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5/17/2016
1
Essential Restaurant Fundamentals and Leasing Strategies
Michael D’Amico
Kenneth S. Lamy, CRX
Presentation Outline
I. Fundamentals
II. The Essential Percentages
III. 100% Rule
IV. The Puzzle
V. The Pieces
VI. Case Study
VII. Win-Win Leasing Strategies
It is essential that and Property
Managers/Leasing Agents
understand the connection
between
Occupancy Costs and Profitability.
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2
It’s equally important that you have the
tools and knowledge to have a
meaningful conversation with an existing
or future Restaurant Tenant.
Let’s get started…..
I. Fundamentals
R² P²
Rules
Regulations
Policies
&
Procedures
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II. The Essential
Percentages
The Essential Percentages
Calculation of Key Percentages
1. Food Cost divided by Food Sales = Food Cost %
2. Liquor Cost divided by Liquor Sales = Liquor Cost %
3. Food and Liquor Costs divided by Total Sales = COGS* %
4. Total Labor Cost divided by Total Sales = Labor Cost %
5. COGS and Total Labor Costs divided by Total Sales = Prime Cost*%
6. Total Expenses divided by Total Sales = Expense Cost %
7. Advertisement Costs divided by Total Sales = Advertisement Cost %
• COGS - Cost of Goods Sold• Prime Cost – Food, Liquor and Total Labor Costs• Total Labor Costs – Direct and Indirect Labor Costs
END OF MONTH
INVENTORY CALCULATIONS
BEGINNING INVENTORY
PLUS + PURCHASES
MINUS - ENDING INVENTORY
EQUALS = COST OF GOODS SOLD (COGS)
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DOLLAR CALCULATIONS
BEGINNING INVENTORY $5,000.00
PLUS PURCHASES $20,000.00
MINUS ENDING INVENTORY* $4,000.00
EQUALS (COGS) $21,000.00
SALES $68,000.00
COGS/ SALES = COGS % 30.88 %
Note: The ending Inventory becomes the beginning inventory for the next month
CONSTANT STRUGGLE BALANCING SALES AND
COSTS…USUALLY WITH INCREMENTAL RESULTS
Sales Variables
• Food Sales
- Breakfast
- Lunch
- Dinner
• Liquor, Wine, Beer Sales
• Beverage Sales
• Banquet Sales
•Off-Site Catering Sales
• To-Go Sales
• Cover Charges
• Retail
• Gift Cards
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Food & Alcohol Cost Variables
• Menu Prices
• Purchases
• Sales Mix
• Portion Control
• Quality
• Waste
• Theft
• Promotions/Discounts
• Employee Comps
• Administrative
Procedures
• Inventory Physical
Count
Labor Costs
Direct Labor Costs
Staff Wages
Staff Overtime Wages
Management Salaries
Management Bonuses
Indirect Labor Costs
Payroll Taxes
Worker’s Compensation Expense
Staff Medical Insurances
Management Medical Insurances
Key Operating Expenses
• Restaurant Supplies
• Maintenance
• Repairs
• Utilities
• Accounting
• Linen
• Legal
•Promotions
• Licenses and Permits
• Uniforms
• Phone and Internet
• Equipment Rental
• Credit Card Fees
• Marketing/Advertising
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FOOD & BEVERAGE COST PERCENTAGE %
SALES:
30000 – Sales – Food & Bev – Dine In 211,509.70
30040 – Sales – Food & Bev – Happy Hour 4,986.75
30050 – Sales – Food & Bev – Take Out 7,824.45
30060 – Sales – Food & Bev – Catering 135.85
TOTAL FOOD SALES: 224,456.75
FOOD COSTS OF GOODS SOLD: 60,395.29
FOOD COSTS OF GOODS SOLD/TOTAL FOOD SALES: 26.91%
ALCOHOL COST PERCENTAGE %
SALES:
30100 – Sales – Beer 5,919.50
30200 – Sales – Liquor 13,345.00
30300 – Sales – Wine 6,297.00
30310 – Sales – HH Beer 1,744.50
30320 – Sales – HH Wine 1,117.00
30330 – Sales – HH Liquor 4,060.00
TOTAL ALCOHOL SALES: 32,483.00
ALCOHOL COSTS OF GOODS SOLD: 10,349.86
ALCOHOL COSTS OF GOODS SOLD/TOTAL ALCOHOL SALES: 31.86%
TOTAL COGS PERCENTAGE %SALES:
30000 – Sales – Food & Bev – Dine In 211,509.70
30040 – Sales – Food & Bev – Happy Hour 4,986.75
30050 – Sales – Food & Bev – Take Out 7,824.45
30060 – Sales – Food & Bev - Catering 135.85
TOTAL FOOD SALES: 224,456.75
30100 – Sales – Beer 5,919.50
30200 – Sales – Liquor 13,345.00
30300 – Sales – Wine 6,297.00
30310 – Sales – HH Beer 1,744.50
30320 – Sales – HH Wine 1,117.00
30330 – Sales – HH Liquor 4,060.00
TOTAL ALCOHOL SALES: 32,483.00
TOTAL SALES: 256,939.75
FOOD COSTS OF GOODS SOLD: 60,395.29
ALCOHOL COSTS OF GOODS SOLD: 10,349.86
PAPER GOODS COSTS: 2,347.35
TOTAL COSTS: 73,092.50
TOTAL FOOD & ALCOHOL COST OF GOODS SOLD/TOTAL SALES: 28.45%
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LABOR COST PERCENTAGE (%) DIRECT & INDIRECTSALES:
TOTAL FOOD & BEVERAGE SALES: 224,456.75
TOTAL ALCOHOL SALES: 32,483.00
TOTAL SALES: 256,939.75
TOTAL LABOR (DIRECT) COSTS:
60020 Management 16,351.88
60500 Front of House 29,326.34
61000 Back of House 34,420.94
TOTAL (DIRECT) LABOR COST: 80,099.16
TOTAL DIRECT LABOR COSTS/TOTAL SALES: 31.17%
TOTAL (INDIRECT) LABOR COSTS:
63510 Payroll Taxes 9,080.10
63520 Workers Comp Insurance 3,008.42
63530 Health Insurance 1,337.00
TOTAL (INDIRECT) LABOR COSTS: 13,425.52
TOTAL INDIRECT LABOR COSTS/TOTAL SALES: 5.23% 36.4%
TOTAL PRIME COST PERCENTAGE %SALES:
TOTAL FOOD & BEVERAGE SALES: 224,456.75
TOTAL ALCOHOL SALES: 32,483.00
TOTAL SALES: 256,939.75
FOOD COSTS OF GOODS SOLD: 60,395.29
ALCOHOL COSTS OF GOODS SOLD: 10,349.86
PAPER GOODS COSTS: 2,347.35
TOTAL COSTS: 73,092.50
TOTAL LABOR (DIRECT) COSTS:
60020 Management 16,351.88
60500 Front of House 29,326.34
61000 Back of House 34,420.94
TOTAL (DIRECT) LABOR COST: 80,099.16
TOTAL (INDIRECT) LABOR COSTS:
63510 Payroll Taxes 9,080.10
63520 Workers Comp Insurance 3,008.42
63530 Health Insurance 1,337.00
TOTAL (INDIRECT) LABOR COSTS: 13,425.52
TOTAL COGS AND TOTAL LABOR COSTS: 166,617.18
PRIME COST:
COGS AND TOTAL LABOR COSTS/TOTAL SALES: 64.85%
All rights reserved.
III. 100% Rule
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The 100% Rule: You can’t
grow yourself out of high
prime costs
Industry goal is a Prime Cost (PC) of
60% or lower
Franchise units Prime Cost (PC) target
of 60% or lower is essential. Why?
Why
Assume 6% of Sales
• Franchise Fees
• Licensing Fees
• Advertisement Fees
6% of Sales = % of Profit
The 100% Rule
100%
Sales
Food Cost
Liquor Cost
Total COCS Cost
COGS - Cost of Goods Sold
Direct Labor
Indirect Labor
Total Labor Cost
Prime Cost 60%-65%
Total COGS + Total Labor Cost
Operational Expenses 20%
PBOFC 20%
Profit Before Occupancy, Franchise & Corporate Expenses
Occupancy 10%
Profit 10%
Franchise, Corporate Expense 6%
Owner/Franchisee 4%
Before Debt Service
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IV. The Puzzle
IndependentsMultiple Units
Single Unit W/ Experience
Single Unit W/O Experience
Independents
Many Independents
Generate Less Than
$500K in Annual Sales
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Challenges to Solve
� Economic slowdown
� High/Low Unemployment
� Government regulation:
Minimum Wages
Health Insurance (ACA)
� Less disposable income
� Higher energy prices
� Inflation pressures
� Lower home values – Angst!
� Increased occupancy costs
� Any other comments / suggestions?“After months of analysis we reached
the same conclusion: when you’re
hot, you’re hot, when you’re not,
you’re not…”
If in Doubt, Rule it Out
V. The Pieces
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Takeaway – Three Imperatives
1. Be Proactive
2. Be Quantitative
3. Become a Partnership
How to get the Facts
� Nine Point Stress Test
� Secret Shopper Program
� Restaurant Operations
Questionnaire
� On-site Interview
� Lease Language
�One on One Tenant
Support
� Sales and Revenues
� Labor Costs
� Occupancy Costs
� Cost of Goods Sold COGS
� Prime Costs
� Franchise Costs
� Gross Profit
� Controllable Costs
� Net Profit
STEP ONE: NINE POINT STRESS TEST
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STEP TWO: HANDS ON - DISCOVERY� Secret Shopper
� Restaurant Questionnaire
� On- Site Interview
� Lease Language
� One on One Tenant Support
� Optimal Food Cost Analysis
STEP THREE: KEY LEASE PROVISIONS
� Pre-schedule Landlord / Tenant Review Meeting
� Annual or Quarterly Tenant Financial Results
� Operations Review – Professional Consultant
INDEPENENTS: Minimal Marketing Budget� Based on a Percentage of Sales
� No Internal (In House) Management
� Unorganized- No Plan
� Sales “Killing” Promotions!
� No Website, Video, Email or Social Media Marketing Service
� Failure to Target Trigger Points
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STEP FOUR: DIGITAL MEDIA MARKETING
� Fully Responsive Website
� High Definition Video Experience
� Email Marketing
� Social Media Marketing
� Tell Your - Why/Get Found Online
CONSULTING CHECKLIST
� Nine Point Stress Test
� Restaurant Operations Questionnaire
� Secret Shopper Review
� On-Site Interview
� Lease Language
� One on One Tenant Support
� Optimal Food Cost Analysis
� Social Media Marketing Strategy
VI. Case Study
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Tenant: ABC GrillProperty: XYZ Plaza
2014 % 2015 % 2016 %
Food Sales $2,244,602 90.78% $2,524,665 95.35% $713,089 96.51%Liquor Sales 312,715 12.65% 331,810 12.53% 109,017 14.75%Promo Meals -84,660 -3.42% -208,812 -7.89% -83,194 -11.26%Total Sales $2,472,657 100.00% $2,647,663 100.00% $738,912 100.00%Food Costs 729,271 32.49% 861,341 34.12% 240,555 33.73%Liquor Costs 105,159 33.63% 114,558 34.53% 33,577 30.80%
0.00% 0.00% 0.00%COGS * $834,430 33.75% $975,899 36.86% $274,132 37.10%
Gross Profit 1,638,227 66.25% 1,671,764 63.14% 464,780 62.90%
Direct Labor 578,545 23.40% 643,355 24.30% 186,755 25.27%Indirect Labor 321,525 13.00% 348,842 13.18% 107,119 14.50%Total Labor $900,070 36.40% $992,197 37.47% $293,874 39.77%
Prime Costs ** 1,734,500 70.15% 1,968,096 74.33% 568,006 76.87%
Controllables 474,310 19.18% 478,299 18.06% 136,901 18.53%PBOFCosts 263,847 10.67% 201,268 7.60% 34,005 4.60%
Occupancy Costs 191,223 7.73% 218,765 8.26% 54,691 7.40%
Profit $72,624 2.90% ($17,497) (.60%) ($20,686) (2.7%)
* COGS - Cost of Goods Sold ** Prime Cost - COGS and Total Labor Costs
VII. Win-Win Leases
� Become PROACTIVE not REACTIVE
� Pre-Qualification of Restaurant’s Sales/Profit & Loss Statement
� Annual Review of Restaurant (Financial Physical)
� Tenant Improvement Determination
� Lease Options
� Tenant Rent Relief Request (Review/Evaluations)
� Powerful Tool for Restaurant/Landlord Consultation
� Client Support on Improving Restaurant Results
Useful Application of Services
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Financial Statement (P&L) Analysis Provides:
Client with National Restaurant Industry
Benchmarks and Trends
A Review of Sales and Related Operating Costs (Cost of Goods Sold, Labor, Prime and Occupancy Costs)
An Analysis of Key Financial and Operational Areas
Specific Recommendations and Comments are included in The Report
Please Complete Your Evaluation Now.
1. Take Out Your Smartphone or Tablet
2. Go to survey.icsc.org/2016RECON
3. Select this course: Essential Restaurant Fundamentals
and Leasing Strategies
Course Evaluation