Hidden Costs to Power Up Average Restaurant Profits

Restaurant profits across your concept can vary widely depending on location, seasonal changes, geographic labor trends, and more. Which makes it even more important to find areas where you could save money and stretch your profit margins, even if it’s just by a little bit each month. 

Hidden costs run rampant even in the most disciplined companies, and they can be a drag on your bottom line. These are costs that have a direct impact on profit and loss but that aren’t reflected in the spreadsheets submitted by your general managers. Real-time tracking of this information goes a long way toward bringing visibility to your operations and giving you the tools necessary to increase per-location and concept-wide profitability. 

Here, then, are some of the hidden costs that you can identify and address in order to power up average restaurant profits. 

Waste

Although most of your locations probably conduct some kind of waste tracking, is it as robust as it could possibly be? 

General managers and employees may cut corners with waste variance without realizing they’re doing so. A lack of waste tracking could be a reflection of the failures of an inventory system or improper training. 

For instance, do all employees understand that, when a food item needs to be replaced because it was dropped or the diner sends it back, this needs to be properly categorized down to the ingredient? Or is it possible that items fall through the cracks? 

Some items, such as dressings or sodas, lend themselves to not being properly noted in a waste monitoring system. If a soda is dropped or someone leaves most of their drink sitting on the table when they leave, servers may have a tendency to just clean it up, pour it out and go on with their day. So just training your servers to note leftover estimates and to ask customers if they want a refill rather than automatically assuming they want one can help a location’s profit margins. 

The problem can also lie in the stockroom rather than on the plate. Estimating how much food has gone bad, for example, isn’t as effective as weighing or counting how much of a given item is about to rot. It’s also possible that employees are not taking the proper steps to ensure about-to-spoil food gets onto plates as a daily special to prevent the product from heading to the trash.  

If average profits should be higher at a location, it could be because of hidden costs such as these, and the recovery or additional ordering efforts necessary to replace this waste might not be visible depending on your waste variance tracking technology.

Employee Consumption

One of the perks of working at a restaurant is the ability to get discounted or even free food depending on each company’s or location’s policies. But is this policy standardized and/or enforced at every single location? 

Creating and enforcing a policy regarding employee consumption of food can go a long way to reducing hidden costs. You don’t have to be a miser when it comes to letting your employees eat food or take it home, but simply having a policy is critical, because that policy then enables you to account for its effect on your bottom line and see when a given location isn’t meeting the same threshold as everyone else.  

One area where this really comes into play is with alcohol. Alcohol can have some of the best margins of any items on your menu, so any time it’s consumed by employees, that’s going to eat into those profits. While there are certain instances where it may be okay for employees to partake off the clock, these situations should be recorded and tracked, and you should have a policy in place and enforced pertaining to alcohol consumption while on the job. 

Food Additions and Substitutions

One of the harder things to track are substitutions or additions to dishes.  

It’s not just ensuring that your servers are noting within the POS that an item has been swapped for another item of a different value. It’s also ensuring that your chefs know exactly what the replacement portion size should be. If they just “wing” it, that can increase the cost of the menu item for you while lowering the cost for the customer. 

We also know that, well, customers can make our lives difficult without even realizing it. Anyone who’s been a server can attest to those moments where, after food has already been served, the customer asks for a side of dressing or says they meant to ask for fries rather than a baked potato. Because this request happened later than usual, the server may just fetch the item without entering it into the POS, creating a black hole of data that conceals the true cost to your business.

Over-Plating

One key contributor to waste and reduced profit is the tendency toward over-plating. If customers are satisfied with a dish but they consistently leave a significant amount of a given side item or even the main course on the plate, this could be a signal that chefs are putting too much on the plate or the composition of the menu item may need to be rethought. 

This is a problem for profitability, as it means that ingredients are going to waste when they could instead be held back for the next guest. Here’s a good way to think about it: If three guests leave a third of their salad on the plate, you’ve basically made money on three entrees and thrown away the equivalent of a fourth. Whereas if you reduce the ingredient levels by a third, you can make money on four entrees from the same exact ingredients. 

Unless your staff is trained to take note of and even measure leftover food, these costs won’t necessarily show up. They are the definition of “hidden costs.”

Labor-Related Lost Revenue

It’s hard to calculate the impact of the business you’re not earning because, well, the lack of data is precisely the problem. But if wait times are long while tables sit empty, then it could be that you have a labor problem on your hands. 

There’s any number of articles discussing the labor shortage happening in restaurants in 2021, and these costs will only continue to pile up if the lack of staff prevents expedient seating and serving. It can even have an exponential effect if your concept develops a reputation for long wait times, which leads to less business in the future. 

You can address this hidden cost through hiring bonuses, increased pay, and creative recruitment, but no matter the solution, this is one hidden cost that will be tricky to navigate for the foreseeable future.

Non-Food Loss

Finally, there’s the not-insignificant matter of waste not related to food at all. 

When a server drops a tray of appetizers and drinks, you’re probably calculating the loss of the consumables. But is your general manager accounting for how the shattered glasses and plates could lead to them ordering replacements sooner than expected?  

Are employees being overly liberal with the plastic cutlery they put in to-go boxes? Are certain restaurant locations being too cautious with sanitization, going through disinfectant faster than they should? All of these things and more can lessen profitability.

Powering Up Average Restaurant Profits

Addressing these hidden costs starts with gaining visibility. You have to be able to track this information in order to deduce the problem and provide a solution. Once you have a baseline at each location and the ability to compare historic averages across your concept, you’ll be amazed at how quickly you can assess the situation and help your general managers get average restaurant profits back on track. 

Decision Logic can help by providing this level of visibility. Let’s discuss how to identify and rein in your hidden costs and increase your profits now and tomorrow.