The COVID-19 pandemic had many small business owners stressed and frightened. Even in 2021, the restaurant industry continues to suffer from a reduced number of customers willing to dine-in. Plus a diminished number of on-site sales in restaurants.
As a restaurant owner, you should carefully consider prime affecting items and prime cost during pandemic restrictions.
Prime Cost is the combination of labor expense and food cost as a percentage of revenue. They combine your product costs and your people costs. The product side includes everything from fresh produce to spirits, coffee filters, and other food and drink-related supplies. The people costs cover salaries and wages along with taxes, insurance, benefits, and any other expenses associated with maintaining a team of employees.
Take a look at some ways to stay on target with your prime costs:
Prime Cost Considerations –
- Increase food delivery frequency so waste can be kept to a minimum. Revert to a review process with strict inventory and sales forecasting methods before any order.
- Look at delivery cost and understand how much as a percentage of overall sales:
- When are deliveries heaviest?
- Can you adjust your item prices for the delivery programs?
- Are you staffed correctly considering the 15-30% cost of delivery?
- If you get support money from grants and other programs can you holdout hiring back? Can you schedule staff members in effort to prolong the funds use?
Growing Restaurant Sales During a Pandemic
1 – Manage Labor Costs More Efficiently
Use scheduling and time and attendance systems to ensure you have top-level visibility. You can identify which employees might go into overtime before it is too late. These systems can also point out if your employees tend to clock in early or hang around before actually getting to work.
2 – Partner with Other Businesses to Increase Revenue
Small businesses outside of the restaurant industry are struggling as well. Join up with another nearby business on a collaboration that benefits you both. If your restaurant is known for something that can easily be sold as retail – a pasta sauce, salad dressing, or margarita mix, for example – find a local bottling company and sell it in house and at local retail stores.
3 – Maximize Your Inventory
Be mindful of food waste and get the most out of every item you purchase. Come up with ways to use fruit or vegetable scraps that might otherwise get thrown out (think soup stocks, cocktails, baked goods, and more).
4 – Use Seasonal Foods When Possible
Seasonal foods are often less expensive because of their abundance during their harvest season. Maximize on these opportunities to help you keep your cost in check.
5 – Make Menu Changes That Increase Profits
Rework your menu a bit to help your chef capitalize on what’s available and drop dishes that aren’t as popular. If there are dishes that aren’t selling much but you find hard to completely part with, introduce them as weekly specials instead.
Recovery for Restaurants in 2021
Here are a few key parts every restaurant with under 300 employees should be focused on –
– Focus on getting a second PPP grant if your business saw a 25% reduction in year over year revenue. The details of how to calculate this is are in the works but this might be a good reason to reach out to some of the business coaching groups or your accountant to get assistance.
– Although the 60/40 (payroll/non-payroll) percentage split did not change in the PPP forgiveness rules, the new stimulus plan offers more items that can be used as non-payroll expenses. For example, eligible protective personal equipment (PPE), cleaning products and services, reconfiguration of spaces to enable social distancing, and supplier costs (such as perishable goods). Look at your needs and understand how to maximize the non-payroll percentage portion of the PPP to keep payroll at a minimum during these slow times.
– Contact your accountant or payroll specialist to review your ability to take advantage of the Employee Retention Tax Credit in both 2021 and 2020. This was not a viable option in 2020 for many restaurants due to an either-or factor to the PPP, but now this is an addition and could save a small business plenty on payroll taxes.
These are just the focal points. Knowledge is the key to your restaurant’s survival. Feel free to reach out if you could use a little help or someone to run your ideas by!
For resources, funding opportunities, guidelines, and more for COVID recovery, check out our COVID Business Recovery Support Page
Are you a food business looking to learn from peer business owners about the current and future outlook of the food service industry or other food business? Join Food Biz Week for free from February 22nd – 27th
About the author
As a past restaurant owner/investor/operator, Michael has over 15 years' experience with the ins and outs of the restaurant industry. He joined Ed Haynes and Restaurant Seminars Institute in 2009 and has been a contributor to the PPC Guide to Restaurant and Bars.
Michael’s past accomplishments include assisting multi-unit restaurants with operational efficiency’s resulting in an average 5% bottom line improvements. He has implemented inventory control systems for bars and restaurant that reduce shrinkage up to 25%. This has translated into hundreds of thousands of additional revenues per year.
Michael has delivered Restaurant Seminars Institute’s unique accounting and control material to multiple CPE society’s, restaurant associations, private restaurant management groups and their accountants all over North American.
He holds a degree from Washington State University in Business Management and Operations.