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Keeping track of this one number can improve your business.

Is Efficiency a Better Indication of Success Than Sales?

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How one overlooked statistic could make the difference

By Juan Martinez November 2016 Vendor Bylines

Every day you read an article about the ills of the full service segment. It is certainly pretty serious when brands like Ruby Tuesday, Ignite Restaurant Group, and Logan’s Roadhouse end up having to close a significant number of locations, with some even filing for bankruptcy. How can this happen? Well it is very easy if the concept is not designed with efficiency in mind.

I am going to go out on a limb and state that the problem with the full-service restaurant category is not that there are too many and the market is saturated, but rather that there are not enough restaurants designed efficiently. In my mind, there is no reason that a concept that is earning $2 million in sales or more should not be able to float good profits, especially when a good portion of the labor cost is subsidized by the customers via tips in most states. The problem is efficiency.

What is Efficiency?
Efficiency is a mathematical equation that measures output (sales) and input (costs) to determine the bang for the buck.

The more output and the fewer the inputs, the more efficient the concept is in terms of efficiency of dollars, which is the most important measure of efficiency. It is not how much you sell, but how much you have left that defines the fate of a restaurant. I realize that some of you are saying that sales, and more importantly, comparable sales is a critical metric of success, but I would challenge you all day long. At the end of the day “money talks, people walk,” or should I say “remaining money talks.”

You have to mind the sales and the cost simultaneously to truly drive success. You have to mind the overall efficiency in the design of the full-service concept to maximize the likelihood of success.

Although customers do not walk out of a full-service restaurant saying that their experience was efficient or not, they will likely feel it in part of their experience through an issue with hospitality. The moment you impact the customer’s experience, you have the risk of impacting sales; the moment you impact sales, you have the risk of impacting profits; and the moment you impact profits, you have a chance of impacting growth of the brand, or worse having to close or file for bankruptcy. So from a service perspective, make sure it is an efficient experience so that sales go up while costs go down.

So how do you drive efficiency of hospitality, and better yet, how do you drive what we call profitable hospitality? By making sure that the operating parameters are integrated into the design optimally and that these facilitate the execution of the brand by the employees by supporting, not inhibiting what they do. These parameters include processes and procedures, platforms and technology, place layout design, labor deployment, products and promotions, and more.

Profitable Hospitality

You may notice that I threw in a new term that perhaps you might have never seen before: Profitable hospitality. It is easy to drive profits at the expense of hospitality, for example, by reducing the staff in the restaurant, or having antiquated equipment and technology in the back that results in poor food quality and bad service. Similarly, it is somewhat easy to drive great hospitality by throwing a ton of labor at the service and production by having the most sophisticated equipment and technology. But in either of the aforementioned scenarios, you can still end up in not having efficiency due to not enabling the concept to drive service and hospitality or by spending too much operating and capital cost. The goal is to deliver both profit and hospitality at the same time.

A key piece, and possibly the most important in the efficiency equation, is the people/labor component, since labor is an annuity that happens each day, and if it is not already the highest cost in the P&L, if (or is it when) the minimum wage goes to $15 per hour, it will be for sure. We believe that if you do right for your employees by making it efficient to run and manage the business, they will in turn deliver better hospitality, resulting in higher sales, profits, and brand growth.

So start with an evaluation of the current efficiency of the concept around all areas, such as investment, labor, service, capital cost, menu, quality, and more.The principles of industrial engineering in foodservice and ergonomics provide a great sage way to measure and understand how efficient your concept is.

As you complete this evaluation, make sure that it is done in an objective and quantifiable way. Absent such an analytical process, you will find yourself having subjective discussions around the table on what the problem is, the possible solutions, and you will very likely not push the envelope and the existing paradigms enough to drive the maximum impact.

Juan Martinez
Juan Martinez is a 33-year foodservice industry veteran. He is principal and founder of PROFITALITY, an Industrial Engineering Consulting Company that helps foodservice brands optimize their investment to drive better unit economics that support brand growth. This experience spans to nearly 150 concepts, including more than 50 percent of the top 100 brands in terms of yearly revenue. Juan is a licensed professional engineer with a BS in industrial and systems engineering from Georgia Tech and an MS and PhD degree in engineering management and ergonomics from the University of Miami.