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It’s never been easy to run a profitable pub, restaurant or café. Even in normal times the failure rate of hospitality businesses is around three times higher than most other sectors. Success has always depended upon hard graft, attention to detail and a firm grasp of some important numbers.
As our pubs and restaurants re-open it’s even more of a challenge to make the numbers add up. The income a dining business can generate is limited by the number of customers it can accommodate. So more separation between tables means fewer covers and less potential income. And the restriction to table service will mean higher staff costs, particularly for pubs.
On the plus-side the temporary VAT changes mean that even if a food business cannot sell as many meals, it will be able to achieve better margins. With VAT at 20% the Treasury took 1/6 of everything passing through the till. The reduction to 5% until the end of September reduces HMRC’s take considerably.
So how do you as a pub or restaurant owner go about making the numbers add up and start trading profitably enough to recover from the months of enforced lockdown and begin recouping the extra costs of making premises COVID-secure?
A good starting point is to prepare a Do-Nothing-Different forecast. What happens to profits if you do nothing different but simply react and accept the changes forced upon you?
Imagine you run a food-led pub that on a normal Friday in May might serve 100 meals with an average spend per customer of £24 (£20 + VAT). The materials – food and drink – cost an average of £7, or 35%. Staffing costs 30% of sales, and overheads a further 25%, leaving an operating profit of 10%.
If the COVID measures reduce covers by 20% and require 10% more staff costs the numbers will look like this:
So Doing-Nothing-Different leads to a drop of almost 50% in profit. That’s your starting point. You can then start taking action: doing things differently and exploring the effect that could have on the numbers. Can you encourage more early dining so you can ‘turn’ more tables and serve more customers? Or maybe increase the average spend by promoting desserts. Or perhaps increase spend and margin by guiding customers to higher margin dishes?
To help pub, restaurant and café owners get back in business profitably, I’ve put together this interactive profit tool you can use to quickly run through your numbers and start to make them add up.
The past year has been very tough for every pub, restaurant and café. And the coming months are going to be tough too. But at least with the doors open again you now have the opportunity to take the initiative and be active, not just reactive.