Dubai takes second place in world rankings as the country with the highest number of restaurants per million residents after Paris. The food and beverage industry is the second largest sector in the country and it is set to experience strong and sustained growth rates of up to 7.1 per cent annually, reaching $196 billion from the $130 billion mark in 2018.
It is estimated that many restaurants close about 5 years from their opening due to poor management and other factors. In the UAE, restaurant failures are not uncommon with an excess of restaurants announcing their closure every other week. Seeing as to how easy it is for restaurants to fail and close in the UAE, restaurant owners and managers have come up with the following ways to ensure the success of their restaurants:
- Hiring great and experienced staff
- Working with restaurant consulting firms in their management
- Setting up discounts and loyalty programs for their devout customers
- Aggressive marketing and promotion
After years of working with restaurant owners across the UAE, we have learned that one of the best ways to ensure the success of restaurants is by setting up strict cost control and theft prevention measures. Below we share some helpful insights on how to cost control and theft prevention in the food and beverage industry.
What is F&B cost control?
Cost control in the food service industry is simply the practice of identifying and reducing business expenses as a means to increase profits. To make the most out of this process, you need to continuously identify areas of improvement and formulate solutions that will give positive results. Things like expired food in stock, or your staff secretly eating meals meant for the guests during their shifts can have a large impact on your costs of operation. Effective cost control seeks to minimise losses incurred by such means to ensure profitability.
What are the advantages of cost control in the F&B Sector?
- It enables the company to increase its profits and use those funds to improve the efficiency of the restaurant operations.
- The restaurant is able to improve its financial strength, therefore, increasing its credit ratings.
- An established food and beverage control process will develop a cost-saving culture among the employees. They will deliberately keep looking for ways to cut down costs even without supervision.
- With increased profits, restaurant owners are able to increase their staff’s pay. This, in turn, attracts better-skilled employees which are a plus for the company.
- Through cost control management policies, you will be able to identify and eliminate activities that are consuming unnecessary costs from your budget.
What is a Good Food Cost Percentage?
Food cost is the ratio between how much it costs you in raw materials to make a dish and how much income you will get from the dish. Food cost can be measured by taking the cost of a dish by breaking down each unit and pricing it accordingly. You may also determine the cost of food by valuing your assets such as the value of inventory.
It may be difficult to calculate the ingredient price of small quantities such as a tablespoon of oil or half a tablespoon of sugar, therefore, calculating in batches will be easier.
Calculating the individual cost of items on the menu can be difficult and you may opt to use food cost calculating software. Divide the total food cost for the batch by the number of sales units you get out of the batch to calculate the food cost per unit. Calculating the cost of ingredients is hardly ever the same cost you get from the dish at the end of the day. For instance, ingredients may spoil or your staff may serve larger portions than you had calculated.
The average food cost percentage is estimated at 22 to 30 per cent depending on the type of restaurant.
Knowing the total food cost percentage can help you edit the menu by changing prices or removing items that are no longer profitable.
What is a Good Labour Cost Percentage?
In many restaurants, labour cost accounts for up to a quarter of the total revenue. Thus, its variation can have a rippling effect on restaurant operations. It is therefore important that labour costs are controlled in the business.
Labour cost control includes the process of developing, studying and recording the activities and performance of workers. It helps calculate the correct amount of wages and making payments on time. The management uses the information derived from labour cost for better planning and decision making in the restaurant.
The average labour cost percentage is estimated at 20 to 25 percent of the total revenue of the restaurant.
How Restaurants Control Costs
1. Minimising wastage through portion control
Food wastage can lead to escalating food costs and must be prevented as much as possible. Some of the biggest ways food is wasted in the restaurants are by overproduction and serving portions too large. Restaurants avoid this by using tools to measure and control the portions. Large portions mean that the restaurant will incur high food costs and waste a huge fraction of it, leading to losses for the restaurant. Ensure you track the ways by which this food is lost, for example, the amount of food returned by the customer, food burned or spilt in the kitchen or extra portions that get thrown away. From here, you can work toward correcting them. If a lot of food is being returned by the customer, then you need to reduce the size of the portions you serve. If food is being spilt frequently, you can hold your staff accountable and come up with strict consequences.
2. Use a POS system to manage inventory
In order to control food costs, it is important to have a Point of Sale (POS) system to input orders and manage inventory from the menu items to ingredients. Many POS systems will also have employee details such as contact information and shifts details. These, when done manually leave a margin for errors and takes a lot of time. Automating the inventory systems will save on labour costs too as it replaces human labour. Having a POS system will save you a lot of time and improve your business greatly. For instance, when linked to the kitchen display system, orders placed by customers can be visible in the kitchen system and save a lot of time to get the customer’s order ready.
3. Setting up systems to discourage theft by staff
Restaurants lose a lot of money monthly because of internal theft by their employees. Theft by employees can take many forms, for instance giving away free foods and drinks to customers, giving unauthorised discounts or stealing food or drinks for themselves. If your employees know you have a strict system in place to detect such practices, they will shun from them. Ways to curb these malpractices include using an advanced POS system to track all sales and inventory. Another way to reduce theft is by installing security cameras in your kitchen and storage facilities. This way, your staff will know they are being monitored and avoid stealing. You may also give access to few people to the cash drawers, registers and safes. This will motivate the staff involved to be more responsible in handling your restaurant’s finances.
4. Evaluating employee performance
A lot of money earned in the restaurant goes into paying employees’ salaries. Constantly evaluating their performance will help you establish whether they deliver the duties accorded to them efficiently. From here, you will be able to decide if you need to train them or let them off, eventually improving your total revenue. There are restaurant management systems that can help you easily do this without breaking a sweat. The system can help you assess the worth of items sold and track the number of tables waited by each employee. This information is valuable when it comes to assessing their individual performance.
5. Scheduling daily or weekly reports to constantly keep track of restaurant sales and costs
Keeping regular track of the progress of the restaurant is another important factor to consider in controlling costs. In constantly checking the progress of the business, you will be able to have more control and identify the areas that still need to be worked on. The number of times you audit these reports depends on the size and type of the restaurant. Along with these, you also need to monitor your monthly sales report to give you details of the sales performance for individual menu items. Consequently, you may decide to weed out the low performing but high food cost items from the menu to reduce wastage.
6. Controlling labour costs
One great source of stress for restaurant owners and managers is retaining quality staff. The hiring process is quite hectic as it involves a lot of time to interview, recruit and train them appropriately. When an employee leaves, all that effort goes to waste and the whole process repeats in the search of another replacement. Therefore, when hiring new employees, ensure you focus on hiring quality staffs and provide favourable conditions that will enable them to stick longer. Have a good pay structure and constantly reward your employees to make them feel more motivated and willing to stay at your restaurant longer, thereby reducing labour costs.
7. Analysing stock requirements by assessing the yield
Yield management basically gives you a rough estimate of how much raw materials will be used in the preparation of a particular food item. The raw materials should then be ordered in line with that amount. While placing the order, keep in mind the number of portions that the order of raw materials will deliver. This ensures you do not have more than needed that will eventually go to waste.
8. Hiring Restaurant Management Companies
From our experience, more staffs take advantage and food wastage increases when a restaurant management company is not present in the scene. That’s why hiring one for your F&B business is arguably the simplest and best way for you to control costs and increase your profits. Restaurant management companies do the entire work for you without you breaking your back. They are equipped with the professional skills to operate the best restaurant systems and provide exceptional management solutions at a fair price. They are experienced to work with a diverse group of concepts from quick-service restaurants to fine dining establishments. They will also help you develop efficient strategies to reduce costs and improve profitability.
The competition level in the food and beverage industry in the Middle East is always increasing and it becomes harder every day for restaurants to thrive in the industry. Customers are sadly hit with announcements of restaurant closures just as much as they hear about new restaurants opening in their locality. Following the above tips will help you keep your business afloat and enjoy its highest profits ever.
Need more tips for your restaurant business? Read more from our blog.