Res­tau­rant in­sider: Stan­dards and bench­marks

Know­ing in­dus­try stan­dards and bench­marks is crit­i­cally im­por­tant to con­tem­po­rary res­tau­rant own­ers and op­er­a­tors. Chadi Chidiac, man­ag­ing part­ner of hos­pi­tal­ity man­age­ment con­sul­tancy, PRO­TO­COL, breaks down the man­age­ment ap­proach for im­ple­ment­ing best

Hospitality News Middle East - - CONTENTS -

Prime cost in­dex Prime cost is one of the most telling key per­for­mance in­dex (KPI) on any profit-and-loss state­ment. Prime cost is the yield of cost of sales in ad­di­tion to the pay­roll costs; it re­flects those costs that are gen­er­ally the most volatile that de­serve the most at­ten­tion from a con­trol stand­point. It’s very easy to lose money due to lax of con­trol in this depart­ment. Many suc­cess­ful res­tau­rants un­der­state the prime im­por­tance of this con­trol­lable ex­pense and they cal­cu­late and eval­u­ate their prime cost at the end of each week.

• Full-ser­vice 65 per­cent or less (to­tal sales) • Ta­ble-ser­vice 60 per­cent or less (to­tal sales)

When look­ing at a res­tau­rant’s cost struc­ture, prime cost is a mean­ing­ful fac­tor, whereas there are res­tau­rants, such as steak or seafood res­tau­rants that may carry very high food costs and yet still be ex­tremely prof­itable. Food Food cost should range be­tween 27 per­cent and 32 per­cent for full and lim­ited-ser­vice op­er­a­tions. Al­co­holic bev­er­age Al­co­hol costs is cor­re­lated with the type of drink served. • Liquor should range be­tween 17

per­cent and 20 per­cent • Draft beer should range be­tween

16 per­cent to 19 per­cent • Bar con­sum­ables be­tween 3 per­cent

and 5 per­cent • Wine should range be­tween 34 per­cent to 46 per­cent re­lated to the ori­gin (lo­cal or im­ported) • Com­mer­cial beer bot­tle be­tween

24 per­cent to 28 per­cent

Among other fac­tors and in­di­ca­tors, sales per square me­ter is the most re­li­able in­di­ca­tor of a res­tau­rant’s prof­itabil­ity and po­ten­tial for suc­cess

Non­al­co­holic bev­er­age Stan­dard prac­tice is to record non­al­co­holic bev­er­age sales and costs in 'food sales' and 'food costs' ac­counts • Soft drinks be­tween 10 per­cent to

15 per­cent

• Spe­cialty cof­fee be­tween 12 per­cent and

20 per­cent • Reg­u­lar cof­fee be­tween 15 per­cent and

20 per­cent • Iced tea be­tween 6 per­cent and

10 per­cent • Min­eral still wa­ter be­tween 5 per­cent

and 10 per­cent • Sparkling wa­ter be­tween 15 per­cent and

25 per­cent Paper In LSR (lim­ited-ser­vice res­tau­rants) paper cost should be clas­si­fied as a sep­a­rate line item in “cost of sales.” His­tor­i­cally, paper cost has run from 2 per­cent to 5 per­cent of sales. Whereas in fullser­vice res­tau­rants, paper cost is usu­ally con­sid­ered to be a di­rect op­er­at­ing ex­pense in­cluded into the COGS (cost of goods sold) and nor­mally runs be­tween 1 per­cent and 2 per­cent of to­tal sales. Pay­roll and salaries Pay­roll cost is a ra­tio cal­cu­lated by de­fault as a per­cent­age of sales in­clud­ing the cost of both salaried and/or hourly em­ploy­ees plus NSSF (na­tional so­cial se­cu­rity funds) em­ployee ben­e­fits, which in­cludes pay­roll taxes, group, life and dis­abil­ity in­surance premi­ums, work­ers’ com­pen­sa­tion in­surance premi­ums, ed­u­ca­tion expenses, em­ployee meals, par­ties, trans­porta­tion, and other such ben­e­fits. To­tal pay­roll cost should not ex­ceed 29 per­cent to 36 per­cent of to­tal sales for full-ser­vice op­er­a­tions and 26 per­cent to 30 per­cent of sales for lim­ited-ser­vice res­tau­rants. Gen­er­ally, man­age­ment salaries should not ex­ceed 10 per­cent of to­tal sales in ei­ther a full- or lim­ited-ser­vice op­er­a­tions. This would con­sist of all salaried per­son­nel. As for the hourly em­ploy­ees pay­roll cost, a full-ser­vice op­er­a­tion ranges be­tween 17 per­cent and 21 per­cent as for the lim­ited-ser­vice it runs be­tween 16 per­cent and 19 per­cent. Limit­ed­ser­vice res­tau­rants gen­er­ally are la­bor cost ef­fec­tive thus have lower hourly pay­roll cost than full-ser­vice res­tau­rants. In lim­ited-ser­vice res­tau­rants, man­agers of­ten mul­ti­task and per­form the work of an hourly po­si­tion in ad­di­tion to be­ing a man­ager. In some cases, how­ever, hourly work­ers may also per­form man­age­ment roles on some shifts, which could lead to higher hourly pay­roll costs in these res­tau­rants. Em­ployee ben­e­fits • Em­ployee ben­e­fits 4 per­cent to

7 per­cent of to­tal sales • Em­ployee ben­e­fits 19 per­cent to

22 per­cent of gross pay­roll Em­ployee ben­e­fits can vary some­what depend­ing on the so­cial and mar­i­tal sta­tus of em­ploy­ees. Res­tau­rants that have more sin­gle work­ers in their crew may have lower ben­e­fits costs due to their ex­emp­tions of the fam­ily al­lowances that could cause their em­ployee ben­e­fits to be lower than the stan­dard. Prof­itabil­ity stan­dards Among other fac­tors and in­di­ca­tors, sales per square me­ter is the most re­li­able in­di­ca­tor of a res­tau­rant’s prof­itabil­ity and po­ten­tial for suc­cess. To cal­cu­late sales per square me­ter, di­vide an­nual sales by the to­tal in­te­rior sur­face in square meters in­clud­ing kitchen, din­ing, stor­age, rest rooms, etc. This is usu­ally equal to the net rentable or leasable square me­ter AKA gross leasable area (GLA) in the fi­nan­cial jar­gon. For full-ser­vice op­er­a­tions gen­er­at­ing un­der USD 45/square me­ter = lit­tle chance of mak­ing a profit, when at USD 45 to USD 75/square me­ter = break even up to 5 per­cent of sales. At USD 75 to USD 100/square me­ter = 5 per­cent to 10 per­cent of to­tal sales. As for limit­ed­ser­vice res­tau­rants, an in­come un­der USD 60/square me­ter = lit­tle chance of avert­ing an op­er­at­ing loss where at USD 60 to USD 90/square me­ter = break even up to 5 per­cent of sales. At USD 90 to USD 120/square me­ter = 5 per­cent to 10 per­cent of sales (be­fore in­come taxes and VAT). Rental fees and oc­cu­pancy cost stan­dards As for the oc­cu­pancy stan­dards, rent should not ex­ceed 6 per­cent to 8 per­cent of to­tal sales. Gen­er­ally, the goal is to limit rent ex­pense at 6 per­cent to 8 per­cent of sales or less, ex­clu­sive of re­lated costs such as com­mon area main­te­nance expenses (CAM) and other oc­cu­pancy expenses. When rent should not ex­ceed 8 per­cent, oc­cu­pancy should be lim­ited to 10 per­cent or less as well. Oc­cu­pancy cost in­cludes rent, CAM, in­surance on build­ing and con­tents, real es­tate taxes, per­sonal prop­erty taxes and other mu­nic­i­pal taxes. When oc­cu­pancy cost should be kept at 8 per­cent or less of sales, how­ever, 10 per­cent is gen­er­ally viewed to be the point at which oc­cu­pancy cost starts to be­come ex­ces­sive and be­gins to se­ri­ously im­pair a res­tau­rant’s abil­ity to gen­er­ate an ad­e­quate profit.

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