February 13, 2020 |
Foodservice establishments have to survive on very tight margins. A few percent variance in a restaurant’s cost base can make the difference between a booming enterprise and bankruptcy.
No surprise then, that everyone is looking to optimise their cost structure as much as possible in the good times, to be prepared for the tough times. However, there are many cases where these decisions are made by gut feeling and based on hearsay instead of justifying it with the help of readily available data, and instead of savings the restaurants create false economies.
A false economy is commonly defined as an action someone takes to save money in the short term but ends up costing more or wasting more money over the long term.
So, let’s look at two examples from the restaurant industry.
PAPER VS. CLOTH NAPKINS
This topic usually comes up, when quick savings are needed. You can get a pack of a thousand paper napkins for a few dollars instead of investing more for cloth napkins. Especially if you are running a big volume venue, this can have quite an impact. However, looking at the long run, the cost of washing the more durable cloth napkins is about half the cost of constantly replacing paper napkins.
And what about the environmental impact? Surely reusable napkins must be more sustainable right?
Well, the answer is not so black and white as we might think. Cloth napkins use considerably more water both during production as well as the regular cleaning process.
Running a calculation with industry benchmark data to compare cotton, linen and paper napkins, we can see that between production, washing and disposing, cotton napkins use 150 litres of water compared to 3 litres for paper napkins which is a staggering 4900% difference.
Cloth napkins also make use of more greenhouse gas emissions and many laundries add bleach in the washing process which then might contaminate the water. On the gas emissions again cotton napkins top the list with an average impact of 1.5 cubic meters of CO2 emissions, 0.6 m3 for linen and only 0.14 m3 for paper napkins. This results in a difference of 970%.
Those numbers alone, however, do not support paper napkins as being really more environmentally friendly since they create their very own problems such as deforestation and they many end up being carelessly thrown away littering the environment. So, it is not as easy a tradeoff as we might think.
SKILLED VS. UNSKILLED EMPLOYEES
This is specifically true for countries with relying on low paid expatriate labour, like the GCC countries for example. Because the market pays relatively low wages, restaurants tend to employ an army of waiters, hoping that this provides for quicker and better service which we have previously discussed in this article.
However, saving on your employees’ salary does not help the bottom line of your business and certainly does not help them. Restaurateurs are better advised to reduce the number of employees but increase the salary budget for higher skilled ones. In the end it will pay off in many ways as customers immediately notice the difference and tend to also spend more in an atmosphere where they feel at ease.
This notion can be supported by applying the model developed in this research paper, where productivity of an individual worker in F&B is computed a function of variables such as hourly wage, education, training, experience and age.
We created 3 types of employees based on changes to their wage and their quality of employment and also the number of employees, with all other variables remaining the same. Revenue is a direct result of employee productivity, so we have shown sales, cost of wages and the work-life quality (working hours) for each scenario.
We can clearly see see that higher wages lead to a higher productivity even at half the number of employees running the operation. However, a similar result can be reached by taking more employees with the average wage of the other two types but with less working hours, which in the end also results in less waiters on the floor at any given time than in type 1.
REASONS FOR FALSE ECONOMIES
Unfortunately, more often than not there is a misalignment between a manager’s goals as an individual and the economic goals for the company. We all have seen many venue managers who wants to make an immediate impact into the business and show his cost-cutting skills to get a good appraisal/bonus/promotion/better job in a different company.
The danger here is that he would think of more short-term solutions than long term goals and what would be better for the development of the company overall and thereby creating false economies that might harm the restaurant’s economic success.
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