Like it or not, profitability is the number one goal of a restaurant endeavor.

The title is self evident, but the restaurant industry stands alone in its reliance on critics as a way to measure success. Far too often industry superstars are gauged by what the NYTimes or Michelin guide says about their cuisine, not for what return these managers bring to their shareholders. Many a Chef and Sommelier have ridden the wave to critical acclaim on the backs of their organization’s investors. Since the risk is high in restaurants, being part of a failed endeavor does little to dent past critical success, so temptation exists for management to run with high food, beverage and labor costs to ensure that critics enjoy their experiences.


The one place where old media still rules is the NYC restaurant scene. Sam Sifton of the NYTimes can make or break an establishment with the wave of his pen, and Adam Platt for NY Magazine has considerable clout. Restaurants spend untold thousands of dollars in design, flatware, and the right stemware with the intention of wooing these critical giants. Measuring the return on investment for such niceties is tricky, as it really depends on what the critics write.


Some top quality chefs understand the profit motive, and are moving their talents into quick service restaurants (QSR for short, most notable establishments are Panera Bread and Chipotle) and retail. Top Chef’s Tom Colicchio owns ‘wichcraft, a NYC based QSR with locations in NYC, San Francisco and Las Vegas. Chef Art Smith, previously Oprah’s private chef, has teamed up with ex McDonald’s executives to create LYFE Kitchen, a 600 calorie and below QSR. These establishments typically return 10% a year to investors, and can be easily replicated in markets throughout the country. NYC heavyweights Mario Batali and Daniel Boulud have even ventured into retail; Batali with Eataly, an Italian food Mecca in the Flatiron and Tarry Market in Port Chester, and Chef Boulud with Épicerie on 64th Street.

Most restaurateurs are passionate and are in it to profit, but lack the right structure to fully achieve it. It is time that industry investors demand their top managers look out for shareholder interests, and stop throwing money at critic's darlings with poor past performance. Also, diversifying a food portfolio to include a potential QSR as well as a retail establishment seems to be the current trend, and may be smart to look into.

Are group buying sites worth it for the hospitality industry?

Hotels and restaurants have different agendas; typically in hotel groups with food and beverage use those outlets as loss leaders to attract top tier business travelers. Stand alone restaurants cannot afford to lose money, and must decide whether their marketing endeavors are bringing in more business. The sudden emergence of Groupon, Living Social, Village Vines, and other group buying sites have sprung up very rapidly, with restauranteurs and hoteliers left to decide whether their services are economically feasible for their operations.

Let's take the example of a Groupon deal that offers a Midtown business hotel room for $100 on a weekend evening; a room that typically goes for $200 in a similar month. After splitting the revenue with the Groupon, the hotel only obtains $50 for a room that would otherwise go for $200, a significant drop. The GM must question whether this Groupon will bring repeat customers, and whether those same clients will spend on room service, movies, internet, and other streams of revenue. It might make sense, but only if those rooms would otherwise be left unoccupied, (and only if it will not affect their STAR rating.)

Restauranteurs on the other hand, have less of a chance to make additional revenue. $15 for $30 worth of food yields the establishment only $7.50, so with an industry standard 30% food cost ($9 for $30 worth of food) the owner lost $1.50, not counting labor cost. This is a very steep price to pay for potential new customers.

The business problem that arises is there is very little data to support how many first time customers come back to dine a second time. Restauranteurs typically are not monitoring their marketing efforts against real time POS transactions, nor are they using Customer Resource Management software to track the buying habits of their clients. This leaves a very grey area that group buying sites have capitalized on.

The best way to capture the benefits of these sites would be to limit the dining time to off peak times, i.e. before 7PM and after 930PM for dinner service, or during months that are typically off season. This fills seats when they otherwise would be empty, and gives the establishment a way to show off their services to a new audience. Hoteliers typically take a very analytic approach to setting rate, and therefore take many factors into play before deciding whether to join such a site.

Groupon has recently been valued at over $25 billion, mostly because they have sold retail, hotel and restaurant organzations the merits of their services. Restauranteurs should look into automated ways to analyze the benefits of such services, or hire consultants that can.

Restaurant Opening Case Study

Modena, an Italian restaurant opening in Brooklyn, New York, recently hired a consultant to assist with the opening of the new operation. The owners, Jeff and Nancy Brown, have never owned a restaurant before.

The space is a 38 seat restaurant, with an 8 seat bar, located on an off avenue between two very busy avenues in Brooklyn. The neighborhood is very gentrified, with little Italian food exposure, so there is serious upside to the property. Jeff is in real estate, so he secured a long term lease at a favorable rate.

The menu appetizers range from $8-$15, the entrees from $15-$22, wines by the glass range from $8-$12, beers are $6, and specialty cocktails cost $9. Hours of operation are; dinner service, 5PM to11PM Monday through Sunday, brunch on Saturday and Sunday from 10AM to 3PM, and a late night bar on Saturday and Sunday from 11PM to 3AM.

Hospitality Enhanced has been hired to do the sales projections for the property, and came up with estimated figures weekly figures, with assumptions expected for the first 60 days of operations.

Hospitality Enhanced also came up with projected labor scheduling needs to staff appropriately for the projected sales.

The cost of this labor is as follows:

This means that projected labor cost will far exceed the industry standard of 30%.

Jeff Brown, the owner, is upset at these figures, and demands an explanation. “How can we run a restaurant with such high operating expenses?”

What should the consultants at Hospitality Enhanced recommend?

Social Media Marketing; a New Paradigm

Media companies have yet to understand that the age of demographic data is over. We as a society are far more complex than traditional media organizations have yet to grasp.

Ad rates are still set using outdated, demographic information. Statistical grouping of consumer habits, combined with psychographics, are far better indicators of human purchasing behaviors.

Tablet Computing and the Coming Data Explosion in Food and Beverage

The iPad has not only invigorated the app industry, it has brought cheap computing to tableside dining. iPads are being used as wine lists, POS systems, and credit card processors; an entire industry has developed around these products. As Google moves into the market with Android tablets, the costs of this hardware will be further reduced, benefiting any hospitality organization who chooses to use them.

As menus transfer from paper format to digital form, the entire science of menu layout will be turned on its head, as interactive menu formats will give the consumer more information, and more interactivity. Innovative restaurants and hotels will take this opportunity to study consumer habits: How many clicks will lead to a decision? Can hotels track, using CRM technology, a customer’s clicked interest and therefore create a profile of his individual tastes?

Take the hypothetical instance of Mr. Smith, staying in Hotel G in NYC. Mr. Smith comes into his room from a long conference, checks his tablet room service menu, and clicks repeatedly on California Cabernets, the burger option, and the steak salad. He chooses not to order food, and instead leaves to a bar next door. The following day in Mr. Smith’s room, the tablet menu automatically offers him a discounted combination of a Cab and the steak salad, and Mr. Smith orders from this menu. Hotel G has captured revenue by making their price points more fluid, and technology was the conduit for this transaction.

Restaurants will have difficulty keeping track of customers on an individual basis, but they can find patterns in their customer’s clicks to help reword menu options, change the layout, or even remove them. Data’s role in the restaurant decision process will begin taking a greater role, and software solutions to assist with this process already exists mostly in Open Source format.

Hospitality Enhanced was created to help bridge the knowledge gap from the technology world and the hospitality industry. We offer tailor made software and consulting solutions to organizations large and small. Data is the new oil; its time you use yours to increase profitability.

The Modern Evolution of the Hospitality Industry

Over the past thirty years, the hotel and restaurant industries have evolved at a rapid rate, with the hotel industry coming to maturity before its less capitalized cousin. Hotels use a wide range of data analytics to set rate, staffing levels, connect with their customers, and bring that unique attention required to obtain repeat customers. Restaurants behave more like hotels did before the 1990’s; by relying on their staff to remember regular customer’s habits, by not differentiating their most profitable customers from least profitable, and by making decisions without the guidance of advanced data.

In the early 1990’s the US hotel industry was practically decimated. A change in the accounting rules during the 1980’s created too many rooms for the market to absorb, and the Savings and Loan crisis almost destroyed the industry. Many profitable chains went out of business, and some small operators were bought out at bargain prices. Business intelligence went from being an unlikely expense to becoming an essential unit for hotel companies. The industry is still evolving today; innovative hotel companies are using these techniques in their food and beverage operations, function spaces, and spa services.

Business evolution is inevitable, but it takes a major change in operating climate for most owners to recognize the need to change. That change occurred with the economic meltdown of 2008, and the ‘V’ shape recovery that many of us hoped for did not occur. Consumers are trading full service meals for quick service establishments (i.e. Panera), and corporate customers are rarely buying private dining spaces, cutting into restaurateur’s already slim profit margin.

Hospitality Enhanced was created with this paradigm shift in mind. We offer a Business Intelligence unit for hire, taking your data and turning it into something you can use to make decisions. We train you and your key staff in the concepts of data mining, and for more advanced users, even set you up to use these tools without us. We recognize that every profitable restaurant business will be adding these services over the next few years, so our client’s self-sufficiency is very important. We are a collaborative organization with very few fixed costs, and most of the software we use is Open Source. We embrace this unique, new operating environment, and strive to increase our client’s margin.

Evolution is inevitable, embrace it, or outsource the expertise of those who do. Data is the new oil; it’s time to start using yours to increase profitability.