Operations

How The Great Margin Squeeze is Changing Restaurant Operations

September 6, 2024

Why restaurant efficiency is more important than ever.

“Restaurant efficiency” has always been a somewhat redundant phrase. The fact is, every restaurant has to be a tight ship. The industry’s margins have always been narrow; the rush has always come in at the same time; turnover has always been high. But in recent years, the face of restaurant efficiency has changed.

Amid rising costs and turbulent consumer demands, restaurant efficiency best practices that were once nice-to-have margin boosters have become essential requirements for restaurants. To operate at all in an environment of rising costs, restaurants need to be obsessed with operating efficiently.

Here’s how you can think of operating efficiently in your own restaurant, and what doing so means for your bottom line.

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The new urgency of operating efficiently

Restaurants have always run on thin margins, but since the pandemic, it’s more serious. For one thing, food has gotten a lot more expensive. Over the last five years, the cost of staple ingredients in U.S. cities has risen by a third.

Source: US Bureau of Labor Statistics

As BentoBox found in our 2022 Restaurant Trends report, this increase has directly impacted restaurant profit margins. Although food prices overall had risen by 10% in 2022, food away from home had risen by 7.6%. That price increase of nearly 3% was eaten entirely by restaurants.

Cost increases in labor, occupancy, and utilities have further eroded restaurant margins. Add in the sometimes exorbitant fees charged by third-party ordering channels, plus the legislation being implemented in many jurisdictions that eliminates the tipped wage credit, and a clear picture emerges of an industry whose headwinds have never been stronger.

In order to operate resiliently in this new environment, restaurant owners need to prioritize cost-saving measures that, in the past, were optional. Unfortunately, they’re a lot less optional now.

Time savings are money savings

Cost savings do not need to come from cutting staff, hours, menu items, or locations. Instead, a good place to start is by saving time on simple tasks.

Time-saving efficiency can be very impactful to a restaurant, and especially in an environment of rising labor costs. Here’s an example.

Suppose your restaurant accepts takeout orders over the phone. This is a less efficient method of accepting orders than it would be to use an online ordering system: it requires restaurant employees to take the call, note the order, clarify the customer’s order, etc. All together, it is reasonable to assume that taking orders over the phone is 20% less efficient than using an automated system.

Years ago, before the pandemic and subsequent high inflation, the cost of permitting this inefficiency was relatively small. In 2014, the median hourly wage for restaurant workers was $10, according to the Economic Policy Institute. In 2024, when the hourly wage for restaurant workers is more than $17, the math looks different.

Source: Economic Policy Institute, ZipRecruiter

Due to a nearly three-quarters increase in the cost of labor, the cost of inefficiently taking orders over the phone is now $550 per employee per month, which is over $225 per month more than it cost a decade ago.

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3 ways to operate a restaurant more efficiently

Get employees off the phone

Streamline your entire takeout & delivery business by routing customers through an online ordering flow. It not only saves time from employees having to answer the phone, from which you can re-route them to work like ensuring order quality and/or taking care of guests in the dining room, if applicable. It also ensures that customers only place orders that have the requisite selections made, and only order items that are in stock.

BentoBox’s online express checkout, for example, completes a returning diner’s transaction in under 50 seconds. Compare that to the 2+ minutes it takes an employee to record a complete order, with every detail in order.

Recur your revenue

Another advantage that online ordering systems offer is that they remember customers: both making them feel welcome when returning, and recording what they order to better market to them later.

Automated marketing campaigns send emails to customers without you having to do anything. With BentoBox, they result in a 207% increase in diners who re-order. Plus, loyalty programs, when enabled, drive a 23% increase in spend per order.

Both loyalty programs and automated marketing campaigns turn what would have been a one-time order without technology into meaningfully higher spend per order and, more importantly, a customer who will return to your restaurant in the future.

Sell gift cards

In the 2022 Restaurant Trends report, BentoBox’s analysis found that one of the most profitable items any restaurant can sell is a gift card.

First, gift card balances are not usually spent in full. In 2022, restaurant gift cards were redeemed at a rate of 73% of their sale prices, meaning restaurants were able to enjoy profit margins of nearly 30% on those items. When gift cards are redeemed in full, customers generally use far more than the gift card amount; 44% more than the gift card value, to be precise.

These usage patterns confirm that gift cards are a stress-free way to sell a high-margin item that, better yet, encourages customer loyalty and accelerates the flywheel of marketing discussed in the previous section.

Restaurant technology drives ROI

In an environment in which it’s never been more expensive to operate a restaurant, using high-efficiency tools like online takeout & delivery ordering, automated marketing technology, and gift cards is no longer something only the most forward-looking restaurants do. It has become a must-have, from counter service to fine dining.