Turn Data Into Success: Data Analysis For Small F&B Businesses, Part 1
Big data helps companies identify new opportunities in the realms of cost reduction, faster and better decision making, as well as in creating new products and services. In highly competitive industries where there is the need for quick decisions in order to stay competitive, the right set of technologies to analyze trends and business performance is crucial to staying ahead of the curve.
Data analysis, not just for big companies
Companies adapting big data strategies yield 15% more sales than the organizations that don't. Well, it sounds easy then! Let's create a Business Intelligence team and start crunching some numbers. But wait a minute, how can small businesses afford a Business Intelligence department? Where should they even start to "crunch" some data?
This article aims to demystify the taboo that data analysis works better for big companies. By sharing hands-on recommendations for familiarization with data-driven tactics, I will demonstrate how a restaurant business can adapt a data-driven strategy as easily as possible. The goal of this article is that you will be able to implement at least one of these data strategies in your restaurant. I put forward three basic recommendations, based on easy strategies for hoteliers to test out. A second article will outline three more complex tactics.
I am Tiziano Nessi, Product Manager at METRO group, one of the largest wholesalers in the world. Over the past three years, I have been managing an analytics dashboard specifically created for the SME of the restaurant industry. The three recommendations I am going to present below have been successful in real cases as used by many of my clients. I will translate these examples and adapt them for a fictional café named "Café Italia".
Prerequisite to getting started
Rome was not built in a day, much like a successful data-driven strategy. Applying a "do, learn, iterate and finally succeed mindset" (Lean Startup) is the key to leveraging data wealth. It is important to let any strategy about data run for some time before drawing a line and taking premature decisions. Moreover, you will need certain tools to run some of the strategy. Each data tactic I outline will have an instruction legend to help you identify the difficulty level, which KPI it addresses, which tools you will need and the length until impact, as noted below:
- Impact on which KPI: Revenue, profitability margin, # customers
- Difficulty to apply it: Easy, medium, difficult
- Tools needed: POS, Excel, cost control software
- Run time before seeing results: 2 weeks, 2 months, 4 months
Let's jump right in with the first recommendation.
1. Identify and maximize top sellers
- Impact on which KPI: Revenue
- Difficulty to apply it: Easy
- Tools needed: POS
- Run time before seeing results: 2 weeks
Use your POS, the source of all data, to start creating a data driven mindset within your restaurant. This recommendation applies a similar approach to the sentence "Never change a winning team". Find out which menu items are top sellers, optimize your menu and make similar dishes. For instance, at Café Italia they are serving a smoothie. After a few weeks the sale of the smoothie has been steadily increasing, this means your customers love it! Don't just celebrate, create new flavors to increase the offer around the top seller.
2. Expand the top seller size
- Impact on which KPI: Revenue
- Difficulty to apply it: Easy
- Tools needed: POS
- Run time before seeing results: 2 weeks
Café Italia has the best coffee in town, in fact black coffee is the second-best selling product. By looking at point 1, the restaurant owner (RO) could increase the kind of coffee beans offered, but that would be extremely inefficient with just one coffee machine. Instead, Café Italia should expand the size offer of the top seller and start serving S, M and L coffee options. The hotel industry has been doing this for a long time, offering different rooms at different prices, with no other differentiator than the size.
3. Make your top sellers' bottom line bulletproof
- Impact on which KPI: Profitability margin
- Difficulty to apply it: Difficult
- Tools needed: Excel, cost control software
- Run time before seeing results: 2 months
Increasing the revenue of the top selling articles demonstrated above is like a 100-meter sprint, it gives gratification but only for a short time. If a restaurant is seeking to be successful for years, it needs to adapt a marathon mentality and focus on profitability. Profit margins have to be crystal clear for the top selling articles. It is compulsory that the RO is aware of how much money is left in the bank after selling one unit of the top selling article.
This recommendation focuses on the calculation of the food cost or Cost of Goods Sold (COGS) of the top sellers. You can calculate the food cost by using a classic Excel file or a software that simplifies the exercise (Galley does a great job). To increase your productivity in this process, apply Pareto's Law, the 20/80 rule. This means, 20% of your products will yield 80% of your revenue. Therefore, add the cost to your top 20% products and start owning your profitability by changing the food cost or selling price of the respective products. Keep track of your profitability to always be in control and avoid bad surprises.
Reflections
Thanks to a food cost software, Café Italia was able to decrease the food cost by 7% for its top lunch dishes. This allowed for an increase in profitability by keeping the same selling price. There are four ways to increase the profitability of a dish which must always be carefully balanced against quality and customer experience.
- Decrease the portion sizes
- Increase the selling price
- Use cheaper ingredients
- Use substitute goods
These are easier strategies that will immediately support your success. When you feel comfortable with these three strategies, we can go ahead with 3 more advanced data strategies.
Stay tuned for those advanced data analysis strategies in Part 2 shortly!
