5/17/2016

1

Essential Restaurant Fundamentals and Leasing Strategies

Michael D’Amico

mjdamico@thelamygroup.com

Kenneth S. Lamy, CRX

kslamy@thelamygroup.com

Presentation Outline

I. Fundamentals

II. The Essential Percentages

III. 100% Rule

IV. The Puzzle

V. The Pieces

VI. Case Study

VII. Win-Win Leasing Strategies

It is essential that and Property

Managers/Leasing Agents

understand the connection

between

Occupancy Costs and Profitability.

5/17/2016

2

It’s equally important that you have the

tools and knowledge to have a

meaningful conversation with an existing

or future Restaurant Tenant.

Let’s get started…..

I. Fundamentals

R² P²

Rules

Regulations

Policies

&

Procedures

5/17/2016

3

II. The Essential

Percentages

The Essential Percentages

Calculation of Key Percentages

1. Food Cost divided by Food Sales = Food Cost %

2. Liquor Cost divided by Liquor Sales = Liquor Cost %

3. Food and Liquor Costs divided by Total Sales = COGS* %

4. Total Labor Cost divided by Total Sales = Labor Cost %

5. COGS and Total Labor Costs divided by Total Sales = Prime Cost*%

6. Total Expenses divided by Total Sales = Expense Cost %

7. Advertisement Costs divided by Total Sales = Advertisement Cost %

• COGS - Cost of Goods Sold• Prime Cost – Food, Liquor and Total Labor Costs• Total Labor Costs – Direct and Indirect Labor Costs

END OF MONTH

INVENTORY CALCULATIONS

BEGINNING INVENTORY

PLUS + PURCHASES

MINUS - ENDING INVENTORY

EQUALS = COST OF GOODS SOLD (COGS)

5/17/2016

4

DOLLAR CALCULATIONS

BEGINNING INVENTORY $5,000.00

PLUS PURCHASES $20,000.00

MINUS ENDING INVENTORY* $4,000.00

EQUALS (COGS) $21,000.00

SALES $68,000.00

COGS/ SALES = COGS % 30.88 %

Note: The ending Inventory becomes the beginning inventory for the next month

CONSTANT STRUGGLE BALANCING SALES AND

COSTS…USUALLY WITH INCREMENTAL RESULTS

Sales Variables

• Food Sales

- Breakfast

- Lunch

- Dinner

• Liquor, Wine, Beer Sales

• Beverage Sales

• Banquet Sales

•Off-Site Catering Sales

• To-Go Sales

• Cover Charges

• Retail

• Gift Cards

5/17/2016

5

Food & Alcohol Cost Variables

• Menu Prices

• Purchases

• Sales Mix

• Portion Control

• Quality

• Waste

• Theft

• Promotions/Discounts

• Employee Comps

• Administrative

Procedures

• Inventory Physical

Count

Labor Costs

Direct Labor Costs

Staff Wages

Staff Overtime Wages

Management Salaries

Management Bonuses

Indirect Labor Costs

Payroll Taxes

Worker’s Compensation Expense

Staff Medical Insurances

Management Medical Insurances

Key Operating Expenses

• Restaurant Supplies

• Maintenance

• Repairs

• Utilities

• Accounting

• Linen

• Legal

•Promotions

• Licenses and Permits

• Uniforms

• Phone and Internet

• Equipment Rental

• Credit Card Fees

• Marketing/Advertising

5/17/2016

6

FOOD & BEVERAGE COST PERCENTAGE %

SALES:

30000 – Sales – Food & Bev – Dine In 211,509.70

30040 – Sales – Food & Bev – Happy Hour 4,986.75

30050 – Sales – Food & Bev – Take Out 7,824.45

30060 – Sales – Food & Bev – Catering 135.85

TOTAL FOOD SALES: 224,456.75

FOOD COSTS OF GOODS SOLD: 60,395.29

FOOD COSTS OF GOODS SOLD/TOTAL FOOD SALES: 26.91%

ALCOHOL COST PERCENTAGE %

SALES:

30100 – Sales – Beer 5,919.50

30200 – Sales – Liquor 13,345.00

30300 – Sales – Wine 6,297.00

30310 – Sales – HH Beer 1,744.50

30320 – Sales – HH Wine 1,117.00

30330 – Sales – HH Liquor 4,060.00

TOTAL ALCOHOL SALES: 32,483.00

ALCOHOL COSTS OF GOODS SOLD: 10,349.86

ALCOHOL COSTS OF GOODS SOLD/TOTAL ALCOHOL SALES: 31.86%

TOTAL COGS PERCENTAGE %SALES:

30000 – Sales – Food & Bev – Dine In 211,509.70

30040 – Sales – Food & Bev – Happy Hour 4,986.75

30050 – Sales – Food & Bev – Take Out 7,824.45

30060 – Sales – Food & Bev - Catering 135.85

TOTAL FOOD SALES: 224,456.75

30100 – Sales – Beer 5,919.50

30200 – Sales – Liquor 13,345.00

30300 – Sales – Wine 6,297.00

30310 – Sales – HH Beer 1,744.50

30320 – Sales – HH Wine 1,117.00

30330 – Sales – HH Liquor 4,060.00

TOTAL ALCOHOL SALES: 32,483.00

TOTAL SALES: 256,939.75

FOOD COSTS OF GOODS SOLD: 60,395.29

ALCOHOL COSTS OF GOODS SOLD: 10,349.86

PAPER GOODS COSTS: 2,347.35

TOTAL COSTS: 73,092.50

TOTAL FOOD & ALCOHOL COST OF GOODS SOLD/TOTAL SALES: 28.45%

5/17/2016

7

LABOR COST PERCENTAGE (%) DIRECT & INDIRECTSALES:

TOTAL FOOD & BEVERAGE SALES: 224,456.75

TOTAL ALCOHOL SALES: 32,483.00

TOTAL SALES: 256,939.75

TOTAL LABOR (DIRECT) COSTS:

60020 Management 16,351.88

60500 Front of House 29,326.34

61000 Back of House 34,420.94

TOTAL (DIRECT) LABOR COST: 80,099.16

TOTAL DIRECT LABOR COSTS/TOTAL SALES: 31.17%

TOTAL (INDIRECT) LABOR COSTS:

63510 Payroll Taxes 9,080.10

63520 Workers Comp Insurance 3,008.42

63530 Health Insurance 1,337.00

TOTAL (INDIRECT) LABOR COSTS: 13,425.52

TOTAL INDIRECT LABOR COSTS/TOTAL SALES: 5.23% 36.4%

TOTAL PRIME COST PERCENTAGE %SALES:

TOTAL FOOD & BEVERAGE SALES: 224,456.75

TOTAL ALCOHOL SALES: 32,483.00

TOTAL SALES: 256,939.75

FOOD COSTS OF GOODS SOLD: 60,395.29

ALCOHOL COSTS OF GOODS SOLD: 10,349.86

PAPER GOODS COSTS: 2,347.35

TOTAL COSTS: 73,092.50

TOTAL LABOR (DIRECT) COSTS:

60020 Management 16,351.88

60500 Front of House 29,326.34

61000 Back of House 34,420.94

TOTAL (DIRECT) LABOR COST: 80,099.16

TOTAL (INDIRECT) LABOR COSTS:

63510 Payroll Taxes 9,080.10

63520 Workers Comp Insurance 3,008.42

63530 Health Insurance 1,337.00

TOTAL (INDIRECT) LABOR COSTS: 13,425.52

TOTAL COGS AND TOTAL LABOR COSTS: 166,617.18

PRIME COST:

COGS AND TOTAL LABOR COSTS/TOTAL SALES: 64.85%

All rights reserved.

III. 100% Rule

5/17/2016

8

The 100% Rule: You can’t

grow yourself out of high

prime costs

Industry goal is a Prime Cost (PC) of

60% or lower

Franchise units Prime Cost (PC) target

of 60% or lower is essential. Why?

Why

Assume 6% of Sales

• Franchise Fees

• Licensing Fees

• Advertisement Fees

6% of Sales = % of Profit

The 100% Rule

100%

Sales

Food Cost

Liquor Cost

Total COCS Cost

COGS - Cost of Goods Sold

Direct Labor

Indirect Labor

Total Labor Cost

Prime Cost 60%-65%

Total COGS + Total Labor Cost

Operational Expenses 20%

PBOFC 20%

Profit Before Occupancy, Franchise & Corporate Expenses

Occupancy 10%

Profit 10%

Franchise, Corporate Expense 6%

Owner/Franchisee 4%

Before Debt Service

5/17/2016

9

IV. The Puzzle

IndependentsMultiple Units

Single Unit W/ Experience

Single Unit W/O Experience

Independents

Many Independents

Generate Less Than

$500K in Annual Sales

5/17/2016

10

Challenges to Solve

� Economic slowdown

� High/Low Unemployment

� Government regulation:

Minimum Wages

Health Insurance (ACA)

� Less disposable income

� Higher energy prices

� Inflation pressures

� Lower home values – Angst!

� Increased occupancy costs

� Any other comments / suggestions?“After months of analysis we reached

the same conclusion: when you’re

hot, you’re hot, when you’re not,

you’re not…”

If in Doubt, Rule it Out

V. The Pieces

5/17/2016

11

Takeaway – Three Imperatives

1. Be Proactive

2. Be Quantitative

3. Become a Partnership

How to get the Facts

� Nine Point Stress Test

� Secret Shopper Program

� Restaurant Operations

Questionnaire

� On-site Interview

� Lease Language

�One on One Tenant

Support

� Sales and Revenues

� Labor Costs

� Occupancy Costs

� Cost of Goods Sold COGS

� Prime Costs

� Franchise Costs

� Gross Profit

� Controllable Costs

� Net Profit

STEP ONE: NINE POINT STRESS TEST

5/17/2016

12

STEP TWO: HANDS ON - DISCOVERY� Secret Shopper

� Restaurant Questionnaire

� On- Site Interview

� Lease Language

� One on One Tenant Support

� Optimal Food Cost Analysis

STEP THREE: KEY LEASE PROVISIONS

� Pre-schedule Landlord / Tenant Review Meeting

� Annual or Quarterly Tenant Financial Results

� Operations Review – Professional Consultant

INDEPENENTS: Minimal Marketing Budget� Based on a Percentage of Sales

� No Internal (In House) Management

� Unorganized- No Plan

� Sales “Killing” Promotions!

� No Website, Video, Email or Social Media Marketing Service

� Failure to Target Trigger Points

5/17/2016

13

STEP FOUR: DIGITAL MEDIA MARKETING

� Fully Responsive Website

� High Definition Video Experience

� Email Marketing

� Social Media Marketing

� Tell Your - Why/Get Found Online

CONSULTING CHECKLIST

� Nine Point Stress Test

� Restaurant Operations Questionnaire

� Secret Shopper Review

� On-Site Interview

� Lease Language

� One on One Tenant Support

� Optimal Food Cost Analysis

� Social Media Marketing Strategy

VI. Case Study

5/17/2016

14

Tenant: ABC GrillProperty: XYZ Plaza

2014 % 2015 % 2016 %

Food Sales $2,244,602 90.78% $2,524,665 95.35% $713,089 96.51%Liquor Sales 312,715 12.65% 331,810 12.53% 109,017 14.75%Promo Meals -84,660 -3.42% -208,812 -7.89% -83,194 -11.26%Total Sales $2,472,657 100.00% $2,647,663 100.00% $738,912 100.00%Food Costs 729,271 32.49% 861,341 34.12% 240,555 33.73%Liquor Costs 105,159 33.63% 114,558 34.53% 33,577 30.80%

0.00% 0.00% 0.00%COGS * $834,430 33.75% $975,899 36.86% $274,132 37.10%

Gross Profit 1,638,227 66.25% 1,671,764 63.14% 464,780 62.90%

Direct Labor 578,545 23.40% 643,355 24.30% 186,755 25.27%Indirect Labor 321,525 13.00% 348,842 13.18% 107,119 14.50%Total Labor $900,070 36.40% $992,197 37.47% $293,874 39.77%

Prime Costs ** 1,734,500 70.15% 1,968,096 74.33% 568,006 76.87%

Controllables 474,310 19.18% 478,299 18.06% 136,901 18.53%PBOFCosts 263,847 10.67% 201,268 7.60% 34,005 4.60%

Occupancy Costs 191,223 7.73% 218,765 8.26% 54,691 7.40%

Profit $72,624 2.90% ($17,497) (.60%) ($20,686) (2.7%)

* COGS - Cost of Goods Sold ** Prime Cost - COGS and Total Labor Costs

VII. Win-Win Leases

� Become PROACTIVE not REACTIVE

� Pre-Qualification of Restaurant’s Sales/Profit & Loss Statement

� Annual Review of Restaurant (Financial Physical)

� Tenant Improvement Determination

� Lease Options

� Tenant Rent Relief Request (Review/Evaluations)

� Powerful Tool for Restaurant/Landlord Consultation

� Client Support on Improving Restaurant Results

Useful Application of Services

5/17/2016

15

Financial Statement (P&L) Analysis Provides:

Client with National Restaurant Industry

Benchmarks and Trends

A Review of Sales and Related Operating Costs (Cost of Goods Sold, Labor, Prime and Occupancy Costs)

An Analysis of Key Financial and Operational Areas

Specific Recommendations and Comments are included in The Report

Please Complete Your Evaluation Now.

1. Take Out Your Smartphone or Tablet

2. Go to survey.icsc.org/2016RECON

3. Select this course: Essential Restaurant Fundamentals

and Leasing Strategies

Course Evaluation