Ep 203: Effective Strategies for Maximizing Restaurant Profits

In this episode of the podcast, Jaime interviews Tom Rutledge, Managing Partner at RDMS Group. Tom is a former chef turned restaurant consultant. They discuss the challenges of restaurant management, including balancing costs, utilizing data, and adapting to the digital world. Rutledge emphasizes the importance of prime cost management, effective use of data, and creative menu planning. He also highlights the need for excellent customer service and effective management in driving revenue. The impact of the delivery economy on the restaurant industry is also discussed. Other highlights included:

• The need for a comprehensive approach to restaurant management that combines accounting and operations
• The challenge of restaurants not making as much money as they should, despite being busy
• The importance of prime cost and finding the right balance between different cost factors
• The affordability and importance of data collection for restaurants
• The challenge of rising costs in the restaurant industry and the need for creativity in the value proposition and menu items
• The impact of labor costs and the use of technology to reduce staffing needs
• The importance of providing excellent customer service and effective management in controlling costs and driving revenue
• The impact of the delivery economy on the restaurant industry and the need to adapt to the changing landscape.

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Link : RDMS Group

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Jaime Oikle is the Owner & Founder of RunningRestaurants.com, a comprehensive web site for restaurant owners & managers filled with marketing, operations, service, people & tech tips to help restaurants profit and succeed.

TIMESTAMPS from Podcast...

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The firm's background and how they got started [00:00:29]
Tom discusses how he and his business partner started their restaurant accounting firm and their different backgrounds that led them to where they are today.

Identifying mistakes in restaurant profitability [00:02:51]
Tom talks about the common theme of restaurants not making as much money as they assume and discusses the mistakes that can lead to lost profits.

The importance of prime cost and operational focus [00:03:40]
Tom explains the concept of prime cost and how it is a key metric in determining profitability. He also discusses the importance of operational focus and the tools they use to analyze and improve restaurant performance.

The use of data in independent restaurants [00:09:27]
Discussion on how independent restaurants can now collect and use data to improve their operations and decision-making.

Adapting to rising costs [00:09:57]
Exploration of how restaurants can adjust their pricing and menu to cope with increasing costs and maintain profitability.

Labor challenges and technology solutions [00:16:35]
Insights on the difficulties of managing labor costs, especially in high-wage markets like San Francisco, and the role of technology in addressing this challenge.

The challenge of giving better service [00:19:33]
Discussion on the opportunity to provide better service despite challenges in staffing and training.

The importance of the delivery economy [00:20:42]
Exploration of the impact and significance of the delivery economy on restaurants' revenue and operations.

The need to adapt to the digital world [00:21:22]
Advice on the importance of embracing technology, digital marketing, and delivery services to stay competitive in the restaurant industry.

TRANSCRIPT from Podcast...

Lightly edited - p.s. forgive mistakes & typos!

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Jaime O: (00:00:01) - All right, folks. Welcome back to the Running Restaurants podcast, where we bring you the tips, tools, and techniques you need to know to make your restaurant more profitable and successful. I'm your host, Jaime Oikle. Today we got a great episode for you with Tom Rutledge, managing partner at RDMS Group. So, Tom, you guys focus on restaurant accounting and operations consulting. You also own and operate some restaurants, and we'll talk about that stuff. Tell me a little bit about the firm where you got where you are today, how you got there. We'll go from there.

Tom R: (00:00:29) - Absolutely. We were going on about 12 years full time. My business partner and I started this about 12 years ago. We actually met at another restaurant specific accounting firm. They put us in a room together. Our backgrounds are a little different from each other. So I come at this as a finance guy, had my early life crisis, moved to San Francisco, went to culinary school, just kind of looking for something that I wanted to do versus felt like I should do for the income.

Tom R: (00:00:58) - It became readily apparent after going into some Michelin kitchens for a couple of years and trying to, you know, work in the kitchen that they said, maybe we go front of house, you know, this isn't your spot. And I said, great, let's take some of that knowledge. Move front of house, did the full rigamarole. You know, I've worked all the positions. Ended up being general manager, realizing I didn't quite have the tools to run the business, was fine on the service part, had a lot of support and great mentors on that side. Found that restaurant accounting firm to try to say, hey, I've got this background. Let's let's see what people are doing. Met my business partner. He's the tried and true accountant. He went to school for it. He actually got hired out of school at this restaurant specific accounting firm started his career there. He went off to be comptroller and do various finance jobs in the hospitality business. While at the firm, I realized I needed more of an operational background.

Tom R: (00:01:52) - I was a little too young to be telling people what to do. Didn't have the experience. Jump back into ops. Found myself back in back home where I'm from in New York and ended up in larger organizations. So 40 units, 200 units and then 15 units. And the entire time I'm sitting there going. We run a good restaurant, but it's not making the money it should. Why? And it was developing and creating those tools with my current business partner. We were both doing things separately and we said, hey, let's bring this all together. So our firm came from the concept of accounting really needs to be the the next manager who's just doesn't happen to be on the floor. They're the person, the people, the group that are telling you, hey, you're doing a great job here. But we got to focus here. And our tools that we created are from the perspective of how to get the right information to the right people at the right time, without them having to take their attention off the floor. So that's that's how we got where we are.

Jaime O: (00:02:51) - Okay, cool. Thanks for bringing us through through that, through that background to two gigantic restaurant cities, San Francisco and New York you just mentioned man it doesn't get any bigger or more serious than that. But but you said something that I want to go back to. You said you asked the question, why aren't we making money? And that's really a common theme across restaurants. If the place is busy the assumption is it's making a lot of money. But then the checkbook balance at the end of the month...where's the money? Where did it go? What's the mystery? How do you solve it? And so there's so many pieces of that. I wish there was one simple button that people could could choose. But let's get into it from your side. Where do you find the mistakes that people are making that they're losing points and profits? Let's kind of start there. Fiddle with it.

Where do you find the mistakes that people are making that they're losing points and profits?

Tom R: (00:03:40) - This is my every day. This is my favorite conversation. So you nailed the one big thing there isn't that one lever or button you get to push, right? It is more like playing Jenga where move this one point. Where is this brick going to go? We tell someone to cut labor and they just go remove a body, and now their service is going to be lacking. Their check average is going to go down. So what we do is we focus on prime cost first and foremost, prime cost being all of your cost of goods, food, beer, wine, liquor and beverage, plus your total labor, salary, hourly benefits, all that fun stuff. And we focus on how to make the right metric for that concept. And just speaking largely, if you are in a major metropolitan area, we're looking at probably a 65% prime cost as an initial target. So said otherwise, for every dollar that a guest spends, we're spending $0.65 on our food, beer, wine, liquor, beverage, people & benefits. As we start to look at different concepts, we start to identify, hey, this is fast casual. We're more in a suburban market. Hey, we're doing a ton of volume. We can really get labor lower. The reason for that is we don't want all numbers to just be as low as possible, because that's hard to benchmark. If you can save on labor, you can't increase your experience, maybe save on your food cost or offer better value. It's about that right mix. Once we get food costs, once we get prime costs dialed in, and there's a lot of work in that.

Tom R: (00:05:39) - By the way, we have some pretty specific suggestions and reporting. We also know that restaurant people, if they were admin centric, may not be restaurant people. Right. So we are working with the personalities. So just as an example, in all of our operational consulting and even the restaurants we operate, Tuesday is sales forecasting and schedule day. So we're looking at this week, next week and the week after, we're running some quick reports to say, hey, here's our strongest servers. Why does the guy with the lowest check average happen to work five days, which happened to be the most busy days? What are we doing here? So we're really getting granular with that. Then on Wednesdays we're looking at product mix, what our item costs are and what's moving, what's not moving, as well as some purchase tracking tools we put together. Our team is trained how to use them, not put them together. I think that's important. We do this so that each meeting can be 15 to 30 minutes at max and really capture everyone's attention. Put the decision makers in the room. Then on Friday we we go over our manager meeting where they're catching up. Hey, we said we would do this for labor. Did we get it done? Where are we? Week to date. What's the weekend looking like? Hey, we said we'd change this on the menus. Did we change these things on the menus? What's up with purchasing and vendors? So prime cost is our main focus. And everything I just mentioned is accountability and follow up, which is where I think most restaurants fail. So that's our first step.

Jaime O: (00:06:42) - Yeah. Well you just you covered a lot there and you probably just made a lot of people nervous in the fact that they go, Holy shit, I'm not doing half of that stuff. Because, you know, I'm just guessing it doesn't happen. A lot of times when you start with a client and you realize they haven't collected the right data, they haven't done analysis, they haven't dug into the menu. And in a few years, and they they might believe one thing, but the reality is completely something else. Talk about that aspect of, hey, it's time to get started. You got to do the dirty work, and it's not going to be fun and pretty. I imagine that's frequently the case.

You've Got to do the Dirty Work?

Tom R: (00:07:18) - You know, I really appreciate that comment because it is where most restaurants fail. It's a lot of, well, do you really mean I'm supposed to meet three times a week? I'm short staffed. I have to deal with marketing and HR and legal and this and that and everything else. I'm the small business owner and the reality of it is this is people step over dollars to pick up pennies all the time. They're yelling at the linen guy, they're yelling at, you know, this guy for clocking in 15 minutes early. But what we have found is if you get your team to do things on purpose, all of a sudden things start falling in line. And now that we have a plan to manage, you know, I will tell you the hardest stumbling block when I go to people and say, what do you write your schedule in? And they're like, oh, it's an it's this word document that we pin up on the wall. It's like, okay, well what sales were you thinking of doing? Well, I mean, we usually do about X amount per week. Okay. But what's the cost of your schedule. And compared to that. Oh I don't I don't know okay.

Tom R: (00:08:16) - So let's get into that. Right. And there's so much at our fingertips these days technology wise I don't care if you use seven shifts hot schedules, Restaurant 365. There's so many things right. The hardest part is just getting started and then it doesn't have to be perfect. Just be consistent and work on it. And if you're the owner and you have a manager, start speaking to them in ways that they can be proven accountable, because it's easy for you to walk into a restaurant and say, reduce labor. And they go, okay, I'll cut a cook and a server. Then you walk in on Friday night and be like, why is service so bad? What's going on? Well, you told me to reduce labor. It's like, well, I didn't tell you to shoot service in the foot. I want, I want it all. So instead start talking with action steps. And you don't have to do all of those things at one time. If anything, focus on labor, then start looking at the other things.

Tom R: (00:09:09) - And again, there is so much technology out there to make this not overwhelming to have to put every piece of data. My firm specializes in trying to figure out how to make that data apparent to our clients, but that's only half the step. If they're not looking at it, who cares? Yeah, you have to do something with it.

Jaime O: (00:09:27) - I spoke with someone earlier this week who had some background working with the Burger King folks, and I said, shoot...Those guys have a lot of money. They have systems. They get data that you never even imagine happened. And that couldn't happen for independents in smaller operations a little while ago. But now you can. You can collect so much data now. So that's not the hindrance. The cost of it is no longer a hindrance. Very very affordable to get it. But you have to use it. Garbage in, garbage out, etcetera. But you have to look at it first. So let's go to costs and how you guys deal with this because everybody knows it's no secret. Like it's inflation everywhere...every trapping of life. So costs have gone up which makes profits potentially shrink if you don't adjust accordingly. And they went up fast. How did you help folks adapt to that. That reality is probably not going to change.

The Inflation Monster...

Tom R: (00:10:25) - Great question. It comes down to value proposition of being creative. Right. So we always made a joke five years ago about the $20 burger right? That was everyone's biggest fear. Well if you live in San Francisco you're paying 20 bucks for a burger. It's here. Right. So then the question becomes okay, so this is going to sound kind of funny, but you start looking at these menu items and you go what's our product mix. Right? I tell clients, don't waste time costing things that aren't making up 50% of your revenue.

Tom R: (00:10:56) - If you're not selling at least one a day, take it off your menu. Stop providing the work. I think some of the old school shopping is kind of gone where people aren't really looking at saying, I have carrot tops now I'll make a stock. People are buying stock because maybe some of the skill set of the labor cost isn't there. So there is a level of evaluating a menu, seeing the intelligence of the menu, seeing is it costed at where it should be costed. We actually called some of our larger broad line distributors and said, hey, we represent over 100 restaurant groups. Do you want to talk about giving them the purchase power of the smaller groups? And so we bring that to our clients. That helps tremendously. But the biggest thing is that Wednesday call that I talked about, what are we selling a lot of what is it costing, where are we currently pricing. And the big thing that restaurateurs who pay attention are cautious of is constantly raising prices. So maybe that $20 burger can be an $18 burger.

Tom R: (00:11:59) - But the sides you get creative with, sides that are more add ons. So entice and upsell from the fries for something that doesn't cost very much, but adds the extra $4 to the plate. There's no magic bullet. Constantly watching your pricing on a weekly basis, reviewing the item pricing. And you know, there's some great technology out there, too, that you can scan invoices. We have this in our firm. You scan the invoices and the software automatically is tracking the cost of that item versus what it cost for the previous date ranges and telling you automatically you don't have to go hunt. Oh cantaloupe is up 20%. I own a Mexican restaurant. When avocados go up 20%, I have a bad week. Got to pay attention to that.

What's Making Money???

Jaime O: (00:12:41) - That's right. Have you come across the scenario where someone is selling a lot of something and that particular item is just not making any money? It's like not profitable. Like they're the the servers might be recommending it like crazy but that thing is not making you any money versus versus all these other opportunities that may drop $5 or $6 or $10 to the bottom line. And they're selling the $1 item.

Tom R: (00:13:06) - All the time. So I'll give you a couple examples. These hit close to home. We sell margaritas. We sell a lot of margaritas. So we're constantly looking at the lime price. So in the beginning we were just having to kind of run with it. So then you know you get these points. It's cyclical. Or sometimes, you know we had a problem with I think it was one of the cartels had a problem, like they were trying to do something with lime importers. So all of a sudden it went up by 50%. Who could see that coming. Right. So all of a sudden our lime costs go up by 50% because we meet weekly. We said, hey, it's time to start doing some special margaritas. Cantaloupes are down really cheap. Let's do a cantaloupe margarita, watermelon margaritas.

Tom R: (00:13:48) - So we start moving the product to go, guys, we we can't sell this really popular item anymore. We have to know that it cost too much, figure out a solution that a guest will want, and then make that the main training point for the staff. There's other things where, you know, it's not just food cost. We have some clients where we walk in and go, you know, you sell three of these, but the kitchen says they spend 40% of their time prepping that. Right? Is it is it absolutely an iconic dish? Can we move it to just being a Tuesday thing where there's not a lot of volume in the kitchen is more free time. You have to look at that product mix because it's not just cost, it can be labor. Have the kitchen involved in these conversations. Have your bar team involved in these conversations and pay attention. Like I said with the avocado situation. Hey guys, do not try to sell guacamole. We're going to put out a trio platter in our example. So instead of selling a $12 portion of guacamole that we are now losing a dollar every time we sell it, we'll do a smaller portion, but also include salsa and queso. Sell that. And now we're making money because it's part of something where we do make some money.

Practice What you Preach...

Jaime O: (00:14:55) - Gotcha. So you you threw the restaurant in there. You guys own and operate restaurants yourself? Tell me the different hats you wear.

Tom R: (00:15:08) - Sure. Fair enough. So, you know, we practice what we preach, right? We come at this from the accounting side, the outsourced CFO in many instances, if you will. I have an incredible director of operations. That director of operations works with the general managers and the chefs. Who are most often partners in those businesses, so they are directly tied to wanting to see the success of that. But my business partner and I wear the hat of we're going to provide operational tools and accounting tools.

Tom R: (00:15:37) - The hospitality is coming from the people who are in the restaurant every day, and then we bring that structure. This is the Tuesday meeting. The Wednesday meeting. These are the accountability systems. And you know, from our operational background, The folks who've worked with us a long time, know how we operate. So we jokingly refer to it as the binder system. We actually remove tech from the floor. We want servers opening binders to see side work, opening binders to see maps and, you know, table mapping and all that kind of stuff. But we work through our incredible and phenomenal chefs and general managers.

Getting a Handle on Payroll...

Jaime O: (00:16:10) - What are you seeing with payroll? You talked about San Francisco. California the highest hourly range. Whoever thought restaurant staff would be paid that much and that trend is coming across the country...not changing. Restaurants have had to dramatically change the labor formula. How do you find the sweet spot of labor?

Tom R: (00:16:35) - Oh, it's getting nearly impossible. I'll speak to California first and foremost, because if you're in San Francisco, just as an example, you have mandatory sick pay, mandatory 401 mandatory health benefits and the minimum wage. I mean, it just piles on. You're at nearly $25, $27 per hourly person with no tip wage. So let's just start in the hardest market that exists. Right? Technology is coming in. You're going to see QR codes. You're going to see kiosks where they didn't exist before. You're seeing some really inventive operators try to figure out how to provide really good hospitality around a QR code because you just can't afford the bodies on the floor. That is the physical reality of this. I remember years ago, New York City had a mandate of some of these price costs. And McDonald's was like, okay, so kiosks, kiosks, I have the solution. If I have to pay people that much money, I can't afford people. Um, restaurants are a people business. People go out to have an experience not just to consume food and beverages.

Tom R: (00:17:42) - So people are always going to be a thing. I think having very strong training systems, I think you have to provide a good work environment. You have to cover all of your bases. Again, I'll speak to California. Meal break penalties, split shift penalties, minimum hour compensation. You're on the defense as an employer, so your tools and your payroll tools not only have to figure out how to staff you at an appropriate price, but cover all of your bases to pay all of the penalties. So three years in, you don't get sued for a million bucks. With that comes technology is going to be the primary driver. There's only so many tables the server can adequately serve, and there's only so many bodies you can afford to put on there. It does lead to the menus have to become more specific. You have to take less chances depending on your lease and where you've signed up, because you have to hit home runs. I think it's to the detriment of our industry that that's the case in many instances.

Tom R: (00:18:43) - Sure, it also means that it's not easy for the independent operator to try to get into the game, because you have to hit triples and home runs. To use a bad sports analogy, you can't get a single, if you will. The margins are just not there to support any potential mistake.

The Experience Has to Get Better, Right?

Jaime O: (00:19:04) - Good stuff. I don't know when this will air, but it is playoff baseball season. So the analogies are fine. It works. They work for me right now. But you talked about a few things. Menus have to shrink. I mean they really do. That's a big part of what I've noticed in the last couple of years. And we eat out way too much because we're busy family and kids running around and sports and so forth. But my dining experience at locations has really gone down over the last couple of years. Whether the cover excuse of not giving service or not having training or not having enough people, but I really feel there's a big opportunity to find a way, even inside of that challenge, to give better service. And that obviously leads to happier customers and all the things you can imagine down the road. So, really fight for that experience somehow, some way. Don't let that go. Kind of stating the obvious, but I don't see it enough.

Tom R: (00:19:59) - You're entirely right. What it is doing is weeding out the great from the good. Good doesn't have a place anymore. You have to focus on great. Right? So if you're not, if the foundation is not there, you're going to have a hard time. Your management needs to be in a place where they know how to control costs, because they can do it in bite sized pieces that they've got to model that will work, and then they have to be out there. It is the grind, let's be honest to it, is the grind of going, hey, I see you went up and said, hey guys, do you want to drink today? And we say, you know, you're not going to sell a drink that way.

Tom R: (00:20:29) - Hey, I see you didn't check in with the table. That guy's beers 80%. Did you offer them another one? That's just good hospitality. Let alone the fact driving the top line. Give the guy a drink. If he wants a drink, ask him if he wants something else.

Jaime O: (00:20:42) - Countless times. Yeah. You finished the first beer or the second beer, and you would easily get one more if their timing is right. And what's the profit on a bottle of beer that they're selling me for six, seven bucks? I mean, it's terrific. And they're just leaving that money on the floor. Oh, now we're just going to the next place, or grab one at home. Whatever those missed opportunities, they don't come back. They just don't come back. So last thing I want to touch on your thoughts on the delivery economy. it's really changed. Everybody's got to be in that business now. You got to be able to take it effectively. You got to manage the costs that are involved in bags and take out stuff. But it's a big part of business -- How have you guys talked to your clients about it?

The Delivery Economy...

Tom R: (00:21:22) - You don't get to not play in the digital world anymore. Restaurants are beyond their location, so it doesn't matter if it's social media, it doesn't matter if it's PR. Delivery is an aspect of digital marketing. So what you're investing in your packaging, making sure that what a guest gets at home represent your brand is super important. You cannot ignore the revenue that comes from this. It comes with its challenges. You need the technology. So if you don't have it where Uber Eats, DoorDash, name your program isn't automatically logging into your point of sale, closing it to a house account so you know what your receivable is. I had to throw in an accounting piece there because it is still truthfully a nightmare from the numbers side if you don't do it correctly. And then paying attention to the kitchen, you know, how busy is the dining room experience versus the delivery experience?

Tom R: (00:22:13) - To tell the kitchen you can do the delivery after we get through this part of the rush so that one can take 15 minutes, this one must take five, right? Those are all of the intricacies of running it. Well, if you're not doing it, you're leaving anywhere from ten, 15, 20% plus top line revenue. And I know the fees look high, but you're already paying credit card fees. You're not having to pay the server to get to the table. You're not paying for the flatwear, you're not paying for the glassware, you're not paying for the linen. You're not paying the busser to clean it, the dishwasher to do it. There is margin available if you do it the right way. Yeah, it's mandatory these days.

Parting Thoughts...

Jaime O: (00:22:50) - It is 100%. I appreciate those insights there. Let's go to parting thoughts. Any other wisdom you want to share? Book recommendation, a quote, anything you want to share, you can think about that you can finish with kind of websites to go to or any other social stuff. You have the floor.

Tom R: (00:23:09) - I will give you a nod. I recommend everybody get away from what they think they need to do from however they were trained, and go get a different perspective. I think the podcasts that are coming out are awesome for this industry. People should be listening to them on their commute to work. You guys do some great stuff. I'm always on your LinkedIn looking at the things you have posted. Just start paying attention to what other people are doing and glean your facts that you can get from people. Reach out and ask for help. I think a lot of restauranteurs get so stuck in their heads that they're not because they're afraid of the price. Just start asking questions, see what your competition is doing. Call people. Just ask what technology they're using. Technology doesn't solve problems, but it does help the team who solves the problems get some answers. So just start listening to those that are out there talking about it and glean some insight, and then take the time to put it into place.

Jaime O: (00:24:02) - Absolutely, really good stuff there. So hit them with the website or any social channels.

Tom R: (00:24:09) - Yep. RDMS Group is at https://rdmsgroup.com/. We love to talk to operators, even if it's just a 15 minute conversation to see if we can or can't help. We'll always probably be able to glean a little bit of information to give you a hand, but yeah, that's our main goal.

Jaime O: (00:24:29) - Good. Yeah. We hit a lot in a short amount of time. So I appreciate you, Tom. Good stuff today folks. Tom Rutledge, from RDMS Group, you can find them on the web at https://rdmsgroup.com -- for more great restaurant marketing, service people and tech tips, stay tuned to us here at RunningRestaurants.com. In the meantime, do us a favor. Hit that like button, subscribe to us. Give us a review wherever you happen to listen to this. We would appreciate that. Thank you so much. We'll see you next time. Thanks, Tom.

Tom R: (00:24:53) - Thank you.