HISI2016 PROFIT

TOPIC OVERVIEW

It is the driving force behind any business: profit. Hospitality is an industry buoyed by fast moving trends, creating an environment ripe for innovation, change, and potential profit growth. What you are doing today, can be completely different tomorrow. Hospitality businesses can often operate on thin profit margins - but how can you increase yours? We look at the profit growing opportunities and challenges for your business.

KEY FINDINGS

The formula for better business has always been very simple: increased profit must come from increased work. Whilst many of you are still prescribing to that mentality, it would seem the adage of ‘work smarter, not harder’ is also coming into play with profit-boosting schemes like add-on purchases at ordering or POS, liquor licences and decreasing wastage.

THE BUCK STOPS WITH YOU

Some things never change in small business, right? Nearly 1 in 3 restaurant owners (28%) have said that they will work longer hours themselves in a bid to keep wages at bay. Wages costs are the biggest expense for a hospitality business, so business owners try to cap these themselves by working longer hours. Not an ideal scenario, right?

FRANCHISES ARE KING OF THE ADD-ONS

Not surprisingly, franchise models ranked the highest at (63%) to promote add-on items – e.g. combo meal deals, upsizing, fancier meals (‘create your own’), or better quality ingredients. In the age of reality-TV food obsession, it would seem the average person is no longer content with, well, average!

TAKE-AWAY SAY NO TO ADD-ONS

Interestingly, only 35% of take-away outlets said they would use this tactic in the next 12 months to boost profit. For an industry personified with ‘Would you like fries with that?’, it was a surprisingly low figure. Take-away outlets would do well to take some pointers from the franchise business model and incorporate some of their tactics to boost profit.

THE OPPORTUNITIES ARE ENDLESS…

Other tactics supplied to boost profit were as follows: • Get an alcohol licence • Actively seek more ways to save on costs • Re-invent the business model • Open more days/hours • Improve quality • Reduce wages • Cut cost of sales.

CUTTING DOWN ON UNNECESSARY WASTAGE

Minimising wastage was the most popular method to increase the business’ profit – 69% of restaurants, 80% of franchises, 75% of cafés/coffee shops, 60% of take-away outlets.

TAKE-AWAY ARE QUICK TO ACT

Take-away has the highest proportion to increase prices to boost profit (41%). Take-away venues are also the most likely of all the segments (at 38%) to use cheaper products and ingredients. They were again the most likely out of all the sectors (1 in 4 - 24%) to reduce their portion sizes in efforts to offset purchase cost increases .

FOOD FOR THOUGHT:

Using cheaper products and ingredients, reducing portion sizes and increasing prices have long been the take-away sector’s ‘go to’ methods, but in the current climate, does this mean they will lose relevance in the market? Are they actually giving customers what they want, and will this ultimately signal a downturn for this sector if things don’t change? Take-aways need to be more flexible and adapt to the market. Do an audit of your menu and keep the items that are selling well and profitable and remove the non-performers. Look to diversify and add another element (revenue stream), like coffee or ice-cream. Silver Chef allows you to feel comfortable and concentrate on running your business while you trial the equipment to see if it’s right for you.

OPPORTUNITIES

It’s the secret code that every small business owner wants to crack: how can I increase my profit margin? The answer comes down to one simple thing: being organised. Allowing yourself sufficient time within your business for both planning and review, will allow you to take on profit-increasing activities, research the latest in innovative strategies, and find out what profit stream is suffering the hardest. Here are some other opportunities for how you can increase your profit margin, and start working towards your business goals.

BUILD YOUR TOP-LINE REVENUE

That’s right - sell, sell, sell! Did you know that a 2% increase in sales is equivalent to a 10% reduction in food costs? Be aggressive in your selling strategies. Aaron Allen + Associates encourage you to ask yourself: “Can you refresh the sales skills of your front of house staff? Can you get your servers to sell more beverages? Can you put together some creative specials or fixed price options that will get people in the door? Before you start cost cutting, make sure you’re doing everything you can to creatively and energetically sell your restaurant’s offerings.”

RE-ENGINEER

The landscape of take-away food, restaurants, and cafes in Australia has changed irreversibly over the past decade. Competition has increased with high-end urban grocery stores now offering fresh, pre-packed meals; restaurants are learning to specialise, whilst centralised ordering systems like Menulog and Delivery Hero are killing local take-away outlets by opening up a world of endless options, delivered to your door. Now is the time to take your current profit-making strategies and adopt them to the modern industry attributes.

FOCUS ON YOUR GOOD STAFF

Between unpaid training hours from management, uniform costs, onboarding programs, human error and education; it is estimated the average Australian business spends up to $1,500 training a single member of staff. So, before considering terminating a contract: what are your other options? Can you offer paid leave, holiday leave, or training programs? Hang on to your good staff - they underpin your business in both service and reputation.

MARKETING

As we will touch on more later, marketing your business is the most effective way to bring in more customers. With major developments in the online sector, advertising your business is now much cheaper than the traditional print advertising of days gone by. You can isolate certain demographics - such as age, or what postcode they live in - so your local catchment can be targeted.

FOCUS ON THE MAJORS, NOT THE MINORS

Looking at every single opportunity to increase your profit can be completely overwhelming. Adopt the 80/20 rule: what are your priorities? What is achievable in the next 3 months? What would you like to achieve in the next year? What are your long-term opportunities? Take it one step at a time, and cross off all the ‘can-do’ activities to start seeing immediate results.

EQUIP YOURSELF WITH THE RIGHT TOOLS

Setting yourself the goal of increasing your food production, or reducing your wastage, cannot be achieved without first creating an environment that will make this possible. Can you reconfigure your seating plan? Is your kitchen using the best equipment possible?

PASS ON SOME OF YOUR PURCHASE COST INCREASES

It’s an unpopular option, but one that more people must consider. Do your current prices reflect the stock costs, wages, rent? 27% of restaurants and 20% of cafes we surveyed admitted to not passing on growing business costs onto their consumers. Are you selling yourself short for premium ingredients being sold at an average price-point? Consider when you last set your prices, and work backwards to calculate how your expenses have increased since then.

TOOLS OF THE TRADE

Having the right equipment for your business is paramount to the success of both service and product. In a fastmoving industry that is known for its ever-evolving trends, the food and beverage market requires very specific equipment. Silver Chef understands that start-up businesses require the right equipment, at the right time. That’s why our innovative system allows you to rent and try the kitchen equipment you need, before moving on to purchase if you decide it’s right for you. It also provides you with the ability to have your business up and running, creating an environment in which eventual ownership is made possible if that’s your ultimate goal.

CASE STUDY

Recently, Silver Chef had a young couple from Korea open a gourmet pizza store on the Gold Coast in Queensland. They were travelling quite well until large franchise stores opened in the same complex - suddenly, they were selling $20 pizzas against their competitor’s $5 pizzas. They came back to Silver Chef and noted that a noodle and bubble tea bar would be fantastic - and so, like that, their business was transformed! They returned all the pizza equipment, replaced it with a wok table, bubble tea machines and rice cookers. This allowed them to adapt to their changing market conditions and keep the assets that were working like their exhaust canopy and cold room. The result was that their business bounced back, revenue and profit increased, and they welcomed lots of new customers into their business. Hospitality businesses must be both flexible and resilient. They must move freely with the trends moving through the industry, but also be prepared to let go of their concepts, and adapt to what the consumer is wanting. Part of this is making sure you have the right environment to do so. If your current kitchen is squaring you in, then take the time to review - Silver Chef gives you the freedom to try something new, without the financial burden or having depreciating equipment on your books, using up your cash flow and impacting on your business’ ability to borrow from lenders in the future. Plus, Silver Chef payments are 100% tax deductible. It’s a fast industry to survive in - and Silver Chef wants to make sure you can keep up.