The Lowdown: Revenue management for restaurants
Our Co-founder, Angus, sat down with Carmen Mallo from REMS Hospitality to discuss Revenue Management and how to best benchmark business against other industry operators.
Storekit Co-founder, Angus, sat down with Carmen Mallo from REMS Hospitality to discuss everything you need to know about Revenue Management for restaurants. We’ll walk you through how to start, right through to how to best benchmark your business against other industry operators.
Carmen's career has seen her progress through both the restaurant and hotel industries, where she mastered the craft of revenue management. With a laser focus on optimisation, Carmen is an expert in everything from pricing, and inventory, to optimising distribution channels and capitalising on available space.
Carmen founded REMS on a mission to introduce the same strategic thinking of the hotel industry to the restaurant world. 'I thought, ok, how can we ensure that we are doing the best we possibly can in the right environment?’ She says. ‘Does a benchmarking tool already exist that can tell me how I perform versus my competitors?’Carmen couldn't find an answer in the form of an easy, friendly product. ‘So I said ok, well, I'll do it myself."
Now, REMS is successfully educating the hospitality industry on the importance of competitive benchmarking, by businesses think strategically about the best way to optimise their revenue channels.
The concept of RM originated in the airline industry in the 80’s when operators wondered "How can we sell the empty seats in the plane to ensure we are capitalising on space?" Airlines found a way to accurately anticipate consumer demand and by using dynamic pricing they were able to strategically target consumers within the buying window by offering seats at a better price, at the right time and did so by communicating in the right way.
"The key is thinking about the value of time and space and how you are utilising that. In a similar vein to airlines, restaurants are selling guests a seat and a period of time for which they can stay. If we start considering these elements and planning strategically, that's when revenue management starts taking off." Carmen adds.
Revenue management is becoming increasingly central to the success of the hospitality industry, and one of the key ways you can optimise revenue as a restaurant business is by calculating your RevPASH.
RevPASH stands for "Revenue Per Available Seat Hour" and measures the income/benefit of each seat available per hour, whether occupied or not. RevPASH allows operators to determine which seat to assign to each guest during a specific time period that benefits the restaurant best.
RevPASH has been described as a better metric for success than sales figures, and it's pretty straightforward to calculate.
The higher the RevPASH, the more effective your operation and seat use of more than 75% in any given hour is considered excellent dining room performance. Now you know what it is, here are some tips to achieve ultimate success.
One of the key KPIs for hospitality operators is table turnover. The higher the number of guests seated, the higher the profit. Therefore, streamlining the front and back-of-house processes can positively impact the table turnover rate. Arguably the most crucial element in doing so is ensuring you maintain the same high-quality experience for your guests.
Rev-Savvy businesses such as Covent Garden's Flat Iron - a 180-cover venue - are even opting to forego a dessert menu, offering free ice-creams tokens to guests instead. Although the average spend per head would be much lower than if Flat Iron were serving a dessert menu, offering guests free ice cream allows them to turn tables more quickly, meaning their RevPASH is much higher. ‘If our calculations are correct, driving an extra 500k-1mil pounds in annual revenue. That’s strategic thinking’ Angus laughs.
Many restaurants are opting to streamline operations by going digital with order and pay solutions such as storekit.
As well as introducing digital ordering to your diners, there are a number of steps which your business can take in order to maximise your average spend per head;
The main question here is - are you using your dining space to it’s full potential? In many venues, the seating structure is generally fixed, so during lunch hours in a busy city eatery, parties of 2 or 3 may occupy a six-top table due to a lack of space or, let's face it, a suboptimal seating structure. The three main points of information needed to design an optimized floorplan from your restaurant POS system are the following:
These points present a wealth of information. Together, they show a snapshot of your FOH’s activities, the type of customers that come, and how customers use the space, and give you the guidance to make a new floorplan that makes sense.
However, as Carmen suggests, a simple analysis of a restaurant's daily RevPASH could determine if all the seats yield an adequate ROI during service hours and how to take simple steps to improve that structure. Small details such as a restaurant's seating structure can hugely help operators to accommodate more customers during peak times and is a simple way to increase sales and RevPASH.
You might even find that a change in floorplan improves your profitability without much stress or investment — track sales trends after making a floorplan upgrade to see how your restaurant profitability changes.
In essence, dynamic pricing is the concept of selling the same product at different prices based on the changing dynamics of the current market demand. It can also be referred to as real-time pricing, surge pricing, or time-based pricing.
Dynamic pricing is commonplace in industries such as transport, hotels and retail. We’ve all been held ransom to Uber’s surge pricing on a central London Saturday night. We often see dynamic pricing come into play in restaurants where venues like Itsu will lower their prices toward the end of the day to capitalise on perishable inventory. It’s a strategic method of moving stock quickly, at the right time.
RevPASH analysis focuses on not only space and time but also pricing. We hate to say it, but merely turning tables quickly won't guarantee success if menu items aren't strategically priced.
There are a couple of different ways in which businesses can use dynamic pricing to create a more accurate pricing strategy, get to know customers better and keep a birds-eye view of the market.
Dynamic pricing is a successful tool to control and manage capacity. For example, let's take a venue with a burger and a pizza prep area; your pizza oven is backlogged, but burgers aren't selling well. A solution like storekit will enable you to temporarily drop the burgers' prices to shift demand away from pizza and ease the kitchen chaos while driving the sale of perishable stock, in this case, burgers.
Restaurants will often implement a minimum spend per head while booking a table. Take, for example, the beautiful igloos that pop up along London's Southbank during Wintertime that offer the trade-off of a private igloo for a minimum spend her head. In addition, day-to-day restaurants can consider adding a weekly special to a menu during slower periods. Offering specials like a happy hour or 'children eat free' will bring more people through the door and drive more during off-peak hours.
As the hospitality industry works to overcome obstacles such as the staffing crisis, we’re eager to uncover some of the ways in which venues can focus on their strengths. Carmen leaves us with the parting wisdom that 'hospitality needs to stick together to diversify the power in the industry.. Be more competitive, don't get scared of partnering with specialists, look at the market, and start today. Let's look into the future of hospitality with a different pair of eyes.'
To find out more ways to improve your restaurant’s RevPASH with digital ordering check out our order and pay solutions here and check on REMS here.
#revPASH #hospitality #revenuemanagement #hospitality
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