Business is booming. Restaurant sales are at an all-time high. Revenue is up. Growth is up. So why doesn’t it feel like we’re winning?
For most of our careers, growth meant more profit. More profit meant more investment. More investment meant more growth. It was a virtuous cycle. But as any operator can tell you, that’s not what’s happening now. Even though restaurants are experiencing increased revenue and growth, inflation continues to wreak havoc in the industry. Restaurants are getting crushed by margin pressure caused by increased labor and food costs. The question is, what do you do in an environment where growth comes without increased profitability? How do you navigate the paradox of profitless growth?
Prime costs (the sum of direct labor and food costs) typically eat up 60% or more of a restaurant’s total revenue, so it’s no wonder the inflation of these costs is causing major pain for restaurant owners and operators. A 15% increase in labor and a 17% increase in food costs have left restaurants with a lot of ground to make up. And although inflation shows signs of relenting, restaurants are still battling a projected annual inflation rate of 4.5% in 2023.
Significant increases in the costs of goods and services have left restaurants feeling the pinch of inflation.
17% increase in cost of goods
15% increase in labor costs
15% increase in rent
The person facing these pressures the most is the store manager. Historically, we could count on a pretty high retention of our store managers. Hourly workers may turn over like crazy, but managers stay. One of the trends we’re seeing as a result of the pressures on operators is that managers are starting to leave the business, sometimes leaving the industry. How we alleviate these pressures is not only important in terms of driving financial performance, but it’s also critical to our teams.
Now more than ever, restaurant owners and operators need to let go of what worked in the past and start embracing innovative ways to compete (and win) in today’s unique climate.
Find out how Fourth helped KFC achieve 95% accurate forecasting, reduce labor and inventory waste, and maximize revenue.
At FSTec this year, I had the privilege of moderating a discussion with three industry leaders and Fourth customers who shared how they’re optimizing their workforce and inventory management solutions. Prashant Budhale, CTO of Modern Restaurant Concepts (Qdoba and Modern Market), shared a particularly telling theory. “It’s my hypothesis,” he said, “that 50 to 60% of what the GMs do today in a traditional restaurant can be automated — at least 50 to 60%.”
“50 to 60% of what the GMs do today in a traditional restaurant can be automated.”
— Prashant Budhale, CTO of Modern Restaurant Concepts (Qdoba and Modern Market)
The truth is that restaurants can now leverage automation and machine learning to lower prime costs and increase profitability. Technology helps operators streamline everything from hiring to scheduling to inventory management to food prep.
Take AI forecasting as an example. According to Boston Consulting Group’s Dylan Bolden, “Some 70% of AI’s value comes from changing processes and the ways of working.” By providing a more holistic view that factors in historical data, market conditions, economic fluctuations, sales records, and both labor demand and supply data, AI forecasting yields a more efficient allocation of labor. And we’re not just talking about staffing the right number of people. It’s also making sure you’ve got the best staff working on the best shift at the best times of day to make sure you’re optimizing revenue.
At Fourth, we’re constantly identifying the non-value-added tasks that consume a manager’s time and building technology that simplifies, streamlines, or removes those tasks from their plate. Our solutions free up managers to do the things only they can do. Which is, first and foremost, developing the team — making sure they are cared for, trained, and operating effectively. And second, ensuring a high-quality guest experience.
Built and customized for Quick Service Restaurant operations, MacromatiX helps you increase profits by managing labor, food costs, and reporting — all in one user-friendly platform.
As we anticipate what 2024 has in store for the restaurant industry, there’s cause for optimism. Despite the pinch of inflation, consumers are still eager to dine out. Restaurants also have more technology and tools available to them than ever before. For restaurant owners and operators willing to embrace innovation, it’s possible to achieve both growth and profitability.
We’d love to help you put the days of profitless growth behind you. When every hour of every shift matters, Fourth helps you conquer the day.
Give us a call today +1 (877) 539-5156, or click the button below.
Save time, reduce costs, and increase profitability with Fourth’s intelligent solutions.