Book summary “Restaurant Success by the Numbers”: summary

Introduction

You hold a romantic vision of welcoming guests and sharing your culinary passion with the world. First-time operators rush into the hospitality business driven by this love for food, yet most new ventures close their doors within the first few years. You face an unforgiving industry where high overhead costs, razor-thin margins, and strict operational demands crush casual ambition.

You can achieve restaurant success and strong profits by grounding your passion in disciplined financial controls, precise menu pricing, and rigorous operational planning.

Roger Fields wrote Restaurant Success by the Numbers to bridge the gap between culinary dreams and hard financial reality. You will learn how to build a concept, select a profitable location, engineer your menu, and manage daily costs without losing your savings.

• How do you select a viable restaurant location and negotiate a favorable lease?
• What financial formulas determine your break-even point and working capital needs?
• How do you price menu items and control bar pours to maximize your margins?

1. The Rules of the Game and Your Concept

You must balance passion with hard business realities, select the right service format, and establish a distinct Unique Selling Proposition to survive.

Many first-time operators fail because they enter the industry for the wrong reasons, such as wanting to entertain or rub elbows with important people. Grounding oneself in reality leads to better choices and protects against the high failure rate. 1 out of 3 restaurants fails in the first year. 10 percent of franchises go under in the first twelve months.

Rich Melman started Lettuce Entertain You Enterprises with a $17,000 hole-in-the-wall in Chicago. Steve Ells launched Chipotle with an $85,000 loan from his father in a former Dolly Madison ice cream parlor.

Following five basic rules helps bridge the gap between dreaming and operating a successful, manageable restaurant:

• Rule #1: Keep one foot firmly planted in business realities and the other in passion.
• Rule #2: Consider starting small to minimize start-up capital and learn on the job.
• Rule #3: Set initial realistic goals and objectives regarding income, lifestyle, and retirement.
• Rule #4: Recognize that available financial resources limit the type and size of the restaurant you can open.
• Rule #5: Make a commitment to find and surround yourself with the right people.

Selecting a service format dictates the operational requirements, space needs, labor costs, and average check sizes for a restaurant. The four formats are fast food, takeout and delivery, food trucks, and table service à la carte.

Gregoire Jacquet opened a 600-square-foot takeout spot in Berkeley relying on hexagonal corrugated takeout boxes and potato puffs without hiring waiters. He had 40,000 residents within one square mile surrounding the location, and doubled his business every year for the first two years.

Food trucks offer a low-cost entry point and brand-building vehicle, but they involve substantial fixed costs and increasingly restrictive municipal regulations. New food trucks range from $50,000 to $200,000 with a median price around $60,000.

A restaurant must establish a Unique Selling Proposition that provides a true competitive advantage by making the concept distinct and valuable to target customers. Relying on the if you build it, they will come fallacy leads to failure.

You must follow specific practices to shape your concept:

• Write down why your restaurant concept stands out from potential competitors.
• Verify whether your concept offers something target customers value enough to choose over competitors.
• Ensure the concept has sufficiently broad appeal in the market area to remain sustainable.
• Assess how difficult the concept is to duplicate by competitors.

2. Target Market and Location Selection

You must study local demographics, evaluate competition, and analyze physical structures to choose a viable restaurant location.

Gathering data on average age, disposable income, household size, home ownership, and education helps determine eating habits, regular customer potential, and appropriate price points. Restaurateurs must study local demographics and psychographics before choosing a concept to ensure there is a permanent customer base that can afford the menu.

You should evaluate these factors before selecting a market area:

• Average age
• Marital status
• Average disposable income
• Average household size
• Home ownership
• Education level
• Average rent and prices of houses, condominiums, and apartments
• Population trends
• Food and beverage sales
• Major employers and industries

The author opened a sixty-seat Mexican restaurant named Poco Loco in New York City's Theater District in 1992 with a 90,000 dollars initial investment, but struggled because the surrounding subsidized housing was inhabited by struggling actors and musicians who could not afford to eat there regularly. The Manhattan Plaza housing complex contained 1,900 units, yet residents rarely visited.

The physical structure and neighborhood dynamics determine whether a site supports long-term profitability.

While standard suburban restaurants draw from a one-mile radius or five-mile radius, upscale destination restaurants and those in theater districts can attract customers from twenty or thirty miles away. High restaurant density relative to population can indicate market saturation, making new restaurants vulnerable during economic downturns. San Francisco had a density of one restaurant for every 216 residents in 2002, supported by high tech wealth and tourism, but local restaurants were hit hard during the economic downturn.

Thoroughly observing and analyzing primary and secondary competitors provides essential market intelligence on pricing, menus, and customer preferences. You must shop the competition to find gaps in the local market.

You should answer these questions when observing competitors:

• What is their unique selling proposition, and how will your concept be different?
• Which restaurants serve the same or similar menu items as yours at similar prices?
• Do your competitors have a full bar, service bar, or no bar at all?
• Are competing restaurants formal or casual?
• What do customers like or dislike about the competition's food and ambience?
• What are your competitors' food and service reputations?
• How close are competing restaurants to your potential location?
• Are competing establishments easy to find and get to, with enough parking?
• What are atmospheres and décors like at competing restaurants?
• Is the competition offering fair value for their price?
• What are the occupancy levels of waiting areas and parking lots at competing establishments?
• Do your competitors offer delivery or takeout?

Sellers of failing restaurants often place unrealistic valuations on old furniture and equipment to recoup past losses, but buyers should discount these items and be prepared to walk away. The author and his partners walked away from a location when the owner demanded 50,000 dollars for equipment and 50,000 dollars for furniture, only for the deal to fall through and return to the market later within their budget.

Prime spots command high rents and require high volume, whereas nonprime or transitioning areas allow operators to secure long-term leases at affordable rates before the neighborhood develops. In 1998, the author opened a 370-square-foot wrap shop named Wrapsody in Times Square with 6,000 dollars in monthly rent and 150,000 dollars in remodeling costs, which grossed 16,000 dollars per week. Zuni operated with 3,500 dollars per month rent in 1992 during a period when Times Square had a 20 percent commercial vacancy rate.

You must verify critical operational factors before committing to a lease.

You should inspect these site characteristics:

• Access to utilities
• Zoning and codes
• Site visibility and accessibility
• Traffic patterns
• Parking availability

3. Dollars and Sense

You must construct a pro forma profit and loss statement, calculate break-even points, and budget sufficient working capital to reach profitability.

A pro forma profit and loss statement forecasts potential sales and estimates expenses to determine if a restaurant concept is financially viable before investing money. It serves as a financial plan and feasibility study that quantifies market research and acts as a primary document to entice potential investors. You can use it during early operations to compare budget projections against actual results and identify opportunities to improve profits.

To build your financial feasibility study, you should complete these steps:

• Determine the days of the week that you will open for business
• Establish your hours of operation and the meals you will serve
• Estimate your average food and beverage check size per customer per meal period
• Determine your restaurant's seating capacity or number of seats
• Estimate your number of customers, or seat turns, per meal period
• Establish measurement periods: daily, weekly, monthly, and yearly

Sales forecasts should be built conservatively by combining market research with average check sizes and seasonal fluctuations. Average checks must be differentiated by meal period because prices, portion sizes, and drinking habits vary. You must factor in seasonal fluctuations and local business patterns, using 4.33 weeks per month and 52 weeks per year for annual calculations.

At Zuni, the lunch and dinner menu was the same, but lunch portions were smaller and prices lower. Dinner checks were higher because of larger portions and more consumption of alcohol and desserts.

Restaurateurs must distinguish between fixed costs that remain steady and variable costs that fluctuate directly with business volume. Fixed costs include rent, insurance, and loan payments, while variable costs include food, beverages, and labor. Food, beverage, and labor costs typically consume 60 to 65 percent of a typical restaurant's budget and require close monitoring.

Financial plans must account for non-cash expenses like depreciation and mandatory overhead items such as payroll taxes. Depreciation allocates the cost of equipment and improvements over years without an actual cash outlay. First-time owners often fail to factor in payroll taxes, which add 12 to 14 percent to payroll costs depending on the state. Credit card processing also adds expenses, with American Express charging 4 percent and Visa and MasterCard charging 1.5 to 2 percent.

A break-even analysis determines the exact sales volume needed to cover all expenses before generating the first dollar of profit. Using specific formulas involving fixed costs and variable costs as a percentage of sales, you can evaluate daily, weekly, and monthly break-even points. In the sample calculation, the contribution rate was .56 and daily break-even sales reached $2,668.04.

A realistic capital requirements budget must include all start-up expenses and a cash reserve to prevent early failure. Underestimating start-up costs is a common reason for early restaurant failure. You must budget for construction, professional fees, licenses, insurance, inventory, and working capital to keep the business afloat during initial months.

In the 2003 documentary film Eat This New York, John McCormick and Billy Phelps left Minneapolis to open a restaurant in New York City, and their struggles illustrated the severe challenges of underestimating start-up costs.

You should follow these rules for your capital budget:

• Include a contingency or allowance of an additional 20 percent of your final budget to cover cost overruns and construction delays
• Ensure working capital is a minimum of three months worth of fixed costs

Showing a strong return on investment on paper is essential for convincing outside investors and lenders to fund a restaurant. Net profit divided by total investment determines the return. Because restaurants are viewed as risky ventures, professional investors typically look for a minimum return on investment of 25 percent. In a sample scenario where a restaurant costs $290,000 to open with $240,000 in investor capital, a net income of $125,963 yields a 42 percent return for investors in the first year.

4. Constructing the Menu and Pricing

Creating a menu requires balancing six essential operational and financial factors beyond just choosing the type of food. You must consider the following elements:

• Availability and affordability of ingredients
• Required preparation time
• Availability of adequately skilled personnel
• Equipment requirements
• Kitchen layout and design
• Profitability of the menu item

You must balance operational factors, use recipe costing sheets with waste factors, and price items to maximize contribution margins.

Extremely limited menus struggle to survive unless specific strict conditions are met. Following the trend of Al's Soup Kitchen International popularized by Seinfeld, the author opened Souper Dog in New York City, which closed after one year because soup and sausages lacked repeat local demand and were seasonal.

Menu pricing must be rooted in the cost of ingredients relative to a targeted cost of sales percentage. Cost of sales represents the grocery cost of ingredients used in a dish. Dividing the ingredient cost by the targeted overall cost of sales percentage gives the baseline menu price needed to cover food costs and overhead. Most successful table service restaurants target a food cost percentage of 28 to 35 percent.

Accurate menu pricing requires a Recipe Costing Sheet to calculate individual serving costs including a waste factor. You must complete these steps:

• List the ingredients used to prepare your menu item in the ingredient column
• Record the unit of measure each ingredient is purchased by
• Record the current market price paid per unit
• Record the unit used to measure the amount of each ingredient
• Calculate the serving cost per unit by dividing unit cost by measure quantity
• Record the portion size of each ingredient that goes into the recipe
• Calculate the serving cost by multiplying unit cost by portion size
• Add an additional amount for waste, trim, and spices

Failing to account for trim, shrinkage, and yield percentages results in understated item costs and unprofitable menu prices. A five-pound New York strip steak loses one pound of fat during trimming, resulting in an 80 percent yield, which raises the real cost per pound from 6 dollars to 7.50 dollars. Other items have distinct yields, such as a 45 percent yield for whole red snapper, a 40 percent yield for black sea bass, and a 38 percent yield for flounder.

Menu pricing should maximize total contribution margin rather than strictly adhering to uniform food cost percentages. Selling a salmon entrée at 17.95 dollars yields a 33 percent food cost instead of the targeted 30 percent, but its higher contribution margin makes it more profitable overall than a Caesar salad with a lower food cost percentage.

Menu layout and visual hierarchy actively influence customer selections to maximize sales and profits. You must follow these merchandising rules:

• Ensure menu design and layout are consistent with overall design and décor
• Choose a font big and simple enough to be easy to read for your target demographic
• Avoid using dollar signs on the menu
• Design the menu so high-margin items stand out in prime merchandising positions
• Place a folded version of the takeout menu accessible near the entrance

5. Fashioning Design and Ambience

Ambience encompasses everything patrons see, hear, touch, smell, and taste. You must align your interior design and music choices with the target market rather than personal tastes.

You must align your interior design, lighting, acoustics, and music with your target market to shape brand image and manage guest stays.

On an episode of The Apprentice, a team failed by decorating a neighborhood restaurant in an ultramodern, Pan-Asian theme instead of creating a homier atmosphere. Abueg Morris Architects transformed Betty's Laotian on a limited budget by adding a raised seating platform with an iridescent canopy, dim lighting in back booths, and mirrored wall niches. Tiger Blossom converted a Manhattan children's store into a sixty-seat fine-dining Asian fusion restaurant for a total investment of $32,000, which equaled $533 per seat. Changing floor coverings, artwork, wall and ceiling colors, and lighting fixtures cost approximately $20,000 to convert the original concept to Zuni.

You can manage space flow and layout by following these rules:

• Spend money on things that customers come into direct contact with, such as tables, seating, place settings, and bathroom fixtures
• Use durable materials to keep luster longer and save maintenance costs
• Do not light your space evenly to avoid a cafeteria look
• Use lighting and color to create drama, highlight features, and hide unpleasant spots
• Use dark colored paint and down lighting to hide unsightly ceilings
• Put low-voltage accent lights, candles, or table lamps on tables for menu reading
• Point light toward accent walls or decorative areas to draw people in the door
• Leave some mystery in the space using fabric or screens as entry elements for a slow reveal
• Ask for references from other restaurant owners with similar concepts
• Consult restaurant design books, magazines, and trade publications for designer names
• Check www.aia.org and www.asid.org for member architects and designers
• Prepare, file, and monitor required architectural and mechanical drawings with local authorities
• Ensure all construction, material selection, equipment design, and installation conform with local codes
• Supervise trades to ensure gas, electric, and water outlets match equipment specifications
• Design flow of food and service staff and select proper table sizes to maximize seating capacity
• Aim for a one-directional floor plan with no crossing flow patterns
• Maintain a maximum distance of thirty steps between tables and service stations for efficiency
• Target a ratio of twenty-two seats for each fully stocked service station

The author's second restaurant build-out was delayed by three months because a partner hired an inexperienced expediter instead of an experienced architect, forcing three months of rent payments without sales. New York Times critic Frank Bruni critiqued 5 Ninth for an awkward layout where the kitchen was in the basement and the main dining room was on the second floor, causing servers to clump up stairs and jam narrow lanes.

Manage sound and atmosphere with these physical steps:

• Install carpeting, runners, booths, banquettes, or chairs with padded backs
• Use window coverings, curtains, banners, and decorative fabric or padding on walls
• Use three-quarter-inch to one-inch painted or fabric-covered acoustical tiles on walls or ceilings
• Install fiberglass panels or baffles padded with fabric on ceilings or walls
• Increase spacing between tables and install a sound system with properly located speakers
• Tailor music choice to the target market, concept, food, and décor
• Use faster tempos during breakfast and lunch to speed up servers and shorten customer stays
• Switch to slower, more melodic pieces at dinnertime to calm customers down and build check sizes
• Install a dimming system to control light levels and adjust moods for breakfast, lunch, and dinner
• Provide enough light for patrons over forty to read menus comfortably
• Use indirect lighting to wash a space in an overall glow and minimize shadows
• Avoid focusing strong direct downlighting directly onto guests
• Crank lights up after closing using dimmers to clean up and spot dirt
• Assign an employee to periodically check restrooms for messy stalls, odors, and floor trash
• Install floor drains and a pipe with a spigot for a hose connection to quickly wash down messes
• Install auto-flush toilets and urinals in heavy-use establishments
• Ensure proper ventilation including exhaust fans to handle odor problems
• Install motion-activated hand towel dispensers and water faucets to improve hygiene and lower utility use

A University of California, San Francisco study found average noise levels in restaurant bars reached 90.1 decibels with peaks at 142.1 decibels. When Diner 24 in New York City experienced slow table turns exceeding two hours, they switched to a more upbeat ambient sound using groups like Massive Attack, lowering table turn times to an hour and a half. Smith and Curnow in 1966 and R. E. Milliman in 1986 studies showed slow, relaxing music raised tabs by a maximum of 40 percent. A University of Leicester study in 2003 found a 9 percent average increase in customer spending when restaurants play classical background music. Marian Burros of the New York Times praised Union Pacific for a pleasing remodeling job that turned a cold space warm with lighting that makes everyone look good. Fast-food restaurants dedicate approximately 25 percent of total energy costs to lighting, while table-service restaurants dedicate about 10 percent. Opinion Research Corporation national public opinion surveys found that restaurant restrooms ranked second only to public restrooms in terms of uncleanliness, with 77 percent of people surveyed feeling an unsanitary restroom indicated management's overall attitude toward cleanliness, and 75 percent unlikely to return. Women spend an average of 8 minutes in restaurant restrooms, while men average 4 minutes.

6. Setting the Table

You must manage table turnover, select durable furniture, and control tabletop inventories to protect food presentation and profits.

Table turnover rates impact profitability and staffing. A 1999 environmental psychology study by Stephani K. A. Robson of Cornell University showed that patrons at unanchored seats in open spaces feel more exposed and leave sooner, a tactic effectively used at T.G.I. Friday's and Red Lobster. Fine dining expects one to two turns per meal period, while casual and fast-food concepts need faster turns.

• Anticipate average dining periods by concept: two hours or more for fine dining, 1.5 to 2 hours for casual upscale, 1 to 1.5 hours for casual dining, and 15 to 30 minutes for fast food.
• Leave at least eighteen inches between tables and chairs for staff service flow.
• Allow twenty-four to twenty-six inches for each chair at a table, and twenty-eight inches for armchairs.

Tableware replacement rates reach 20 percent annually for normal operations due to breakage and theft, and up to 80 percent in high-volume operations. When Zuni switched from 10.5-inch to 12-inch dinner plates, food costs increased by about 3 percent in the first month because kitchen staff put more food on the larger plates.

• Ask prospective vendors about delivery lead times for tableware.
• Combine manufacturer suggested inventory quantities with realistic volume projections and common sense.
• Avoid buying tableware from catalogs unless physical samples can be examined.

7. Raising the Bar

Alcoholic beverage sales yield substantially higher profit margins than food. While food cost of sales typically runs 28 to 35 percent, average pour costs for liquor, beer, and wine are between 16 and 33 percent. Strong bar sales allow you to keep dining room menu prices lower than they otherwise could.

You must treat the bar as a primary profit center by enforcing strict pour cost controls, par inventories, and theft prevention policies.

Bill McCormick and Doug Schmick of McCormick and Schmick's Seafood Restaurants explained that their strong bar sales helped subsidize dining room price points, keeping items at 18 or 19 dollars that would otherwise cost 21 dollars. Unsupervised bars can lose up to 20 percent of inventory to shrinkage.

• Limit the inventory kept in stock for any brand to not more than 150 percent of estimated weekly usage.
• Establish a par list detailing the exact quantities of each brand of spirit, wine, and beer that should be at the bar at the beginning of every shift.
• Restock the bar using the par list at the end of every shift.
• Do not add a new brand or label unless it replaces a discontinued one.
• Make it mandatory that all drinks be rung into the register before they are poured.
• Insist that bartenders keep tips in a separate jar, not in the cash register.
• Randomly take summary readings and reconcile cash sales with cash in the drawer.
• Institute a policy of having all comps and spillage rung into the register.
• Insist that the register must be closed after each drink transaction is rung up.
• Install video cameras above the bar as a deterrent to theft.
• Conduct inventory counts independently rather than letting bar staff manage inventory controls.

8. Designing the Kitchen and Staffing

You must treat the back of the house like a manufacturing factory and hire service staff based on attitude rather than skill.

Restaurateurs should prioritize the back of the house over front-of-house aesthetics if the budget is limited. The goal is to create a seamless operational flow from receiving to preparation, production, and service.

At Zuni, where the kitchen is at the back and storage is in the basement without a direct stairwell, all major deliveries had to be precisely scheduled before service.

First-time owners of casual operations can benefit greatly by hiring an experienced chef as a consultant rather than full-time. When Roger Fields opened Wrapsody, he hired a chef as a consultant to create standard recipes and train the kitchen staff, which allowed him to focus on the business side.

When hiring service staff, always opt for attitude over skill because nice people are much easier to train than to make nice. Customer service issues often stem from poor staff attitudes, while technical tasks like setting a table or serving etiquette are simple to teach.

• Taste their food, either by visiting their current place of employment or by inviting them to cook a meal for you from scratch.
• Ask for resumes in order to check previous work experience.
• Call current and past employers to verify employment, job descriptions, and responsibilities.

10 Key Ideas

1. You can achieve restaurant success and strong profits by grounding your passion in disciplined financial controls, precise menu pricing, and rigorous operational planning.
2. You must balance passion with hard business realities, select the right service format, and establish a distinct Unique Selling Proposition to survive.
3. You must study local demographics, evaluate competition, and analyze physical structures to choose a viable restaurant location.
4. You must construct a pro forma profit and loss statement, calculate break-even points, and budget sufficient working capital to reach profitability.
5. You must balance operational factors, use recipe costing sheets with waste factors, and price items to maximize contribution margins.
6. You must align your interior design, lighting, acoustics, and music with your target market to shape brand image and manage guest stays.
7. You must manage table turnover, select durable furniture, and control tabletop inventories to protect food presentation and profits.
8. You must treat the bar as a primary profit center by enforcing strict pour cost controls, par inventories, and theft prevention policies.
9. You must treat the back of the house like a manufacturing factory and hire service staff based on attitude rather than skill.
10. You must bridge the gap between culinary dreams and hard financial reality by building a concept, selecting a profitable location, engineering your menu, and managing daily costs without losing your savings.