5 ways to increase profits in hospitality

Written by: Andrew Levey

5 ways to increase profitability in hospitalityWe’ve written previously about the spiralling costs the hospitality sector is facing now – and will be for the foreseeable future. The challenges include increases in the living wage, business rates and rises in food prices. To weather these tough times, it’s vital that businesses streamline their operations and find opportunities to reduce costs and increase profits in hospitality.

Here, we take a look at five areas where you can not only increase efficiency and reduce costs, but also reduce administration time so your operators spend less time in the back office, and more time front-of-house with customers where they can improve customer service and support their staff.

1. Optimise your menus

The first thing to take a look at are your menus. Which items are your best sellers, and which items give you the most profit? How have increases in ingredient prices impacted your menu? By examining your menus and how they are performing, and using ‘what if’ scenario building to see what impact changes might have, you can identify areas where savings and improvements can be made.

For example, by implementing our Recipe & Menu Engineering solution, Fuller’s Inns have seen upwards of 1 point of gross margin improvement by optimising their menus.

2. Reduce waste

I’ve written before about the cost of food waste, and how you could be throwing away your margins, but it bears repeating a little here. From our experience, companies without effective waste management systems generally lose between 1 and 6% of sales potential through waste, while in contrast those that implement an integrated end-to-end system will on average see around a 2% increase in gross profits.

To get control over wastage in your business, you’ll need to get a good understanding of exactly what food is being wasted and why. For example, one dish might be regularly unfinished by customers which suggests the portion size could be too large, or perhaps a particular ingredient is regularly being thrown away because it’s going past its use-by-date, indicating that too much is being ordered. Are the chefs wasting ingredients at the point of prep? Once you collect and analyse the data, you can identify the issues and where savings can be made.

3. Get control over purchase-to-pay

Another area where organisations can look to improve profitability is by getting greater control over purchasing. Too often we find businesses where ad-hoc purchases are made from multiple local suppliers rather than weekly orders from a smaller number of key, approved suppliers. Not only is this more expensive, but it also means missing out on potential rebates when spending thresholds are met.

Another area that often needs greater control is on receipt and payment of purchased goods, to make sure you’re only paying for what you’ve ordered and had delivered. Checking all deliveries to make sure everything that has been ordered is delivered and not damaged or past its use-by-date may sound obvious, but it’s remarkable how often this doesn’t happen. Similarly, checking the details on the invoice match the original order and the goods received note will make sure that you’re not paying too much due to any mistakes. Go further and implement a purchase-to-pay solution that includes 3-way matching and you’ll only ever have to deal with exceptions – saving huge amounts of time.

4. Optimise your workforce

Labour spend is one of the largest costs associated to a hospitality business, so you need to make sure that your workforce is optimised – finding the right balance between having enough staff to meet demand, but not overstaffing. Central to this is having an accurate forecast of items you’ll sell through the week, based on not just year-on-year analysis but also recent trends, weather forecasts and local events. By understanding demand, you can design rotas more effectively which will reduce your overall labour costs, and provide more opportunities for additional sales – all of which is good for the bottom line.

5. Optimise and automate processes

Elements of this are included above, but it’s worth drawing this out in a separate point. In any business there will be opportunities to review and streamline processes, to save time and increase efficiencies. In our experience, hospitality organisations can optimise a number of key processes within Purchase-to-Pay and Inventory and Workforce Management – using technology to automate which frees up time. As mentioned above, aside from saving money this also means teams can spend more time front of house, interacting with customers to drive customer satisfaction and additional sales.

If you’d like to know more about how Fourth can help increase profits in hospitality, please do get in touch.

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