How to Compare Your Restaurant

It is almost impossible to compare a restaurant’s operations with industry averages.  Organizations like the CRFA aggregate the smallest mom-and-pop with the largest chains to get their averages.  Not many restaurants are “average”, anyway.  Just about all industry statistics are based on surveys, not actual operating results.  Even though such surveys are anonymous, who wants to put down that their cost of sales is 40% or more?  So, the results are often skewed.
There is another way of compiling restaurant operating results.

Even though it isn’t perfect, I think it is better than the typical industry figures, because they are based on actual tax returns filed by restaurants.  I’m talking about the Statistics Canada, Small Business Profiles.  These figures are broken down by NAICS industry classification, and they show operating results for each quartile (based on revenue).  They also show summary results (sales, expenses, net profit) for each quartile’s profitable restaurants and for non-profitable restaurants.
I looked at the figures for Ontario Full Service Restaurants.  After reclassifying and merging some expenses, I came up with the following pie chart that shows the percentage for each major expense category.  This chart shows the results for the Top 25% of all restaurants:

Here are a few facts about this Top 25% group of full service restaurants.  Their revenues ranged from $733,000 to $5.0 million, with the average being $1,570,000.
The average profit was only $33,300 or 2.1%!  Among the profitable restaurants, the average profit was $78,700 on sales of $1,615,000, or 4.9%.  For those that lost money, the average loss was $69,800 on sales of $1,466,000, or minus 4.8%.  Clearly, size is no guarantee of success.
The Top 25% segment is the only one that was profitable.  The Upper-Middle 25% were, on average, only breaking even.  All that work with nothing to show for it!
The cost of sales percentage is higher than those for smaller restaurants (not presented here).  Undoubtedly, the reason is higher wine sales and more sales of high price items, such as steaks or rack of lamb, which have higher costs of sales percentages.
These restaurants also have high labour costs relative to the smaller restaurants, undoubtedly a reflection of more management and additional staff for hostesses, bus boys/runners and sommeliers.
Occupancy costs still look a bit high to me, at 13.5%, but they are a significantly lower percentage of sales than is the case for smaller restaurants.  The smaller the restaurant, the higher the occupancy costs as a percentage of sales.   This is often the killer of small restaurant operations.  They are unable to generate sufficient sales to cover their fixed costs.
Larger, more successful restaurants spend almost twice as much as smaller restaurants on advertising and promotion.  Perhaps smaller restaurants should take note of this!
I have only presented the chart for the Top 25% of Ontario full service restaurants.  I’ve included the other quartile charts on my website along with additional commentary.
The take-away from this is that all restaurants need to generate sufficient revenues so that their fixed costs are not taking up too large a percentage of sales.  Often this will mean that a greater investment in advertising and promotion is warranted.  It’s still a game of percentages.  Small improvements in cost control can be the difference between profitability and closing your doors.

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