Effective Strategies For Maximizing Restaurant Profits (Ep 203)

publication date: Nov 27, 2023
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author/source: Jaime Oikle with Tom Rutledge
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effective-strategies-maximizing-restaurant-profits

 

In this episode of the podcast, Jaime Oikle of RunningRestaurants.com interviews Tom Rutledge, Managing Partner at RDMS Group. Tom is a former chef turned restaurant consultant. They discuss the challenges of restaurant management, including balancing costs, utilizing data, and adapting to the digital world. Rutledge emphasizes the importance of prime cost management, effective use of data, and creative menu planning. He also highlights the need for excellent customer service and effective management in driving revenue. The impact of the delivery economy on the restaurant industry is also discussed.

Other highlights included:

Be sure to check out the episode. Find out more at https://rdmsgroup.com and https://www.runningrestaurants.com.

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Effective Strategies for Maximizing Restaurant Profits With Tom Rutledge

We've got a great episode for you with Tom Rutledge, managing partner at RDMS Group. Tom, you guys focus on specializing in restaurant accounting and operational consulting. You also own and operate some restaurants. We'll talk about that stuff. Tell me a little bit about the firm, where you are today, how you got there.

We've been going on for about twelve years, full-time. My business partner and I started this about twelve years ago. We met at another restaurant-specific accounting firm, and they put us in a room together. Our backgrounds are a little different from each other. I was a finance guy, had my early life crisis, moved to San Francisco, went to culinary school just looking for something that I wanted to do versus felt like I should do for the income.

I have become ready after going into some Michelin kitchens for a couple of years and trying to work in the kitchen, they said, “Maybe we go to the front of the house. This isn't your spot.” I said, “Great, let's take some of that knowledge.” Move to the front of the house. Did the full rigmarole. I've worked all the positions and ended up being the general manager.

Realizing I didn't quite have the tools to run the business, I was fine on the service part and had a lot of support and great mentors on that side. I found that restaurant accounting firm to try to say, “I've got this background. Let's see what people are doing.” I met my business partner. He's the tried and true accountant. He went to school for it. He got hired out of school at this restaurant, a specific accounting firm and started his career there.

He went off to be the controller and do various finance jobs in the hospitality business. While at the firm, I realized I needed more of an operational background. I was a little too young to be telling people what to do. I didn't have the experience. I jumped back into ops, found myself back home where I'm from in New York, and ended up in larger organizations. 40 units, 200 units, and then 15 units.

The entire time I was sitting there thinking that we've run a good restaurant, but it's not making the money it should. Why? It was developing and creating those tools with my current business partner. We were both doing things separately and we said, “Let's bring this all together.” Our RDMS firm came from the concept that accounting needs to be the next manager who just doesn't happen to be on the floor.

They're the person, the people, the group that is telling you, “You're doing a great job here, but we got to focus here.” The tools that we created are from the perspective of how to get the right information to the right people at the right time without them having to take their attention off the floor. So that's how we got where we are.

Where’s The Money?

Thanks for bringing us through that background. Two gigantic restaurant cities, San Francisco and New York, you just mentioned. It doesn't get any bigger or more serious than that, but you said something that I want to go back to. You said you asked the question, “Why aren’t we making money?” That's a common theme across restaurants. A place is busy. The assumption is making a lot of money, but then the checkbook balance at the end of the week, month, “Where's the money?” “Where did it go?”

That's what's the mystery. How do you solve it? There are so many pieces of that. I wish there was one simple button that people could choose, but let's get into it from your side. Where do you find the mistakes that people are making when they're losing points and profits? Let's start there. Fiddle with that.

This is my everyday. This is my favorite conversation. You nailed the one big thing. There isn't that one lever or button you get to push. It is more like playing Jenga where you move this one point, where is this brick going to go? We tell someone to cut labor, and they just go remove a body and now their service is going to be lacking, their check average is going to be going.

What we do is focus on prime cost first and foremost, prime cost being all of your cost of goods, food, beer, wine, liquor, and beverages, plus your total burdened labor, salary, hourly benefits, and all that fun stuff. We also focus on how to make the right metric for that concept. Just speaking largely, if you are in a major metropolitan area, we're looking at probably a 65% prime cost as an initial target.

Said otherwise, for every dollar that a guest spends, we're spending 65 cents on our food, beer, wine, liquor, and beverages, front of house, back house, and benefits. As we start to look at different concepts, we start to identify that this is fast casual, and we're more in a suburban market. We're doing a ton of volume. We can get labor lower.

The reason for that is we don't want all numbers to just be as low as possible because that's hard to benchmark. If you can save on labor, you can increase your experience maybe on your food costs, or offer better value. It's about that right mix. There's a lot of work in that, by the way. We have some pretty specific suggestions and reporting.

We also know that restaurant people, if they were admin-centric, may not be restaurant people. We are working with the personalities. Just as an example, in all of our operational consulting and even the restaurants we operate, every Tuesday is sales forecasting and schedule day. We're looking at this week, next week, and the week after. We're running some quick reports to say, “Here are our strongest servers.” “Why does the guy with the lowest check average happen to work for five days, which happened to be the busiest days? What are we doing here?” We're getting granular with that.

Every Wednesday, we look at the product mix, what our item costs are, what's moving, and what's not moving, as well as some purchase tracking tools we put together. Our team is trained on how to use them, not put them together. I think that's important. We do this so that each meeting can be 15 to 30 minutes at max and capture everyone's attention, put the decision-makers in the room.

Then on Fridays, we go over our manager meeting where they're catching up. “We said we would do this for labor. Did we get it done? Where are we weak to date? What's the weekend looking like? We said we changed this on the menus. Did we change these things on the menus? What's up with purchasing? Did the vendor get back to us?” Prime cost is our main focus. Everything I just mentioned is accountability and follow-up, which is where I think most restaurants fail. That's our first step.

You covered a lot there, and you probably just made a lot of people nervous on the fact that they would say, “I'm not doing half of that stuff.” I'm just guessing that doesn't happen. That must happen a lot of times when you start with a client and you realize they haven't collected the right data. They haven't done an analysis. They haven't dug into the menu in a few years, and they might believe one thing, but the reality is completely something else. Talk about that aspect of, “It's time to get started. You have got to do the dirty work, and it's not going to be fun and pretty.” I imagine that's the case.

Always. I appreciate that comment because it is where most restaurants fail. It's a lot of, “Do you mean I'm supposed to meet three times a week?” “I'm short-staffed. I have to deal with marketing, HR, legal, and everything else. I'm a small business owner.” The reality of it is that people step over dollars to pick up pennies all the time. They're yelling at the linen guy. They're yelling at this guy for clocking in fifteen minutes early.

What we have found is if you get your team to do things on purpose, all of a sudden things start falling in line. I will tell you the hardest stumbling block when I go to people and say, “What do you write your schedule in?” They will say, “It's this Word document that we pin up on the wall.” I’ll ask, “What sales were you thinking of doing?” They’ll respond with, “We usually do about X amount per week.” I will ask, “But what's the cost of your schedule and compared to that?” They’ll answer, “I don't I don't know.” I will say, “Let's get into that”

There's so much at our fingertips these days, Technology-wise. I don't care if you use 7Shifts, HotSchedules, or Restaurant 365. There are so many things. The hardest part is just getting started, and then it doesn't have to be perfect, just be consistent and work on it. If you're the owner and you have a manager, start speaking to them in ways that they can be proven accountable because it's easy for you to walk into a restaurant and say, “Reduce the labor.” They would say, “Okay, I'll cut a cook and a server.”

Then you walk in on Friday night and ask, “Why is service so bad? What's going on?” He’ll say, “You told me to reduce labor.” It's like, I didn't tell you to shoot service in the foot, I want it all. Instead, start talking with action steps, and you don't have to do all of those things at one time. If anything, focus on labor, then start looking at the other things.

Again, there is so much technology out there to make this not overwhelming, to have to put every piece of data. My firm specializes in trying to figure out how to make that data apparent to our clients, but that's only half the step. If they're not looking at it, who cares? You have to do something with it.

I spoke with someone earlier this week who had some background working with the Burger King folks. Those guys have a lot of money. They have systems, they get data that you'd never even imagine happening. That couldn't happen for independents and smaller operations a little while ago, but now it can. You guys know this for a fact you can collect so much data now. The cost of it is no longer a hindrance, very affordable to get it, you have to use it, garbage in garbage out, et cetera, but you have to look at it first.

Let's go to costs and how you guys deal with this because everybody knows there's no secret that there is inflation everywhere, every trapping of life. Costs have gone up, which makes profits potentially shrink if you don't adjust accordingly. They went up fast. How did you help folks adapt to that? That reality probably not going to change. What are we thinking?

It comes down to value proposition and being creative. We made a joke five years ago, which was the $20 burger. That was everyone's biggest fear. If you live in San Francisco, you're paying twenty bucks for a burger. It's here. This is going to sound funny but you start looking at these menu items, and you ask, “What's our product mix?” I tell clients not to waste time costing things that aren't making up 50% of their revenue.

 

Don't waste time costing things that aren't making up 50% of your revenue.

 

If you're not selling at least once a day, take it off your menu, and stop providing the work. Some of the old-school chefing is gone, and people aren't looking at saying, “I have carrot tops, now I'll make a stock.” People are buying stock because maybe some of the skills of the labor cost aren't there. There is a level of evaluating a menu, seeing the intelligence of the menu, seeing if it is costed at where it should be costed.

We called some of our larger broad-line distributors and said, “We represent over a hundred restaurant groups. Do you want to talk about giving them the purchasing power of the smaller groups?” We bring that to our clients. That helps tremendously but the biggest thing is that Wednesday call that I talked about, what are we selling a lot of? What is it costing? Where are we currently pricing? The big thing I think that restaurateurs who pay attention are cautious of is constantly raising prices.

Maybe that $20 burger can be an $18 burger, but you get creative with sides that are more add-ons. Entice and upsell from the fries for something that doesn't cost very much but adds the extra $4 to the plate. There's no magic bullet. Constantly watching your pricing every week, reviewing the item pricing. There's some great technology out there too that can scan invoices.

We have this in our firm. You scan the invoices, and we do it automatically. The software tracks the cost of that item versus what it costs for the previous date ranges, and it tells you automatically that you don't have to go hunt. Cantaloupe is up 20%. I own a Mexican restaurant. When avocados go up 20%, I have a bad week. I have to pay attention to that.

That's right. Have you come across a scenario where someone is selling a lot of something, and that particular item is just not making any money? It's not profitable. The servers might be recommending it up like crazy, but that thing is not making you any money versus all these other opportunities that may have dropped $5, $6, or $10 to the bottom line. They're selling the $1 item all the time.

I'll give you a couple of examples. These hit close to home. We sell a lot of margaritas. We're constantly looking at the lime price. In the beginning, we were just having to run with it. You get these points in, it's cyclical or sometimes we had a problem with one of the cartels trying to do something with lime importers. All of a sudden, went up by 50%. Who could see that coming? All of a sudden, our lime costs go up by 50%.

Since we meet weekly, we said, “It's time to start doing some special margaritas. Cantaloupes are down really cheap. Let's do a cantaloupe margarita, a watermelon margarita, or a hibiscus margarita.” We start moving the product and say, “We can't sell this really popular item anymore.” We have to know that it costs too much, figure out a solution that a guest will want, and then make that the main training point for the staff. There are other things where it's not just food cost. I have some clients where we walk in and say, “You sell three of these, but the kitchen says they spend 40% of their time prepping that.”

Is it an iconic dish? Can we move it to just being a Tuesday thing where there's not a lot of volume, and the kitchen has more free time? You have to look at that product mix because it's not just cost, it can be labor. Have the kitchen involved in these conversations, have your bar team involved in these conversations, and pay attention.

As I said, the avocado, “Guys, do not try to sell guacamole.” We're going to put out a trio platter in our example. Instead of selling a $12 portion of guacamole, we are now losing $1 every time we sell it. We'll do a smaller portion but also include salsa and queso. Sell that and now we're making money because it's part of something where we do make some money.

A People Business

Question, you threw the restaurant in there. RDMS Group is on the accounting side but do you guys own and operate restaurants yourself? Tell me the different hats you are wearing.

We practice what we preach. We come at this from the, we are the accounting, the outsource CFO in many instances, if you will. I have an incredible director of operations. That director of operations works with the general managers and the chefs who are most often partners in those businesses. They are directly tied to wanting to see the success of that. My business partner and I wear the hat of going to provide operational tools and accounting tools.

The hospitality is coming from the people who are in the restaurant every day. Then we bring that structure, this is the Tuesday meeting. The Wednesday meeting is the accountability systems. From our operational background, our DOO who's worked with us for a long time knows how we operate. We jokingly refer to it as the binder system. We remove tech from the floor. We want servers opening binders to see side work, opening binders to see table mapping, and all that stuff, but we work through our incredible DOO who works through phenomenal chefs and general managers.

What are you seeing with payroll? You've done San Francisco, California, highest hourly range forever, whoever thought restaurant staff would be paid that much, and that trend is coming across the country, not changing. People have dramatically changed that aspect of it. How do you find the sweet spot of labor?

It's getting nearly impossible, and I'll speak to California first and foremost because if you're in San Francisco, just as an example, you have mandatory sick pay, mandatory 401k, mandatory health benefits, and 1807 minimum wage. It just piles on, you're at nearly $25 to $27 per hourly person with no tip wage. Let's just start in the hardest market that exists.

Technologies coming in, you're going to see QR codes, you're going to see kiosks where they didn't exist before. You're seeing some inventive operators try to figure out how to provide really good hospitality around a QR code because you just can't afford the bodies on the floor. That is the physical reality of this. I remember years ago, in New York City, they had a mandate for some of these price costs, and McDonald's said that kiosks are the solution. If I have to pay people that much money, I can't afford people.

Restaurants are a people business. People go out to have an experience, not just to consume food and beverages. People are always going to be a thing. Having very strong training systems, you have to provide a good work environment. You have to cover all of your bases. Again, I'll speak to California meal break penalties, split-shift penalties, and minimum hour compensation.

 

Restaurants are a people business. People go out to have an experience, not just to consume food and beverages.

 

You're on the defense as an employer, so your HR tools and your payroll tools not only have to figure out how to staff you at an appropriate price but cover all of your bases to pay all of the penalties. So that three years in, you don't get sued for a million dollars. Technology is going to be the primary driver. There are only so many tables a server can adequately serve, and there are only so many bodies you can afford to put on there. It does lead to the menus having to become more specific.

You have to take fewer chances depending on your lease and where you've signed up because you have to hit home runs. It's to the detriment of our industry that that's the case in many instances. It also means that it's not easy for the independent operator to try to get into the game because you have to hit triples and home runs, to use a bad sports analogy. You can't get a single, if you will. The margin's just not there to support any potential mistake. I know I didn't answer that question great.

Good pieces of it. I don't know when this will air, but it is playoff baseball season, so the analogies are fine. They work for me right now, but we'll get this out there. You talked about a few things. Men just have to shrink, they do. What I've noticed in the last couple of years is that we eat out way too much because we're busy with family and kids running around in sports and so forth, but my dining experience at locations has gone down over the last couple of years.

Whether COVID is the cover excuse for not giving service, not having training, or not having enough people, I feel as a big opportunity to find a way, even inside of that challenge, to give better service. That leads to happier customers and all the things you can imagine down the road. Fight for that experience somehow, and some way, don't let that go. I’m saying the obvious, but I don't see it enough.

You're entirely right. What it is doing is weeding out the great. The good doesn't have a place anymore. You have to focus on great. If the foundation's not there, you're going to have a hard time. Your management needs to be in a place where they know how to control costs because they can do it in bite-sized pieces. That they've got a model that will work and then they have to be out there.

Let's be honest, it is the grind of saying that I see you went up and said, “Guys, do you want to drink today?” We say, “You're not going to sell a drink that way.” “I see you didn't check in with the table. That guy's beers are 80%, God, did you offer them another one?” That's just good hospitality, let alone the fact driving the top line. Give the guy a drink. If he wants a drink, ask him if he wants something else.”

Countless times. If you finished the first beer or the second beer, you would easily get one more if the timing is right. What's the profit on a bottle of beer that they're selling me for $6.50 to $7 bucks? It's terrific. They're just leaving that money on the door. “Now, we're just going to the next place or grab one at home”. Those missed opportunities don't come back.

 

Those missed opportunities, they don't come back.

 

The last thing I want to touch on is your thoughts on the delivery economy. It's changed. Everybody's got to be in that business. Now you have to be able to take it effectively. You have to manage the costs that are involved in bags and take-out stuff, but it's a big part of business. How do you guys talk to your clients about it?

You don't get to play in the digital world anymore. Restaurants are beyond their location. It doesn't matter if it's social media, it doesn't matter if it's PR. Delivery is an aspect of digital marketing. What you're investing in your packaging, and making sure that what a guest gets at home represents your brand is super important. You cannot ignore the revenue that comes from this. It comes with its challenges. You need the technology.

 

You don't get to not play in the digital world anymore. Restaurants are beyond their location.

 

If you don't have an UberEats or DoorDash name, your program isn't automatically logging into your point of sale, closing it to a house account. You know what your receivable is. I had to throw in an accounting piece there because it is still truthfully a nightmare from the numbers side if you don't do it correctly.

Paying attention to the kitchen. How busy is the dining room experience versus the delivery experience? Tethering to tell the kitchen that you can do the delivery after we get through this part of the rush. That one can take 15 minutes and this one must take five. Those are all of the intricacies of running it well. If you're not doing it, you're leaving anywhere from 10%, 15%, or 20% plus top-line revenue.

I know the fees look high, but you're already paying credit card fees. You're not having to pay the server to get to the table. You're not paying for the flatware. You're not paying for the glassware. You're not paying for the linen. You're not paying for the bus, the cleaner, or the dishwasher to do it. There is a margin available if you do it the right way. It's mandatory these days.

It is 100%. I appreciate those insights there. Let's go to parting thoughts. Any other wisdom you want to share? Is there a book recommendation, a quote, or anything you want to share? You can think about that. You can finish with a website to go to, or any other social stuff that you have. Your floor.

I will give you a nod. I recommend everybody get away from what they think they need to do from how they were trained and go get a different perspective. I think the podcasts that are coming out are awesome for this industry. People should be listening to them on their commute to work. You guys do some great stuff. I'm always on your LinkedIn looking at the things you have posted. Just start paying attention to what other people are doing and glean the facts that you can get from people.

Reach out and ask for help. I think a lot of restaurateurs get so stuck in their heads that they're not because they're afraid of the price. Just start asking questions and see what your neighbor's doing. Call people just to ask what technology they're using. Technology doesn't solve problems, but it does help the team who solves the problems, get some answers. Just start listening to those that are out there talking about it and glean some insight and then take the time to put it into place.

Good stuff there. Hit them with the website or anything else. Any social channels you have.

I appreciate that. Yes, www.RDMSGroup.com. We love to talk to operators, even if it's just a 15-minute conversation to see if we can or can't help. We'll always probably be able to glean a little bit of information to give you a hand. It's our main goal.

Good. We hit a lot in a really short amount of time. I appreciate you, Tom. Good stuff today, folks. Tom Rutledge, RDMS Group. You can find them on the web at RDMSGroup.com. For more great restaurant marketing, service, people, and tech tips, stay tuned to us here at RunningRestaurants.com. In the meantime, do us a favor, hit that like button, subscribe to us, and give us a review, wherever you're reading this, we would appreciate that. Thank you so much, we'll see you next time. Thanks, Tom.

Thank you.

 

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