What’s in the Mix: Profitability for Restaurants | Rea CPA

What’s in the Mix: Profitability for Restaurants

Profitability for Restaurants | Rea CPA

Like many businesses, restaurants are finding it difficult to maintain profitability since the pandemic, thanks to increasing food and beverage costs, labor shortages and rising wages. In an effort to keep costs down, some restaurants have revamped their menus to try to sell new, more profitable offerings without raising prices. Other attempts to shore up profitability include shrinking portion sizes, finding substitute items that are a lower cost, and shopping around for different suppliers.

Most restaurants have decided to increase prices to some extent recently as these other efforts can only go so far when costs continue to rise due to inflation. These price increases have helped sales look good or even up from prior periods, but when adjusted for inflation, sales and profitability are still generally down.

What can a restaurant do?

Here are five tips to increase profitability and cut costs in your restaurant:

  • Pay close attention to your food and beverage costs.  If you see prices creeping or jumping up, make a change in the product you are buying or figure out if that item is something critical to your menu.
  • Shrink your menu. Eliminate menu items requiring you to buy a unique inventory item.  If you can have menu items that share some of the same ingredients, your purchasing can be easier with fewer items to track and fewer items to potentially spoil, avoiding waste.
  • Consider adjusting your online/carryout pricing to reflect the extra costs associated with the packaging and labor costs that these orders create. Many restaurants have slightly higher online and third-party delivery menu prices to help cover these costs.
  • If you have large fluctuations in food costs on high-cost items (steaks, seafood, etc.), think about moving to a market price on your menu.  This allows you to set your price to the appropriate level each day/week based on the actual cost of your products.  This works best at higher-end establishments where the guests are generally less price-sensitive.
  • Listen to your guests.  If they are telling you that they want value, create smaller portions with lower menu prices.  If your guests want quality and are willing to pay for it, raise your prices and get the margin that you need to make.

If you are struggling with profitability, want ideas to drive sales, or do not know where to start, the client advisory services team at Rea & Associates has restaurant expertise to help you navigate any business challenges you are facing. Contact us today.

By Mike Lewis, senior manager (Dublin Office)