A Restaurant’s Biggest Expense

My kids hate going to dinner with me. I repeatedly ask the same question to the people waiting on us. I think it’s a great question, even though the answers are consistent. The question is, “What’s the biggest expense in any restaurant?

I’ve received many different answers over the years from people taking my order:

1. Furniture and fixtures
2. Food
3. The building
4. People

That’s the typical core four of the answers I get. The staff behind the registers at QSRs provide similar answers.

Have you figured out the answer to a restaurant’s biggest expense?

A Restaurant’s Biggest Expense

Before I answer the question, look at the picture below.

What do you notice? I see just one person and lots of empty seats. And that’s the biggest cost of a restaurant–the empty seat.

“Wait a minute,” you say. “That’s a trick question.”

Is it? Why?

Consider the following financial statement presentation of a QSR:

I need to come clean. The empty seat is not a restaurant’s biggest expense. But the numbers can be staggeringly high throughout twelve months.

The Value of Empty Seat Thinking

I’ve reviewed many restaurant P&Ls during the past twenty-five years and never seen a line item for the empty seat. That’s partly because accountants prefer showing variances between a budget and actual performance. That works, too. But I still like to see a value for empty seats daily, weekly, monthly, quarterly, and annually based on tables and normal table turnover.

Once we have that number, there are a few actions we can focus on:

1. Enhanced marketing and advertising efforts.
2. Improved staff education about the empty seat and how they play a role in getting butts in seats (brainstorming is key).
3. A more significant push on corporate sales and events.

I’m assuming metrics reporting is improving for restaurant owners and managers. Improvement will be enhanced once all team members can see these numbers. Educate, educate, educate. Everyone owns marketing, even if it’s in a small role. That’s the primary key to filling the empty seat.

A Tip of The Cap to This Industry

I was a finance VP at Orscheln Industries, based in Moberly, MO, early in my career. One of my jobs was to oversee the financial performance of their small $40 million real estate portfolio (my boss joked that the portfolio was built from petty cash).

When I looked at the real estate company’s financials for the first time, they made no sense. If I couldn’t understand them, how could those up the food chain make heads or tails of the numbers?

One of my first actions was to revamp the reporting from the ground up. I wanted to see above-the-fold reporting on every property, showing me and my readers the occupancy rates. This led to GRP reporting before net realizable revenue.

A few years later, I worked with my first multi-tenant real estate client. My thinking going back to my Oscheln days was validated. The first line item on every property P&L in their complex reporting was Gross Revenue Potential.

The real estate industry reporting tapestry has influenced my thinking in other business sectors, such as restaurants, and it’s easily applied in contract food service. Accordingly, I’m tipping my cap to the real estate industry for this GRP reporting and continuous improvement construct.