Recent years have seen a major shift in restaurant industry operations, largely due to increased operating expenses, pushing many UK restaurants toward a financial meltdown. As per the latest data released by the National Restaurant Association, the food costs alone have increased by 7.1% last year, while restaurant operational costs have soared by £3.4 billion.
These statistics make it clear that cost management is critical for restaurant owners running a restaurant in these times of high inflation. With that said, let's understand the two main types of costs — variable and fixed costs in a restaurant — and what strategies you can implement to make your restaurant businesses successful and profitable over a long term period.
Difference Between Fixed Costs & Variable Costs in Restaurants
Before we get into the particulars of strategies to save money, let us first understand what fixed and variable costs are in a restaurant setting.
Restaurant Fixed Costs
These expenses do not fluctuate in relation to the sales volume of your restaurant. They include:
- Rent or mortgage payments
- Insurance premiums
- Property taxes
- Salaries for full-time staff
- Restaurant equipment leases
- Licenses and permits
Restaurant Variable Costs
Variable costs, on the other hand, change depending on your restaurant's sales and production volume. Key variable costs include:
- Food and beverage inventory
- Hourly/part-time wages
- Utilities
- Disposable goods (e.g., napkins, takeout containers)
- Credit card processing fees
Strategies to Manage Fixed Costs
Fixed costs are the simplest form of repetitive expenses that your restaurant has to pay each month, and there are a number of strategies you can implement to control these costs.
Negotiate Long-Term Contracts
One of the best methods for dealing with fixed costs for restaurants is entering into long-term contracts such as leasing premises, equipment, and various recurring obligations under long-term agreements that provide financial predictability. This will allow you to lock in competitive rates and stabilise costs.
Use Energy-Efficient Equipment
Those up-front costs can seem high, but spending a little more for energy-efficient appliances will lower your utility bill. Choose equipment that is Energy Star certified to get the most potential savings over time. Replace refrigerators, stoves, and dishwashers with more efficient alternatives. If your budget allows, go with solar or wind energy to keep your monthly energy expenditure to a minimum.
Optimise Staff Scheduling
Labour costs are one of the biggest contributors to restaurant total expenses, and smart scheduling can help you keep these expenses under control. Consider implementing advanced scheduling software that will guarantee you are adequately staffed during the slower periods. Look at historical data and sales patterns to create smarter staffing schedules that match your restaurant's throughput at specific times.
Review Insurance Policies
Periodically review your insurance and compare it to the cost of other policies that give you comparable coverage. Check bundling policies for possible discounts and total cost savings. Work with a broker specialising in restaurant insurance to identify the most competitively priced options, which also give you a good level of coverage for all facets of your business.
Invest in Prevention
Proper maintenance of your restaurant equipment can prevent more expensive breakdowns and extend the useful life of these tools and machines. It also eliminates having to replace things repeatedly, thus managing your fixed costs. Create a regular maintenance plan for all critical equipment, from your refrigeration units and cooking appliances to the HVAC system.
Strategies to Manage Variable Costs
Variable costs are more complex as they can change on a day to day basis and are tied to a number of different factors. Therefore, these require different strategies to keep them under control.
Master Food & Beverages Cost Management
Maintain inventory proactively. Implement a great inventory management software such as 3S POS to track storage and usage to reduce waste. Negotiate with suppliers for cheaper prices on high-volume menu item, and keep an eye on your overall restaurant food cost percentages. Strategically adjust menu prices to remain profitable while still providing quality.
Optimise Labour Costs
Make data-driven schedules that ensure staffing levels match the demands of business scheduling. Hire employees who are not easily replaceable or try to implement cross-training in each position to ensure flexibility, efficiency, and a strict clocking-in system for meeting effort and performance criteria. Adopt a hybrid staffing model to deal with variations in business volume by complementing full-time workers with part-time or seasonal staff.
Reduce Utility Expenses
Use programmable thermostats and set them to proper heating or cooling; install low-flow water fixtures to reduce the use of water supply systems; and train employees on energy-saving behaviour in day-to-day operations. Conduct regular audits to identify high-consumption areas.
Avoid Credit Card Processing Charges
Work out better rates with your payment processor around cash discounts or surcharges for credit card transactions where possible to avoid errors and chargebacks. Keep your eyes and ears open regarding the latest technology and regulations in payment processing to ensure that you are using the most cost-effective payment solutions.
Cost of Goods Sold (COGS) Control
Analyse your menu on an ongoing basis to identify high- and low-margin items. Implement portion control measures to minimise overservings and ensure consistency; consider seasonal menu changes to take advantage of the low-cost seasonal ingredients. You can also foster relationships with vendors in your area to access fresh ingredients at a potentially cheaper price.
Advanced Cost-Saving Techniques for Multi-Location Operations
Implementing scalable cost control, which requires special strategies that can be implemented across multiple locations, is crucial for restaurant chains and franchises.
Centralised Purchasing
Use the collective buying power to get a better price from suppliers. Implement a centralised purchasing system for standardisation and cost control across branches. This approach can lead to massive savings in terms of food and beverage costs as you are buying in bulk.
Standardised Processes
Create standardised procedures that cover everything from food prep and service to customer interactions. This can help to eliminate waste, increase table throughput, and ensure quality throughout the sites. Develop detailed operating manuals and training to set the standards of what it should be like when correctly executed.
Data-Driven Decision Making
Invest in a Point of Sales (POS) system that offers a full analysis of sales, inventories, and labour costs. This allows you to effectively price your menu, maintain the right staff levels, and take control of inventory management at every location.
Optimise Employee Benefits
Employee benefits should be periodically reviewed and cost savings opportunities sought out to find that balance between attracting the talent you need and not breaking the bank. Provide a competitive package through financial and non-financial benefits. By having employer perks, staff will be happier, but it will likely cost you less than increasing their wages.
Technology Integration
Implement unified technology solutions that simplify operations across the board. This may involve inventory tracking systems, employee scheduling tools, and customer relationship management (CRM) software. Purchase a complete restaurant management platform that synchronises workflows, including ordering, inventory costing control, calculating your food cost percentage, and generating reports on costs and profits.
For almost 20 years, 3S POS has offered one of the most flexible EPOS systems to international brands such as Caffe Concerto, Maroush, Comptoir Libanais, Pepe’s Piri Piri, GDK and thousands more delighted customers.
If you are looking for an Restaurant POS System that will not just help you accept payments but includes inventory management, loyalty programs, and much more, speak to our sales for a free demo.