Ròya International hospitality consultant Turab Saleem explains the importance of restaurant revenue management and how to get it right.
The present sluggish economy, high labour costs and competition from new, indirect and untraditional competitors, has forced the restaurant industry to look into creative solutions to face today’s challenges and monitor productivity. Historically, revenue management is one of the techniques that has been successfully employed in the airline industry; and now other industries have embraced and enjoyed its benefits.
Revenue management must be adapted to each of these specific sectors, however. ‘Restaurant Revenue Management’ is selling the ‘right’ customer at the ‘right’ price for the ‘right’ duration. Here, ‘right’ means achieving both the most possible revenue for the restaurant by delivering the greatest value to the customer. This concept is based on a study that was done by Sheryl Kamis at Cornell University, and all revenue management requires a focus on revenue per available inventory unit. For example, hotels measure revenue per available room night (RevPAR) and airlines measure revenue per available seat miles (RPSM), so in restaurants, it can be revenue per available seat per hour (RevPASH).
At present, the restaurant industry is using ‘average cheque’ as a yard stick to measure the profitability, which is equivalent to a hotel focusing solely on a higher average room rate without looking at occupancy. RevPASH combines information from the average cheque and utilisation of the seats to provide a measure of the flow of revenue through the system and to indicate how effectively a restaurant is using its productive capacity.
The number of turns and the length of the meal or service cycle are closely related to RevPASH. As the number of turns increases and meal length decreases it leads to an increase in RevPASH. As most of the revenue is made on weekends, the need for restaurants to implement a RevPASH strategy effectively to increase turnover and maximise revenue is obvious.
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Implementing revenue management
There are some easy steps to take that can have an immediate impact on the bottom line, such as minimising the waiting time, increasing the service speed and suggesting items that take less time to prepare and have a better margin.
Two major factors that managers in the restaurant industry need to look into when implementing revenue management are “price” and “meal duration”.
Price manipulation includes price-related promotions to shift peak-period demand, day of week pricing, price premiums or discounts for different type of party size, tables and customers.
On the other hand it is a little more difficult to manage meal duration or occupancy. Certain ways by which managers can influence meal duration include changing reservation policies, redesigning menus, changing and pacing service procedures, altering staffing levels and having proper space designed for smooth and speedy service.
Reducing the first few minutes is not that difficult or expensive to achieve — for example, by having smooth flow of service, picking up the pace of greeting, seating and cheque settlement. Deep reductions may require substantial investment in certain cases i.e. by adding new portable POS (Point of Sale) systems, efficient kitchen equipmentsor redesigning the service area.
Managers should understand the use of RevPASH during high and low demand. During low RevPASH periods, managers can try to attract more customers or increase the average cheque. During those periods with high RevPASH, operators should consider raising menu prices or try to reduce meal duration so the restaurant can increase its turn rate.
RevPASH and rotas
RevPASH can play an important role in labour management as well. It can help evaluate the efficiency and effectiveness of service, and it can assist staffing and rotas by understanding the high and low RevPASH period. Labour is the biggest controllable element in the restaurant P&L and restaurants have to control labour in order to succeed.
It can also provide a way to monitor the performance of different sites, and unit by unit comparison of RevPASH would give a good indication of the relative performance of different restaurants in a region.
It’s time hotels evaluated the implication of RevPASH in their outlets, as its true essence is essential to maximise the benefits.
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Aug 10, 2010 , United Arab Emirates
Nice stuff but not really new, we have been using RevPASH calculations to improve the performance of our outlets already back in 2002 and several professional hotel and restaurant companies today are using more efficient ways than just "average check" to measure their performance, e.g. revenue pe...
Jul 12, 2010 , Pakistan
Excellent exhibition of professional knowledge! In addition to this I believe that fixed overhead analysis in relation to capacity utilization will be supportive for the decision making.