When sales rise and profit falls, identify which part of the operating model has changed. Review the sales mix, labor demand and product contribution together, then give managers specific variances to investigate and a sequence of decisions to make.
A turnaround should be diagnostic before it becomes prescriptive.
What does the P&L say about the operation?
Compare the current period against budget, prior month, prior year and trailing 12 months.
Then translate variances into operating questions.
If food cost increased: did vendor pricing change, did menu mix change, were recipes updated, is portioning consistent, has waste increased, are invoices correct, and is inventory accurate?
If labor increased: did wage rates change, did hours increase, is management staffing heavier, is overtime up, and are low-volume dayparts overstaffed?
Use the percentage to locate the variance, then investigate what changed in the operation.
Is this a sales problem or a margin problem?
A sales problem means traffic, frequency, check average or capacity utilization is weaker than required.
A margin problem means sales are adequate, but product, labor, discounting or overhead absorbs too much revenue.
Many restaurants have both.
The remedy depends on which problem you actually have.
Which dayparts and channels are contributing?
Break sales into weekday/weekend, lunch/dinner/brunch/late night, dine-in/takeout/delivery, bar/dining room/events, reservations/walk-ins and promotion versus full-price sales.
A restaurant may be growing because delivery increased while dining-room traffic fell. Revenue can rise while contribution declines if the growth comes from a less-profitable channel.
Where does actual product cost differ from the recipe?
Theoretical cost tells you what the menu should cost based on recipes and sales mix.
Actual cost tells you what the restaurant did spend.
The gap points to execution issues such as over-portioning, waste, spoilage, theft, bad receiving, purchasing leakage and inaccurate counts.
Give the chef a specific variance to investigate so the response addresses the source of the cost.
Does the schedule follow demand?
Look at sales by 15-, 30- or 60-minute interval where available. Compare demand to clock-in and clock-out patterns.
Are openers arriving too early? Are closers staying too late? Is prep scheduled when work actually exists? Does the restaurant carry the same staffing level on very different sales days?
Good labor management matches labor to the work each daypart requires.
Which menu items contribute after their costs?
Analyze popularity, contribution dollars, prep burden, pickup time, waste, ingredient uniqueness and station pressure.
Look for items that complicate the kitchen without earning their place.
What do discounts, comps and voids reveal?
Review manager comps, employee discounts, VIP comps, promotions, voids, deleted items and happy-hour pricing.
Make discounts intentional, authorized and measurable so managers can understand what they accomplish.
Which purchasing terms deserve another look?
Focus first on high-spend categories and true commodity items. Compare equivalent specifications, not just unit prices.
Also review ordering discipline, credits, receiving, pars and inventory turns.
How do you protect the guest experience?
Avoid changes that create slower service, dirty restrooms, empty host stands, unavailable menu items, inconsistent portions or exhausted managers.
The right turnaround improves both economics and execution.
What should a 13-week operating plan contain?
For each initiative, define an owner, baseline, target, deadline and weekly measurement.
Examples: reduce overtime through schedule changes, close the theoretical-to-actual food cost gap, reprice a category, eliminate low-contribution items, renegotiate a major purchase category or build a targeted weekday demand plan.
Who is responsible for each improvement?
Choose the changes supported by the operating evidence, assign responsibility and check progress at the next review. See ongoing operating guidance for help setting that sequence.
This article provides general operating guidance, not legal, tax, accounting, or investment advice. Requirements and business conditions vary by location and project. Verify current requirements with the relevant agencies and qualified professionals before acting. Contact us about a correction.