What’s the Big Data?: The Food + Labor = Profitability Equation

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Optimizing labor and cutting down on food costs are two benefits of having an efficient and effective view of restaurant back-office.

What’s the Big Data?: The Food + Labor = Profitability Equation

By Dorothy Creamer - 10/31/2019

Back-office technology is poised for growth, according to Hospitality Technology’s 2019 Restaurant Technology Study. The 2019 research, which queried restaurant IT leaders representing 22,075 units across QSR/fast casual (85%) and full-service (15%), reveals that in 2018, restaurants earmarked the back-office to receive 30% of overall IT budgets. This was an increase from 2017, when back-office got 22% of greater IT spend.

The growth put back-office investments ahead of front-of-house and corporate technology investments for the first time in several years. This shift aligns with the strategic goals of restaurant operators, reported in the study, to improve data and analytics coupled with improving productivity and reducing costs.  

Restaurants historically had put more of their IT budgets toward front-of-house investments, but more operators are realizing that growth may start from the back-of-house. Restaurateurs plan to allocate more for back-of-house investments, with 49% looking to increase budgets.    

The “back-office” for restaurants is often an all-encompassing term for technology that is comprised of inventory (which includes ordering and receiving), labor scheduling, restaurant or enterprise reporting (perhaps even BI), and export capabilities to downstream systems such as payroll and accounting. Barry Shufeld, president of BNS Associates and interim CIO of the Briar Group previously mentioned with the addition of server productivity. It is complex and heady to consider the vast amount of information coursing through each system.

Sifting through disparate streams of data will not provide a holistic view of the enterprise and can result in data blind spots. Complicating matters further is that looking only at one metric – even if that metric is sales – will not help restaurants gauge profitability.

“We are slowly migrating away from the days of ‘pulling reports’ more towards the era of being delivered relevant data at the right time in order to make critical business decisions,” Toby Malbec, principal of TWM Insights, says. “More and more systems are moving to the capability of providing real-time data and the ability to deliver this information in an actionable manner for operations to understand the business conditions and respond accordingly.”

 

Malbec illustrates that it is now within the capabilities of many of today’s back-office systems for managers to see that sales are off during a given day because the restaurant is over-staffed, or realizing that given the current sales rate of key menu items that the restaurant will run out of an ingredient before the next order cycle.

 

POS Paints a Picture of Sales, not Profitability

According to Hospitality Technology research, restaurants are increasingly expecting the point of sale to perform all functions from business intelligence to inventory management. The 2019 Restaurant Technology Study reports that 78% of restaurants either already have and/or believe the POS should have labor management, 67% say the same of accounting, and 84% have or think the POS should do forecasting.

 

Zinburger Wine & Burger Bars, was able to reduce food cost variance with CrunchTime's Actual vs. Theoretical food cost variance report.

Relying on the point of sale as more than an ordering system is misguided says CrunchTime. The company asserts that the point of sale cannot effectively be used to manage food and labor – the two biggest cost centers for restaurants. While the POS is a vital component, it is a better indicator of sales, not overall profitability. Case in point, the channels through which sales are coming are becoming increasingly complex. Margins are getting slimmer with online ordering. The point of sale will measure sales but the fuller picture of whether or not a brand is profitable needs to come from efficiently running costs and maximizing profitability by accurate inventory ordering and effective labor scheduling.     

The Briad Group, the fast-growing Princeton, NJ-based restaurant company, that has multiple concepts including 18 Zinburger Wine & Burger Bars, was able to reduce food cost variance since implementing the CrunchTime system – specifically leveraging the  solution’s Actual vs. Theoretical food cost variance report. This allows Briad’s individual restaurant managers to see in real-time how much inventory has been used and measure against what should have been used. This allows potential issues to be resolved swiftly.  

“For each food item, the Actual to Theoretical variance should be within one point at Zinburger,” Emily Whitney, CrunchTime Administrator for The Briad Group, explains. “Our restaurant managers have a variety of inventory reports they can use to investigate variances. With all this information at their disposal, they can determine the best course of action to resolve the variances. We have the ability to count inventory as frequently as we want to see if the variance is happening all the time, or if it can be narrowed down to specific days or shifts.”

Miller’s Ale House reduced its food waste and supply costs and lowered inventory by tracking inventory items in real-time using CrunchTime

Miller’s Ale House, with 94 locations in 13 states, has significantly reduced its food waste and supply costs and lowered inventory by tracking inventory items in real-time using CrunchTime. The demand-based analytics engine projects food production schedules based on powerful sales forecasts and historical consumption patterns — with Actual vs. Theoretical food costing that reportedly saves 2-5% on food purchasing. 

As a result of the partnership, Miller’s Ale House has achieved benefits like producing less waste, decreased incidences of theft, lower food costs and an increase in profits.

The Briad Group also leverages CrunchTime to coordinate ordering and invoice payments by integrating with both Briad’s suppliers and its accounting platform. This eliminates the need for the manual entry and updating of products, pricing and entering invoices into the accounts payable system.  

Breaking the Cycle of Legacy SOPs

Just as legacy systems need updating, processes and procedures need to be reevaluated as better business practices emerge. Malbec urges his clients to trust the data and avoid the cultural urge to base ordering and staffing decisions on "the way we have always done it."

 

“Inventory and labor scheduling systems work on historical information, but allow users to modify them in order to provide flexibility,” Malbec says. “When used properly, these systems have a much more controlled and objective approach to managing food and labor cost, or perhaps avoiding the inclination of many managers - especially in the current labor climate - to cut labor to much in an effort to save money.”

The Briad Group reduced food and labor costs by using CrunchTime’s TeamworX platform. TeamworX enabled The Briad Group to examine historical trends in conjunction with sales forecasts to project how many team members will be required for each shift. The Briad Group has approximately 1500+ team members working in 62 restaurants, necessitating a holistic view of the workforce in order to have a full picture of labor expenses and how that will impact overall business profitability.

The TeamworX tool enables the company to identify where standard scheduling practices were actually inefficient, enabling them to reduce employee hours in an effective manner. Managers are able to view insights in bold graphics and easy-to-decipher charts, which empowers managers to make data-driven decisions on labor.

 

Not only is there a cost-savings, but a time-savings for employees as well. Whitney says, “Managers say scheduling takes a fraction of the time it once did. They can clearly see if someone is available or not.”

 

The smart application of systems to optimize food and labor will yield far-reaching business benefits. The important metric is profitability, which will be easier to achieve by looking at the enterprise through the lens of a restaurants two top cost centers. Malbec stresses that it is a misconception that these systems are designed to keep inventory and labor levels low. Rather, “they are designed for the restaurant to optimize its operations, which in some cases might actually occur through increased labor or Par levels.”