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Sunday, July 24, 2011

Why are restaurant failure rates so high?

I recently have been doing some searches to discover some new ways to improve sales in my store. I came across one little jewel, although unhelpful to me was a prime example of how no matter how good you think (or know) you are restaurants are not that simple.

Author: Bradley James Bryant (I thought it was a man, evidently it's a woman).

Degree: MASTERS of BUSINESS ADMINISTRATION with an emphasis in FINANCE from Florida A & M University

She writes...

"Identify your most profitable items. These items should be marketed the most to your customers. The one thing to remember here is that "highest profitability" is not always synonymous with "most expensive." For instance, an alcholic beverage may only cost $2 to make, but you might be able sell it for $10--a 500 percent return. However, lobster may cost $10 to purchase with a $20 menu price--a sizable but inferior 100 percent return. Obviously, you're better off selling the drink in this case."

...which you should be aware is almost direct plagerism from this site:

"Identify the most profitable items and promote them well. Do everything you can to ensure that these ‘most profitable items’ become the darling items of your customers. Keep in mind that the most profitable items are not always the most expensive. One you have these identified, you may instruct your servers to subtly promote these items to your guests. The more of these items that are sold, the higher your restaurant profit margin would be."

Still, this may seem logical, and she has a Master's degree with an emphasis in finance so she knows what she's talking about right?


My comment:

I stopped reading this after the very first point. The very first concept of any business is that DOLLARS PAY BILLS, PERCENTS DO NOT. When the liquor delivery comes and I tell him I have a 500% return on my drinks he's going to ask if I have any cash for the product (percents don't pay bills). If your food cost is 3% but you can't afford to pay your employees you go under. Using your same numbers, although comparing a drink to an entree is skrewed, I will work with it. Generally if you are comparing menu items it is important to first compare items in the same category of sales (a drink effects beverage cost, an entree effects food cost, you can't compare them) Depending on the drink it might even be classified as liquor, beer, or wine. If I was going to write this I would have compared a chicken breast to a lobster, anyhow. If 100 people walk into your restaurant on any give day and they all order the drink, you make $800 (with a 20% beverage cost, yay for you) BUT if the same 100 walk in and order the lobster you make $1,000 (with a 50% food cost and $200 more dollars in your pocket). You said identify your most profitable items, this means their profit margins. The drink has a profit margin of $8 and the lobster a profit margin of $10, the lobster is more profitable. You, just like hundreds of thousands before you, successfully just failed to identify the most profitable items on the menu. It is because of these kinds of business concepts that aren't fully understood many restaurants go under. There is a constant power struggle between the ownership and the management. The owners want the highest profit margin, but they give bonuses to managers with the best food costs (it's strange really).

These people. I never grow tired of listening to the "statistics" of restaurant failures. If the author spent six years working in a restaurant instead of getting that coveted (yet worthless in this case) degree, she might have been able to give a good answer. She screwed up the only part she didn't steal from someone else.

I love working in restaurants too much.

Read the full article here: How to Improve Restaurant Sales |

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