The most profitable retail chains we did market business valuations for this year all had GREAT food service results. The least profitable chains (and units) either didn’t have food service or showed huge waste (food, supplies and labor) causing dismal results. Are you in food service? See how you check out on these five critical success factors.
1. Who’s In Charge – When I see units with food service losses, I often inquire about accountability. I’ll ask, “Who is in charge of making sure food service is profitable?” You can likely guess the answer. Either “no one really” or “the retail supervisor” or “the store manager.” Even the last two answers with at least someone, both these positions typically have lots more on their plate other than food service. So without true focus it’s not surprising the results are dismal.
On the other hand, when I find a chain with great results and ask the same question, they invariably name a specific, sole-function person with accountability for their food service success. Then, in the next breath, they tell me about that person’s performance compensation. Interesting, isn’t it? So what’s your take-away? Have one person accountable for results and reward them!
2. Proprietary versus Franchise Concept – In Meridian’s experience, there are specific instances where franchises work well, but I don’t see across-the-board, fail-safe- consistency with franchise brands. In some units, a particular franchise does great. In another area, even with exact same demographic profile, that same franchise may underperform. I used to think the cause of the variance was staffing/training differences. But that is not always true.
On the other hand, I see consistently amazing results with proprietary concepts. While you might assume it’s the cost-savings from not having to pay royalties or franchise fees, I don’t believe that is the complete answer. A factor, yes, but, not the whole answer. When I drill down into the success, it’s more about diligence, commitment and attention.
What I’ve come to know is that operators who bother with their own brand concept are deadly serious about results. Any negatives (shrink, labor overages, etc) are quickly addressed and cured. For example, one client of ours started a proprietary concept years ago but over time they suspected that shrink was starting to grow. They immediately swung into action.
Their first step was to hire a bright young local person fresh out of college to study the problem. She immediately realized there was a shortage of reliable measures, so recommended a revamp of the financial reporting. This was quickly executed. With good measures in place, she began studying root causes.
Her findings led to a conclusion that the actual menu (number of offerings) was too large. With a menu overhaul for fewer choices, less ingredients and different uses for previously trashed items, plus training on smarter food handling, this chain is now knocking it out of the park on food service profits. Your learning is that focus, flexibility and action make you money!
3. Match the Food Service Offer to Your Market – I almost didn’t mention this as it seems so obvious, but sometimes we miss the simplest steps in food service. Do not put in even a proprietary concept that you like. It doesn’t matter what you like. It matters what your market likes. And, if you can be the ONLY one in that space, or significantly superior to your competitors you will win.
This means you may have to tweak even your proprietary offerings from site to site. When I see losing sites and ask if they’ve ever had a demographic study, the answer is usually no, we didn’t want to spend the money. When I ask a highly profitable operator the same question, they usually tell me it’s standard procedure. Your best starting point is to get a good demographic study (i.e. IMST) which will give you great data about your target market area.
4. Hours of Operation and Staffing – Once you get past food costs, it’s the labor that will make or break a food operation. A trend I’ve observed in the most profitable marketers is again about flexibility, setting hours at each location separately based on market demand. Depending on traffic patterns, access during high traffic times and a host of other variables, the best food service operators are masters at correct staffing by individual location, not being married to set hours at all locations.
Contrast this to operators who run every location the same hours. These operators seems to have set ways of setting cashier numbers as well. Their savvier, more profitable counterparts use part-time help during peak hours and appear to be more thoughtful about demand patterns.
A staffing related large differentiating factor between very profitable and marginally profitable food service is also shift change procedures. Profitable operators tend to be either more organized, more automated or both having less overlapping time with shift changes.
Your action is to review food service hours, staffing and shift change requirements, driving costs down and efficiency up!
5. Unit Level Incentives – The most profitable marketers I see share a mini P&L with their food service managers which share that with their food service personnel. Then they take that one step further with a bump in hourly wage rate (I’ve seen as high as $2.00 per hour) for teams that completely meet their goals. The best incentive programs are measured and rewarded weekly. You want action now!
The least profitable chains rarely share anything with anyone. Either they don’t have the data, or feel sharing those kind of numbers are unwarranted. A few years back Meridian produced an e-learning course called Dollars and Sense which explains petroleum/c-store finance at a very basic level aimed at a those without any financial background. One of the things that shocked even me was the cost-saving ideas the first class going through the program produced. When a c-store clerk is given only a bit of information, and comes up with 5-figure or in one instance a 6-figure idea for their store, you know they should be given a voice!
So, figure out what you want your food service team to do, then give appropriate and immediate rewards for doing the right thing.
If you pay attention to just these five profit drivers in your food service offering, I promise you’ll increase profits quickly and then your food service really will be fun!