Running a restaurant isn’t easy. And making a profit is even harder. In 2018, the average profit margin for restaurants in the UK was just 1.5%. Most independent restaurants operate right on the edge of survival, and are vulnerable to even small changes in market conditions.
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The situation has only been made worse by the coronavirus pandemic and the months spent in lockdown or operating with restrictions in place. Restaurants have had to adapt or die. Check out our guide on how to reopen your restaurant in line with the latest COVID guidelines here.
Many REKKI restaurants have adapted to life in lockdown by introducing a delivery service and setting themselves up on platforms such as Deliveroo or UberEats. This has allowed them to keep operating even during lockdown and tap into the ever-expanding takeaway market. By trimming their menus and running a stripped back service, restaurants have been able to operate flexibly and react quickly to changes in demand.
This guide is based on their experience and learnings. It covers the general steps you can take to adapting your restaurant and becoming profitable, then focuses on how to effectively manage your food costs and relationships with suppliers in order to grow your margins. It also includes specific advice on how to adapt your restaurant for takeaway and delivery.
At REKKI, we exist to help chefs and restaurant owners. We want to make running a restaurant easy and sustainable. And ultimately we want to provide the framework and support so that any independent restaurant can become a profitable business.
How do I make my restaurant profitable?
There are two major routes to profitability for a restaurant – increasing revenue and reducing costs. To begin with let’s focus on how you can boost your restaurant’s sales and increase revenue:
- Introduce delivery and takeaway options – make use of services like Deliveroo and UberEats to add online sales to your eat-in orders. This has become increasingly important as a result of COVID-19 and is the only way many restaurants have been able to survive and continue to operate in lockdown.
- Optimise your menu pricing – analyse your sales and work out what your profit margins are for each menu item. Experiment with adjusting prices to improve your margins and increase sales.
- Design a menu to maximise sales of your most profitable items – the layout of your menu can really influence what your customers order. Consider carefully where you position your items to drive up sales of your most popular and profitable dishes. The wording of your menu items is also important – for example, ‘Brixham haddock goujons & fresh tartare sauce in ciabatta from Tom’s Bakery’ sounds a lot more impressive than ‘fish finger sandwich’, and can command a higher menu price. Use this comprehensive guide to menu design to help improve your menu.
- Invest in marketing – promote your restaurant to raise your profile and get more people through the door.
- Add more seating and improve your table turnover – serving more guests per service will increase your daily revenue.
Alternatively, you can focus on reducing your costs to make your restaurant more profitable. As any restaurant owner will tell you, a restaurant’s costs can be broken down into 3 main areas:
- Fixed costs / overheads
- Staff costs
- Food costs (COGS)
Each of these sections makes up roughly a third of a restaurant’s total costs.
Fixed costs consist of things like rent, insurance, business taxes, bills, equipment and site maintenance. These are the necessary expenses involved in running your business, and generally speaking there’s not a whole lot you can do to lower them. One thing you can do though, which will not only lower your utility bills but also reduce your restaurant’s environmental footprint, is to invest in eco-friendly kitchen appliances. Although this does involve some initial cost, your savings over time from using less energy will make it a worthwhile investment. You can also reduce your energy costs by using energy-efficient LED and CFL light bulbs, using motion sensors for the lights in storage rooms and bathrooms, and ensuring appliances are properly maintained and switched off when not in use.
Staff costs are the second major contributor to a restaurant’s overall costs. With smarter employee scheduling, you can make sure that you aren’t overstaffed during slower business hours and therefore not spending unnecessary money on wages. Reducing employee turnover is also important as it’s time-consuming and expensive to train up new staff members. A new employee also won’t be able to provide the same customer experience as a longer-serving staff member who knows the menu inside out, making it even more important to invest in building strong relationships with your staff.
Lots of restaurants choose to focus on reducing staff costs to make themselves more profitable. However, trying to cut down too heavily on these costs can be dangerous. An understaffed restaurant will inevitably result in a bad experience for the customer. And having fewer, but more overworked members of staff will lead to unhappy employees and a higher staff turnover. Realistically there is a minimum number of people and hours of work needed each day for a restaurant to run well. So while the amount you spend on staff may look like a variable cost, it is in fact hard to make serious savings here.
Which leaves us with food costs. This is the only area which is truly under a restaurant’s control. With more effective management of food costs, you can significantly reduce the amount you spend on raw materials and ingredients. The next section looks in depth at how you can become profitable by controlling your food costs.
How do I manage my restaurant suppliers and stock?
To make your restaurant profitable, focus on food costs
At REKKI, we think the key to better management of food costs, and therefore the key to profitability, is through the relationship you have with your suppliers. A transparent, trusting relationship with your supplier means you can better understand how to use the variability of the food market to your advantage when sourcing and ordering ingredients.
By working closely with your suppliers, you can use their specialist knowledge to help you discover the best value ingredients for your kitchen. Prices change depending on what’s in season, so adjusting your dishes to account for this is essential. A good supplier will know when one country’s season is winding down and another’s is starting up, and which products offer the best value depending on the time of the year. Maybe you normally order your tomatoes from Italy, but this year they’ve been affected by blight so prices are hugely inflated – your supplier will know this, and also be able to advise you that Turkey have had a particularly good harvest, so their tomatoes can be bought at a much more competitive price.
Letting your supplier know how the products you order will be used is also important so they can help you make more informed ordering decisions. If your supplier knows that the tomatoes you order will be going into your best-selling pasta sauce, they will also know that imperfections and variable size aren’t as important to you as flavour and ripeness.
By sharing your menu with your suppliers, you give them the chance to suggest money-saving alternatives. Could you change the fish you are using in your special to account for best seasonal availability and value? Could you replace the sirloin steak in your steak sandwich with hanger steak to increase your profit margin on the dish? Suppliers can also recommend products which would add significant menu appeal to boost the price of a menu item. This might be a premium product such as wagyu beef. Or it could be a locally sourced ingredient which would give the dish more of a backstory.
Right now it’s the start of the Skrei cod season in Norway. Not only is it the perfect time for restaurants to serve this fish, it’s also a great example of customers being willing to pay more for a story.
Saving money on your food costs in no way means you have to compromise on quality. Working more closely with your suppliers simply allows you to adapt your ordering to capitalise on seasonal prices and market trends. It’s in your suppliers’ interests to establish good relationships as well – if the restaurants they supply flourish, so will they.
How can REKKI help make my restaurant more profitable?
REKKI is helping to build relationships between restaurants and their suppliers by facilitating the ordering process, opening more channels of communication, and providing more transparency. We take care of all the heavy-lifting so you are free to focus on the important stuff – creating a more profitable menu and streamlining your food spending. You can also use REKKI’s supplier directory to connect with new suppliers in your area, source new ingredients, and ensure you are getting the best value for your money.
As well as placing all your orders through the REKKI app, you’ll soon be able to make instant in-app payments for your orders. Since most restaurants don’t pay their suppliers immediately (most pay for a whole month’s orders at the end of the following month), suppliers need to inflate their prices slightly to account for the risk they are taking and the period they spend out of pocket. If a restaurant experiences financial difficulty or goes under, suppliers may never see the money they are owed. If we allow for instant payments through the REKKI app, suppliers can lower their prices and charge restaurants less. This both eliminates the risk for the supplier and guarantees a fairer rate for the restaurant. Everyone wins. Running debt-free is a big step towards profitability.
At the start of the first UK lockdown in March 2020, Parlour Kensal transformed their North West London pub and dining room into Parlour Market Place, selling restaurant quality ingredients, ‘cook at home’ meals and menu favourites to take away. They began to use REKKI to find and compare suppliers in their area to ensure they were getting the best value on their orders.
Starting with their fruit and vegetable costs, Parlour were able to get quotes from two suppliers through the app, and reduced their average weekly spend on fruit and veg by 5.5%. This drop added up to around £1000 in savings per week, on fruit and veg alone. Comparing the period before and after optimising their food costs, Parlour increased their gross profit margin by around 10% by using REKKI and making other improvements on their business.
Parlour also used REKKI to explore completely new categories and expand their offering as their shop grew. They connected with Atariya, a premium supplier of sushi grade fish, and added high quality sushi to their takeaway options, selling out from day one. You can read the full Parlour story here.
How do I adapt my restaurant for takeaway and delivery?
Right now we are in the middle of the third national lockdown in England. All hospitality venues including cafes, restaurants, pubs and bars have had to close their doors once more. Although customers aren’t allowed to eat in, businesses can still provide food and non-alcoholic drinks for takeaway until 11pm, or for click-and-collect and drive-through. Whilst all food and drink can continue to be provided by delivery.
This means that it has become essential for restaurants to adapt for takeaway or delivery in order to keep running during lockdown. Introducing delivery and takeaway services is not just a means of survival though. According to the data from Statista, the value of the UK foodservice delivery market in 2019 was £8.5 billion, and this has only increased as a result of coronavirus. Changing your business model to allow for online food orders is therefore a serious opportunity to increase your revenue.
Not only have many REKKI restaurants used delivery and takeaway options to keep operating during lockdown, many have actually made themselves more profitable whilst adhering to the new enforced measures. They have largely achieved this by trimming their menus and focusing on selling fewer items with the best profit margins and strongest consumer appeal.
In order to introduce a new delivery or takeaway service, you’ll first need to inform your local authority of the changes you’re planning to make. Then you’ll need to review your menu to decide which items are suitable for takeaway and delivery. Choosing a smaller selection of your most popular and profitable items is usually the best approach. Then you’ll need to get set up online, and start promoting your new takeaway or delivery services. Partnering with an online platform like Deliveroo or UberEats is probably the quickest and easiest way to do this and start making online sales.
To adapt for takeaway or delivery, you’ll also need to make changes to the way your restaurant operates. Here are some of the most important things to consider:
- Check that your insurance covers you and your delivery staff for any new procedures you introduce.
- Consider any risks to food safety introduced by changes to existing procedures, and update your HACCP guidance as required.
- Review and document all new procedures, e.g. allergen management, cook-chill-reheat, temperature control awaiting collection or during delivery.
- Manage risks of cross-contamination between raw and ready-to-eat foods.
- Ensure food packaging for takeaways and delivery is food grade, and appropriate for the purpose and food type.
- Store food packaging hygienically. Check that the hygiene and integrity of any packaging stored through a period of closure has been maintained and dispose of unsuitable packaging.
- Review new takeaway or delivery services to ensure risk of allergen cross-contamination is managed.
- Ensure allergen information is available to customers at time of ordering and at delivery of food.
If you are planning to allow customers to collect your products in-store, there are other considerations to make. These include ensuring that staff members are wearing masks and that social distancing measures are in place on the premises.