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Grow profitability by retaining loyal guests

Q: Recently, I spent a week straight in my restaurant covering for my manager while she was on vacation. It appears that fewer regular guests are visiting as I didn’t see many of the people I’m used to seeing. We’ve lost some, so how do I make sure we don’t lose anymore and build some back?

A:
There are several tactics to make and keep loyal guests, including consistency, cleanliness and community impact among others. There is nothing more important than creating a place of connection. Starbucks has grown to over 20,000 stores worldwide; many stores are within a few blocks of one other. Howard Schultz’s vision was to create a third place, beyond work and home – a place to belong. Starbucks is successful because of consumer connectivity to the brand; consumers are part of it and live inside it. Sales from loyal, frequent guests contribute 60 to 80 percent of annual sales for an average restaurant. Those numbers can be higher in a rural or neighborhood location and lower in a tourist location. According to the Gartner Group, 80 percent of your future profits will come from just 20 percent of your existing customers. Further importance is highlighted in a study conducted by Bain & Company, in coordination with the Harvard Business School. This study showed increasing guest retention rates by 5 percent increases profits by 25 percent to 95 percent. Loyal consumers spend on average 33 percent more than a typical consumer and return more often with zero cost of acquisition.

What keeps loyalists coming back is an “ownership” stake in the business and a personal interest in building it. They recommend the business, post about it, brag about it and invite others while spending more; they’re evangelists. What happens in the restaurant is what makes them feel this way. The food is expected to be good, the facility is expected to be clean, the service is expected to be timely and appropriate and the atmosphere is expected to be right—those are entry points. The variable in all of this is connection and engagement of EACH guest.

Working with some of the best restaurants in the United States provides a rare glimpse into success and failure of many restaurants. Some are busy because of popularity of the food or the chef, but those draws fade and slow down eventually as the next new, hot spot opens and thrives. Restaurants that make the experience about the guest, not itself, have the highest, longest lasting success. Well-conceived restaurants find what consumers want and attract guests because the guest is the star of the show, not the restaurant. Those businesses build and become legendary.

To make sure your business is set apart measure these things daily:

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Drive profitability through better beverage management

Q: I’ve recently decided to focus on my beverage program. Where should I focus to run better beverage numbers?

A: Beverages are a significant part of your income statement and your balance sheet. Most full service restaurants sell 20 percent or more of total sales in beverages. A great ratio to drive to is 30 percent or better in beverage sales as these sales are incremental in restaurants and build sales through increased check average. Beverage costs tend to be lower than food costs so you make more on every dollar sold. Additionally, to assemble and serve a drink requires less effort compared to preparing and serving food. If you want to create better results in beverage management, focus on these areas:

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Keep labor dollars from slipping through your fingers

Q: My total labor percentage including taxes runs between 36-40 percent each period. I understand this is normal, but I can’t afford it any longer. What are some ideas to help bring that number down?

A:
Managing labor in non-tip credit states is one of the most important management tasks. In Washington state, where the minimum wage is headed toward $10 per hour soon, every minute counts. To put it in perspective, $10 per hour is $1 every six minutes. With several people on staff, that rate of spend adds up rapidly. To ensure you get what you’re paying for, use these methods to reduce cost:

Start with the right numbers. Total labor including taxes needs to be closer to 30 percent than 40 percent. The lower your cost of goods, the more flexible this number can be; generally, 30 percent all in is a good number. To hit 30 percent, hourly labor needs to be around 20 percent, and management around 5 percent as taxes and benefits will range between 15-20 percent of wages. The higher the management percentage, the lower the hourly percentage and vice versa. Before the next period begins, cost out what the business needs without employee names attached. Total the number of hours and multiply the average hourly rate for both front and back hourly employees, add management wages, then divide the sum by projected sales. If the starting point is above 25 percent, go back to scheduling around the business to drive the maximum sales during busy times by having appropriate sales producing staff and minimizing labor in the slow times. Tighten up hours of the day that are low revenue and high labor.

Use scheduling software effectively. In this era, where the average restaurant is spending more than $350,000 per year per million in sales on labor, the investment of $2,000 or less per year for scheduling software is a bargain. Often, the use of scheduling software will reduce cost by 3-5 percent of sales, as it will provide the scheduled labor dollars and percentages prior to starting the period to ensure targeted labor percentages can be accomplished. Labor dollar seepage starts with early clock-ins and late clock-outs. It’s simple. If the spend is $1 for six minutes of time, 10 people clocking in six minutes early and clocking out six minutes late will cost $20 per day. That’s more than $7,200 per year. Scheduling software can provide reports showing who is clocking in and out early or late and how often. Besides tracking time in and time out exceptions, scheduling software will also pull sales data daily and match it up to the scheduled amount showing exceptions. For example, if a schedule was written for $4,000 in sales and $800 in labor, and actual was $3,000 in sales and $850 in labor, you know there were issues with phasing the crew.

Start fast, stay fast. A body in motion stays in motion. A body at rest stays at rest. When an employee arrives at work, make sure the work is ready, and manage those minutes at the start of the shift with diligence. The faster the start, the faster the performance. The goal is to increase productivity daily. Matching busy times with the most productive, fastest people produces the best set of results. Match sales by 15 minutes to the actual employees working every 15 minutes. See exhibit 1.

In the example chart with sales in blue are charted on one axis, labor hours in red on another, it’s clear when there is a sales spike, there is a labor reduction. It’s also clear that the staff is starting too early. Much of this type of behavior is due to prep. Prep hours need to move closer to the sales spikes, and those individuals need to jump on the line and help when the rush hits.

To keep labor dollars from slipping through your fingers, start with the right numbers, use a labor scheduling tool and manage the schedule to speed of performance. Do this and you’ll see those labor numbers come into line. 


For more information on improving profitability and driving performance, contact AMP Services at rbraa@ampservices.com. Rick Braa is the co-founder of AMP Services, an accounting and consulting firm specializing in helping companies grow profitability.

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