Essential Restaurant Fundamentals & Leasing Strategies for ...€¦ · Essential Restaurant...

©2015

Essential Restaurant Fundamentals & Leasing Strategies for Property Managers and Leasing Professionals

Michael J. D’Amico

Kenneth S. Lamy, CRX

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mobile.icsc.org

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Introduction

&

Overview

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Presentation Outline

I. Fundamentals

II. The Essential Percentages

III. 100% Rule

IV. The Puzzle

V. The Pieces

VI. Case Study

VII. Win-Win Lease Terms

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True or False?

Shopping Center Managers and Leasing Agents usually

have a strong understanding of retail but few really

understand the challenges of the restaurant business!

How many in the class have

either worked in or managed a

restaurant?

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Today's goal is to begin a process to help you

get a better understanding of the restaurant

business and how occupancy costs impact

profits and ultimately the Tenant’s ability to

pay rent.

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See Handout

Pages

2 & 3

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It is essential that Leasing Agents

understand the connection

between

Occupancy Costs and Profitability.

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…..

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• KNOWLEDGE

• UNDERSTANDING

• APPLICATION

• COURSE OF ACTION

FOUR STEPS TO SUCCESS

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I. Fundamentals

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I Can’t Believe that Restaurant Closed.

They were always so busy!

FUNDAMENTALS!

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R² P²

Rules

RegulationsPolicies

&Procedures

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II. The Essential

Percentages

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See Handout

Pages

4, 5 & 6

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The Essential PercentagesCalculation 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

(Food and Liquor Sales) = COGS* %

4. Total Labor Cost divided by Total Sales

(Food and Liquor Sales) = Labor Cost %

5. COGS and Total Labor Costs divided by Total Sales

(Food and Liquor Sales) = Prime Cost*%

6. Total Expenses divided by Total Sales = Expense Cost %

7. Advertisement Costs divided by Total Sales

(Food and Liquor Sales) = Advertisement Cost %

• COGS - Cost of Goods Sold

• Prime Cost – Food, Liquor and Total Labor Costs

• Total Labor Costs – Direct and Indirect Labor Costs

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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

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SALES! SALES! SALES!Let’s Identify Sales Variables

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SIMPLE ENOUGH

SALES REVENUE ALWAYS INCREASE

OPERATIONAL COSTS ALWAYS DECREASE

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WRONG!

CONSTANT STRUGGLE BALANCING SALES AND

COSTS…USUALLY WITH INCREMENTAL RESULTS

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See Handout

Pages

7, 8, 9 & 10

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Sales Variables

• Food

- Breakfast

- Lunch

- Dinner

• Liquor, Wine, Beer

• Beverage

• Banquet

• Off-Site Catering

• To-Go

• Cover Charges

• Retail

• Gift Cards

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Let’s Identify Food & Alcohol Cost

Variables

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Food & Alcohol Cost Variables

• Waste

• Theft

• Menu Prices

• Purchases

• Sales Mix

• Promotions

• Discounts

• Portion Control

• Employee Comps

• Administrative Procedures

• Inventory Physical Count

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Let’s Identify Total Labor Costs

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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

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Let’s Identify Key Operating Expenses

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Key Operating Expenses

• Restaurant Supplies

• Maintenance

• Repairs

• Utilities

• Accounting

• Linen

• Legal

• Marketing/Advertising

• Promotions

• Licenses and Permits

• Uniforms

• Phone and Internet

• Equipment Rental

• Credit Card Fees

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CASE STUDY

PRIME COST

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See Handout

Pages

11, 12, 13, 14

& 15

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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%

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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%

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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 SALES: 256,939.75



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 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%

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TOTAL PRIME COST PERCENTAGE %

SALES:

TOTAL FOOD & BEVERAGE SALES: 224,456.75





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%

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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?

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Why

Assume 6% of Sales

• Franchise Fees

• Licensing Fees

• Advertisement Fees6% of Sales = % of Profit

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The 100% Rule100%

Sales

Food Cost

Liquor Cost

Total COCS Cost

COGS - Cost of Goods Sold

Direct Labor

Indirect Labor

Total Labor Cost

Prime Cost 60%

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

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Restaurants

National

or

Independent

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Independents

Multiple Units

Single Unit W/ Experience

Single Unit W/O Experience

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Independents

67 % of All Restaurants

Majority Generate Less Than

$500K in Annual Sales

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“I can't pay rent this month.”

“I need rent abatement.”

“The rent is too high.”

Statements to Avoid:

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Success or Failure

Profit or Loss

Rent or Less Rent

Next Generation

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Let's paint a picture of the

challenges facing the

restaurant industry

today…

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Challenges to Solve

� Economic slowdown

� High Unemployment

� Government regulation:

Minimum Wages

Health Insurance (ACA)

� Less disposable income

� Higher energy prices

� Looming inflationary

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…”

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Generally speaking …

Landlord and Tenant relationships are

challenging at best and adversarial at

worst.

“It’s always about the money”

Tenant: “I pay rent – I want services”

Landlord: “I give opportunity – I want rent”

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If in Doubt, Rule it Out

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V. The Pieces

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See Handout

Pages

16, 17, 18, 19

& 20

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Takeaway – Three Imperatives

1. Be Proactive

2. Be Quantitative

3. Become a Partnership

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How to get the Facts� Nine Point Stress Test

� Secret Shopper Program

� Restaurant Operations

Questionnaire

� On-site Interview

� Lease Language

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� 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 Strategy

� One on One Tenant Support

� Optimal Food Cost Analysis

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STEP THREE

KEY LEASE PROVISIONS

� Pre-schedule Landlord / Tenant Review Meeting

� Annual or Quarterly Tenant Financial Results

� Operations Review – Professional Consultant

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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

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STEP FOUR

DIGITAL MEDIA MARKETING

� Fully Responsive Website

� High Definition Video Experience

� Email Marketing

� Social Media Marketing

� Logo and Print Design

� Consulting

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CONSULTING CHECKLIST

� Nine Point Stress Test

� Restaurant Operations Questionnaire

� Secret Shopper Review

� On-Site Interview

� Lease Provisions

� Tenant Support

� Optimal Food Cost Analysis

� Social Media Marketing Strategy

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Tenant: ABC Grill

Property: XYZ Plaza

2010 % 2011 % 2012 %

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

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� 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 LAMY Report

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Commitment

Commitment is what transforms a promise into reality.

It is the words that speak boldly of your intentions. And the actions

which speak louder than words.

It is making the time when there is none. Coming through time after

time, year after year.

Commitment is the stuff character is made of. The power to change the

face of things.

It is the daily triumph of integrity over skepticism

Abraham Lincoln

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Landlord-Tenant Relationship – An Overview

RetailersRetailers LandlordsLandlords

Expectations

Requirements

Expectations

Requirements

Lease

Agreement

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For Further Information

Michael J. D’Amico

Senior Restaurant Consultant

[email protected]

504.250.2160 (Mobile)

Kenneth S. Lamy, CRX

Founder and President

[email protected]

800.999.LAMY (5269)

985.630.5241 (Mobile)

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• Recording Package $150 usd

• Extend Your Own Education

• Share Sessions with Colleagues

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icsc.sclivelearningcenter.com

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