It’s the eleventh hour for many independent restaurateurs. Beaten up by COVID closures, record-high inflation, and persistent staffing shortages, thousands of dedicated owners are just an invoice or two away from turning off the lights permanently. At the best of times, many restaurants are scraping by month to month with very little or no cushion to endure repeated setbacks. So when things go wrong, many businesses can’t survive.
According to the Independent Restaurant Coalition, more than half of independent restaurants and bars that have yet to receive federal grants anticipate they will close within the next six months. Many pegged their hopes on new Restaurant Revitalization Funding. But, even if Congress had agreed, more federal money wouldn’t change how the foodservice industry works or protect independent restaurants from the next unforeseen challenge.
To change the industry and move more restaurants from “just getting by” to thriving, owners and managers must address the core problems: profitability and cash flow. Central to fixing these systemic vulnerabilities is improving access to reliable, actionable cost data and advanced analytics. Large restaurant corporations have benefited from this valuable information for decades, but smaller restaurateurs struggle to compete without it. Unlike large restaurant groups, which retain CFOs, accounting firms, and dedicated financial departments, independent restaurants usually have a single manager juggling all of the front- and back-of-the-house (BOH) responsibilities. And the average independent restaurateur is too strapped for time to devote hours to uncovering hard-to-find data points that might help.
With no relief in sight and with margins tighter than ever, independent restaurateurs need quality analytics like never before. Let’s look at three ways to get what they need.
Collect the right data
For the restaurant BOH to benefit from analytics, they first need to aggregate their cash flow data. The average independent restaurant may deal with more than 10 food suppliers every month, all of which put them on short and differing payment terms. Since the foodservice industry still largely runs on outdated payment processes using paper invoices and physical checks, it’s not surprising that many restaurant managers attempt to track cash flow in a manual ledger. For the average independent restaurant paying 40-60 invoices a month for food costs alone, using a manual ledger creates room for human error and is time-intensive.
Conversely, managers embracing centralized BOH technology to consolidate all food payments find multiple margin-boosting benefits. It not only eliminates “reinventing the wheel” each pay period, but technology can prevent overdrafts and makes more accurate budgeting possible. Cutting down the number of hours spent tracking spending also reduces staff expenses. Perhaps most importantly, aggregating food purchasing data at the SKU level is the critical first step to analyzing it.
Analyze the data
Historical food spending patterns are an important insight restaurants need and can only get if they’ve properly aggregated their cash flow data. If a restaurant knows how many products and supplies it actually uses, it can avoid under- and over-ordering, which are two simple ways to save money.
Under-ordering can lead to a restaurant either running out of a popular menu item or having to buy ingredients from a local market at a much higher cost. Overordering creates waste and thinner margins. Insight into historical spending patterns also cuts down on labor costs by eliminating the time spent manually assessing the number of products and supplies on hand at any given time or scrambling to make last-minute purchases.
Together, reducing product waste and unnecessary labor decreases a restaurant’s “prime cost”: the total cost of goods sold plus total labor costs. The prime labor cost is up to 70 percent of some restaurants’ expenses, so it’s an excellent place to find savings.
Put the analysis to work
One of many studies quantifying the benefits of data analytics found respondents raised profits by 8 percent while cutting total costs by 10 percent (BARC, 2019). Using food spend data analysis can create a better understanding of a restaurant’s market pricing — particularly insight into food price fluctuations.
In this current landscape of food inflation, analysis is critical. Unlike corporate restaurant groups that purchase goods and supplies directly from the end suppliers, independent restaurants typically receive their pricing from the last-mile distributor. In turn, independent restaurants are unknowingly beholden to vague upcharges and prevented from comparing their costs against the wider market. When independent restaurants thoroughly understand their food costs and how they compare to the broader market, they are armed with the information to decrease their food costs and widen their margins. If a mid-tier restaurant spending nearly $100,000 per month in food costs can save even a small percentage, it could equate to an annual salary for a whole staff position.
The right BOH software solution should solve all of these challenges. But restaurant managers should not have to become data scientists or endure a long, complicated onboarding process. They should be empowered to focus on their core competencies: making great food and providing excellent customer service. So, when comparing solutions, restaurateurs need to evaluate BOH technology based on three things:
- Ease of use and adoption into their workflow
- Automated collection of relevant data
- The value of straightforward and applicable insights the technology generates
Combined, these three variables reflect how quickly and easily the time and cost savings will impact their bottom line.
For many restaurants fighting to maintain profitability or free up cash flow, there’s no more time left on the clock. According to the National Federation of Independent Businesses, small business owners report that inflation, which is now at its highest since 1980, continues to be their greatest problem. With a bleak outlook and optimism at its lowest since April 2020, the time to turn BOH data into real savings is now.
Dante DiCicco knows small restaurant owners' problems all too well because he lives them firsthand at his own restaurant. He learned about the foodservice industry from the ground up in DiCicco's independent restaurants in Fresno, California. As an early Snap executive, Zitti co-founder, and restaurateur, Dante is building Zitti with tools that update day-to-day operations and help restaurants thrive no matter what is happening in the world around them. His mission through Zitti is to make the food supply chain work for everyone. Learn more at Zitti.com.