Restaurant Business Intelligence

1. June 17, 2010 by John Quillinan Restaurant Business Intelligence

2. Simple measures Simple measures and dimensions are not enough by themselves to tell a story check number starting time closing time party size items ordered check amount 2 Note: Do not use without permission from author (John.Quillinan@gmail.com)

3. Calculated measures Through calculated measures, OSI Restaurant Partners can make informed data-driven decisions, and drive profits to the bottom line. Sales and contribution margin mix Arrival patterns and unconstrained demand Meal duration Table utilization Revenue Per Available Seat Hour (RevPASH) 3 Note: Do not use without permission from author (John.Quillinan@gmail.com)

5. Contribution margin is what is left over after you pay for the raw ingredients and account for the other variable costs of an items (such as labor).

6. The highest contribution margin may not come from the highest-priced menu items.By identifying your sales mix, you can get a sense of which menu items are making the most money and which need your further attention. By multiplying each item’s contribution margin by the number of items sold, you will have the total contribution margin for that item. 4 Note: Do not use without permission from author (John.Quillinan@gmail.com)

7. Arrival patterns The usable data from the POS typically includes the check number, the starting time, the closing time, the party size, and the check amount for each party. Arrival patterns can be determined from starting time, but this does not represent the true unconstrained demand, because time to be seated and some customer may been turned away, walked out after waiting a bit, or simply observed that the restaurant was busy and never stopped at all. A variety of methods, both mathematical and managerial, have been used by hotels and airlines to estimate this unconstained demand. Tracking guests that walk out or are turned away during busy periods will provide an estimate of unconstrained demand. 5 Note: Do not use without permission from author (John.Quillinan@gmail.com)

9. We are interested in reducing both the average meal time and the variability in the meal time. 6 Note: Do not use without permission from author (John.Quillinan@gmail.com)

11. RevPASH To calculate hourly RevPASH, we calculate the revenue from all the transactions divided by the number of available seats. 8 Note: Do not use without permission from author (John.Quillinan@gmail.com)

12. Table Utilization Some restaurants cater solely to walk-in business and others serve both parties with reservations and walk-ins. A restaurant that takes only walk-ins must decide if, where and when to seat different-sized parties. The issue becomes one of the appropriate table at which to seat the party. For example, if a party of two is seated at a table for four (referred to as a 4-top), the revenue-producing capacity of the remaining two seats is lost. Restaurants must decide when to save tables for larger parties even when smaller parties are waiting. Whether or not a restaurant has flexible capacity, it can ensure that its table mix closely matches the party size composition of their customers, it will achieve higher seat occupancies and thus higher overall revenue. 9 Note: Do not use without permission from author (John.Quillinan@gmail.com)

13. Perishable Inventory Supply of raw food is not perishable until it is removed from the freezer or sitting on the loading dock Restaurant inventory should be thought of as time – or this case, the time during which a seat or table is available. If the seat or table is not occupied for a period of time, that part of the restauranteur’s inventory perishes. It is not about counting table turns or revenue for a given part of the day. 10 Note: Do not use without permission from author (John.Quillinan@gmail.com)

14. Understanding the profitability of a unit of inventory in time The most commonly used performance metric in revenue management is Revenue per Available Time-Based Inventory Unit (RevPATI). Airline measure Revenue per Avaiable Seat Miles (RASM) Hotels measure Revenue per Available Room-Night (RevPAR) Restaurants measure Revenue per Available Seat-Hour (RevPASH) Car rental companies measure Revenue per Available Car-Day (RevPACD) RevPATIgives a good indication of both capacity utilization and of revenue generation. 11 Note: Do not use without permission from author (John.Quillinan@gmail.com)

16. Average check of $12 and average dining time of 53 minutes is assumed.

17. Theoretical annual maximum revenue during peak times of $1,624,755 if it had a seat occupancy of 100%

18. 10 peak-hours x 60 minutes divided by 53 minute dining time x 230 seats x $12 average check x 100% occupancy x 52 weeks/year.

19. The observed peak period seat occupancy of 50% would result in an annual revenue potential of $812,344 during peak times

20. 10 peak-hours x 60 minutes divided by 53 minute dining time x 230 seats x $12 average check x 50% occupancy x 52 weeks/year

21. Over one-third (34%) of its annual revenues were produced during the 10 weekly peak hours.

22. Increased peak-period seat occupancy has a noticeable impact on revenue.

23. If peak-period seat occupancy increased to 60%, the annual revenue potential would be $974,853

24. 10 peak-hours x 60 minutes divided by 53 minute dining time x 230 seats x $12 average check x 60% occupancy x 52 weeks/year

25. An incremental annual revenue increase of $162,476 over current conditions. 12 Note: Do not use without permission from author (John.Quillinan@gmail.com)

27. Without information on the percentage of capacity use or occupancy of the restaurant, revenue performance cannot be evaluated.

29. Reliance on seat occupancy as a measure of success suffers from the same problem as reliance on hotel-room occupancy, because high use does not necessarily mean high revenue.

30. A restaurant can run at 90-percent of capacity and still not make money if menu items are sold at too low a price.Note: Do not use without permission from author (John.Quillinan@gmail.com)

31. Measuring Success RevPASH is closely related to the number of turns and the length of the meals, or service cycle. As the number of turns increases and meal duration decreases, the RevPASH increases. Just a one-minute reduction in meal time during a high-demand period can lead to an increase in RevPASH of 1.5 to 2.0 percent. Reduced meal times can be achieved by changing the service process, altering staffing levels, or altering the menu. The first few minutes of reduction are not that difficult or expensive to achieve, for example, by picking up the pace of the greeting, seating and check settlement. 14 Note: Do not use without permission from author (John.Quillinan@gmail.com)

33. Using this information:

34. During high-RevPASH periods, the manager may focus on reducing meal time by having table servers skip suggestions of desserts or after-dinner drinks.

35. On the other hand, at low-RevPASH time, she may decide to increase the use of suggestive selling or even reduce menu prices to boost traffic.Note: Do not use without permission from author (John.Quillinan@gmail.com)

37. Restaurant 5 has the lowest average check ($9.45), but the second-highest RevPASH ($6.25).

38. Relative performance measurements can be calculated by dividing one restaurant’s performance by the average performance of all units.

39. The check performance of restaurant 4 is above average (1.14), but its RevPASH performance is only 0.83.

40. By using relative-performance measurements like these, regional managers can better evaluate the revenue generation of the restaurants they oversee.

41. Regional or national managers could use RevPASH to compare performance of different restaurant units.

42. One would want to adjust the unit RevPASH according to an area’s cost of living, but a unit-by-unit comparison of RevPASH would give a good indication of the relative performance of different restaurant in an area, region or nation.

43. Consider a city with six restaurants…16 Note: Do not use without permission from author (John.Quillinan@gmail.com)

45. For example, the RevPASH of a particular restaurant could be compared with the average RevPASH of the competitive set to evaluate performance. 17 Note: Do not use without permission from author (John.Quillinan@gmail.com)

46. Putting it all together Imagine dashboards at various levels at presented thusfar, presenting the metrics among others not discussed here Restaurant managers City managers Regional managers Brand managers Does your restaurant needs a visionary to create your business intelligence roadmap, and execute that vision? 18 Note: Do not use without permission from author (John.Quillinan@gmail.com)