (FOH) services to their customers and an understanding and possible improvement of the other perceived deficiencies. Restaurant One offers both a casual dining room and sports bar dining atmosphere with a separate banquet room for parties. Hours of operation occur all 7 days with lunch and dinner service, and there is an abundance of local competition and variety of cultural food styles in the area. Lopo lito Hospitality Consultants was asked to review the location and to assess how to improve service and increase profitability.

Introduction:
The review of Restaurant One, by the restaurant & bar consultants, began in February 2017 where initial observations exhibited numerous neglected core efficiencies causing unreliable service and a negative effect on bar and restaurant profitability.

There was a consistent absence of immediate attention to the customer upon their arrival, followed by a common showing to the table and throwing down menus. This was followed by a service standard of simply taking orders and delivering product with no special steps to create an elevated customer experience. There were compounding service issues with regular and similarly made errors on food and beverage orders that were distressing customers, as well as, FOH and BOH effectiveness. In addition to the FOH training needs that were apparent, issues distressing profits included evidence of severe over pouring with occasional under pours of alcohol, Call brands poured when Well brands were charged, inexperienced wait staff mixing their own alcoholic beverages for their tables, frequent food and bar item returns, no inventory taking procedures, arbitrary menu price practices instead of formula based, lack of training in secondary floor managers, and there was a neglect to parking needs affecting diners coming to the location especially during parties, and this was additionally burdened with employees taking up guests parking spots.

Case Observations Presentation:

  1. The general manager was never trained in essential skills like inventory management, COGS, menu engineering, and is unfamiliar with the percentages that are necessary to understand cost evaluations.
  2. There were no employee position descriptions in place, onboarding or training programs.
  3. Wait staff make their own drinks for their tables resulting in poor quality. Call brands are being poured when Well brands are charged, there is no recipe consistency.
  4. Upon our initial review we performed a short audit of alcohol cost percentages by reviewing of invoices and sales during the same time period. These first month results are as follows;
    1. Bottled wine pouring percentages were at 45%-63%.
    2. Wine by the glass pouring percentages were at 24% to 44% on paper, however most wines by the glass were being over poured so these results were estimated lower than actual.
    3. Alcohol pouring cost percentages were at 40%. d) Beer pouring cost percentages on bottled and tap combined were estimated at 35%.

LHC Management and Outcome:

  1. Position responsibilities were formulated and LHC wrote a guide for each of the four segments; Front Desk, Runners, Bussers, and Wait Staff. Training to each segment progressed.
  2. Meetings with the general manager began in March to train in inventory and COGS management.
  3. Inventory training with the General Manager included the creation of their first inventory spreadsheet, understanding FIFO & COGS, and evaluation and calculations of alcohol pouring cost percentages.
  4. To address the inconsistent drink making, over pouring, and other cost issues, LHC designed a 4 hour comprehensive alcohol pour training program for all wait staff and bartenders to attend.
  5. June 2017 presented a second full month of strong inventory and COGS results for pouring cost assumptions resulting in the following.
    1. Wine combined COGS is $3,119 on $14,381 revenue for a 21.7% cost to sales (down 7.3% from May)
    2. Bottled & Tap Beer combined COGS is $5,981 on $21,510 revenue for a 27.8% cost to sales (down 2.2% from May) c) Alcohol COGS is $5,080 on $22,447 revenue for a 22.6% cost to sales (down 10.4% from May)

Discussion:

This case was coordinated over a 9 month term, February 2017 to October 2017. The initial project concerns by the owner was training of the FOH staff in better service standards and perhaps the idea that no inventory taking was affecting profits.

Conclusion:
A discussion of financials in October 2017 offered an average increase to restaurant profitability of $3,000 per month over the term beginning June 2017 through September 2017. If maintained, the resulting outcome for 2018 has a minimum expected 2% increase in annual profit, or $36,000 additional profits based on $1.8 million revenue.

Follow –Up:
A follow-up call was made to the manager at 3 months following the completion of this project. Here are the results of this conversation.

Q: LHC introduced and trained staff in drink making and how to use the recipe books LHC created for the bars. We also introduced and trained to use the jiggers. Are the bar books and jiggers being used?
A: Yes, continually used, especially by new staff working with the recipes. Also, we do not push the few seasoned bartenders to use the jiggers when very busy, but all wait staff use them continuously. Customers have become accustomed to the jiggers.

Q: LHC introduced a comprehensive program of training with materials for bartenders, wait staff, bussers, and runners. How well has this program continued?
A: Staff is performing better with fewer mistakes. Drinks are more consistent for us with the bar recipe books LHC designed. We have a number of new employees that recently started, and they will receive the position descriptions. Fewer mistakes are occurring with orders though.

Q: Have you reviewed financial with the owner regarding profits?
A: Yes, while I have not seen the recent reports myself, the overall talk is profits are better and are continually getting better since LHC program implementations.

About the author

Jim Lopolito

Jim Lopolito, President of Lopolito Hospitality Consultants, Corp. is a veteran of the restaurant, country club, catering & concert industries offering expert assistance with club management consulting, restaurant consulting, and other foodservice development. He has worked as an executive chef and general manager and has performed in a consulting role for more than 20 years. His proprietary “Expense Loss Review” program has been a highly sought after resource for his broad client base. Jim is a member of Cayuga Hospitality Consultants.


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