Understanding the Core Principles of a Hospitality Business

How to ensure the foundations of your restaurant or cafe business are profitable.

There are plenty of factors that may cause a restaurant or café business to fail, especially in today’s difficult times.

While Covid 19 has been the ruin of a number of successful hospitality businesses all over the world, the truth is, a hospitality business’s demise will almost always be rooted in its failure to deliver on one or more core principles.

The core principles are the foundations upon which a hospitality business’s success is built.  They’re the ‘non-negotiables’ that have to be well executed in order for a restaurant to thrive; and include:

1. It’s Got to be Obvious

The presentation of your eatery is critical and needs to, in just moments, communicate your food offering to a new customer. The concept needs to be obvious and consistent throughout.

What sort of dining and service style can they expect? What’s the food style? And what can they expect to pay?

If all this isn’t immediately obvious to prospective customers, they’ll form their own, potentially incorrect, idea of what the offer is. Or they may look elsewhere.

The clarity of your offer needs to extend to everything your customers see, hear, smell, taste and touch.

2. Get the Menu Right

Your menu is so much more than just a list of food items and their prices. It’s actually one of your most strategic marketing assets.

I’ve written previously about strategic menu design, but it’s important to understand the role your menu plays in attracting customers and maximising your ticket value.

A good menu must:

• Be clear and logically laid out so that customers can easily follow it.

• Be well presented and reflect both your brand and offer.

• Focus on the dishes rather than price.

• Be profitable.

• Consider how each dish and its price affects the other menu items.

3. Product Market Fit

All too often a hospitality business will fail because its offering is out of step with the market.

It could be that the offer is too niche, too expensive, or just not aligned with what the target market is actually wanting.

It’s important to carefully consider who your target market or ideal customer is. You then need to make sure you understand what they’re looking for and how much they’re likely prepared to pay.

You also need to ensure that your branding and marketing resonate with this market.

I recently worked with a client whose target market was busy central-city office workers. His menu really was delicious, healthy and packed with quality ingredients. His branding and fit out design were strong and his service was outstanding. -The problem was, his trade was very, very slow.

We quickly identified that as delicious as his food was; there was a mismatch between his offer and the potential customer base. He was expecting his busy customers to order their lunch from a menu and then wait 10-15 minutes while it was prepared.

Not an unreasonable expectation on his part, but the reality was his customers were wanting the same delicious, healthy food in a more grab-and-go format. Most of the time they just didn’t have the time to wait.

The solution, therefore, was to alter the offering/ product to better meet the market. By tweaking the recipes to grab-and-go counter food, he provided his target market with what they were actually looking for, and sales climbed.

4. Location, Location, Location

Let’s face it; real estate is never cheap. While the expectations of landlords differ; you typically find that the stronger the location the higher the price.

Therefore, trying to save money by compromising on location is often a bit of a false economy. While you may save money committing to a cheap lease, chances are you’ll find that this is reflected in your revenue.

By contrast, a more expensive site typically positions you closer to a larger market and therefore drives more revenue.  This is exactly why all the strongest global hospitality brands flock to premium sites. They know this puts them in front of their target market, and for that reason, they’re happy to pay the premium.

 . . .they can also negotiate a good lease, but so can you. I’ll tell you how in an upcoming post.

5. Cost Structure

You can sell as much as you like, but unless your cost structure is right; your business is not going to be successful.

To be successful it’s critical that you know how every dollar comes in and goes out of your business.

This starts by knowing the exact food cost of every item on your menu, and ensuring that you’re able to sell each item for at least four times that food cost.

You need to understand the full cost of your roster, including sick leave, super and holiday pay, and make certain that your food costs and labour costs don’t exceed 70% of your revenue.

You also need to know the value of every fixed cost, from rent and opex to uniforms, subscriptions and cooking oil. It all adds up fast.

In Summary. . .

How does your business measure up on all of these core principles?

While they may seem obvious, it’s surprising how often some of the principles are overlooked. And if you feel that your business is missing out on the success you expect, it might be worth using this post as a bit of a checklist to make sure that:

• Your offering and concept are really clear and communicated through every aspect of your business.

• The menu is carefully designed to maximise revenue and profitability.

• Your offering is aligned with the needs of your target market.

• You’re fishing where the fish are by investing in the right location.

• You understand your numbers and have your cost structure right.

Need a hand ensuring the foundations are right in your business? As hospitality consultants, Mean Business are more than happy to help out.