Amper, Ronnel Jann April 19, 2017

de los Reyes, Andrea

RESTAURANT INDUSTRY
(KUSINA VICTORIA)

Profit Potential

The profit margin of a successful restaurant varies widely across the industry. As

a small-business owner, you must determine what a successful profit margin looks like

for your company and set product prices to achieve that goal. Remaining conservative

in the early days of your restaurant's life can allow you to expand your business slowly

and sustain growth in the long term. Before expanding the size of a restaurant, adding a

full-service bar or improving the point-of-sale operating systems, the owner of the

business completes a cost-benefit analysis. This analysis shows how the contemplated

project is likely to affect the restaurant's operating results. If the analysis reveals the

project will have a minimal positive effect on revenues and profits, the owner may

decide to consider an alternative project with a faster payback.

Calculate Costs and Forecast Benefits

The costs depend on the specific project. They could include the acquisition of

additional assets such as furniture and fixtures or equipment. Labor and materials

expenditures are required when making facility renovations. These expenses are

prorated over the life of the project -- the period during which the restaurant will benefit

from the project. Other ongoing costs may include increased labor, utilities and food

costs and marketing expenses. The benefits are the increased revenues resulting from

the project or decreased expenses due to improved productivity from, for example, new
computer systems. These benefits are forecast for the life of the project. Costs are then

subtracted from the benefits. For example, if the furniture and fixtures expenditures are

$50,000 spread over five years, and the annual additional operating expenses are

$10,000 per year, the project has to result in at least $20,000 of increased sales just to

break even.

Improve Technology and Operations

Careful monitoring of food and beverage costs is possible with point-of-sale

systems that calculate what the food costs should be based on the menu items sold.

This projected cost is then compared to the actual costs. The potential decrease in

expenses due to a point-of-sale system integrated with the balance sheet and income

statement could be greater than the expense of installing the system. Shrinkage due to

employee carelessness and pilferage is decreased by these systems. Portion size is

controlled. While a few extra french fries on a hamburger plate won't materially increase

costs, one extra shrimp on a dinner entre will.

Expand Hours of Operation or Serving Capacity

Some restaurants only serve dinner. Opening for lunch requires a cost-benefit

analysis to see if the additional revenue from the lunch trade is enough to offset the

additional staffing, utilities and food costs. Offering a Sunday brunch is another option.

Expanding the restaurant's seating capacity by building an addition requires a thorough

analysis. If the lunch program doesn't work out, it can be eliminated. However, a

restaurant expansion is a permanent change to the building.

Add Product Line

 The restaurant owner may decide to add products and services such as take-

home baked goods, catering or canned versions of a signature dish such as the owner's

secret recipe for pasta sauce. Additional revenues are the benefit. Expenses include

special equipment and ovens for the bakery, as well as staffing. A catering service

requires additional staffing and marketing. The incremental costs of offering the canned

products include processing and packaging.

New Locations

One of the most expensive projects is opening a new location in addition to

maintaining the current location. The new location takes time to build, resulting in

expenses without offsetting revenues until the new location is ready to open. The new

location may cannibalize revenue from the current location. Testing out the feasibility of

a new location is possible with a food truck, rather than a permanent location. If the food

truck does well, it's an indication the permanent location may do well.

Total income earned in 2013 by the sector reached PHP251.3 billion.

Restaurants and mobile food service activities was the top contributor with PHP173.5

billion or 69.0 percent of the total income. Short term accommodation activities

generated PHP70.5 billion or 28.1 percent. Event catering and other food service

activities shared 1.4 percent or PHP3.6 billion. The least contributor of income was

generated by other accommodation with PHP148.1 million or merely 0.1 percent.

Among regions, more than half of the total income of the sector was earned by

establishments located in NCR amounting to PHP131.2 billion or 52.2 percent.

CALABARZON followed next with PHP25.7 billion (10.2 %). Completing the top three
regions was Central Luzon with PHP22.7 billion or 9.0 percent of the total income.

ARMM registered the least income with PHP61.2 million or just 0.02 percent.

Total expense by the sector summed up to PHP206.4 billion. Restaurants and

mobile food service activities disbursed the highest amount of PHP140.3 billion or 68.0

percent. Short term accommodation activities incurred a total expense of PHP60.0

billion or 29.1 percent. Other accommodation, having the lowest number of

establishments spent the least with PHP129.0 million.

Across regions, NCR spent the largest as it incurred PHP102.4 billion or 49.6

percent. CALABARZON, followed with PHP22.8 billion (11.1%) while Central Luzon

disbursed PHP19.0 billion or 9.2 percent. As expected, the least expense was recorded

by ARMM with only PHP38.1 million or simply 0.02 percent.

Income-expense ratio, the income generated per PHP1 expense, amounted at

1.22. Among industries, restaurant and mobile food service activities recorded the
highest with 1.24 income per PHP1 expense followed by beverage serving activities

with 1.20 income per PHP1 expense.

References

http://smallbusiness.chron.com/successful-profit-margins-restaurant-business-

23578.html

http://smallbusiness.chron.com/costbenefit-analysis-restaurant-66798.html

https://www.psa.gov.ph/content/2013-annual-survey-philippine-business-and-

industry-aspbi-accomodation-and-food-service