Helping restaurants through COVID-19 | Part 1: Optimising your financials
My name is Adam Cheers, and I own 2 restaurants in Sydney - Peanut Butter Jelly, and Ze Pickle. Both restaurants have been affected by COVID-19 and forced government restrictions by only being able to offer takeaway and home delivery during this time of uncertainty.
In reaction to this unprecedented change, I adapted my two venues very quickly, and set up my own online delivery platform, which helped greatly in a very short period of time. My goal is to help as many restaurants as I can, to achieve the same.
When I could feel the impact that COVID-19 was about to have on both of my venues, the first thing I did was lock myself into my office for 24 hours, and run the financials of my business.
Assessing your restaurant’s financials
My first move was to conduct some financial modelling to understand what my businesses would look like over the next 6 months, where I assumed (later to discover, correctly) that we would be forced to operate under extreme trading restrictions.
Upon reviewing my financials, the following categories are where i spent my time reviewing:
Sales / revenue
I projected what our sales/revenue would look like under a takeaway or home delivery only business model. Naturally these numbers were severely reduced, with a projected decline of 80-90% of sales volume. I monitored this closely each day to ensure that these projections were accurate.
Cost of goods
Based on the projected revenue, we had to review our cost of goods and ensure that we could reduce these costs dramatically and quickly. Could we remove some expensive items from the menu? Would some items not travel well on delivery that could be removed? Can we send existing stock back to some suppliers? Ultimately having a reduced menu allowed us to reduce our costs and minimise wastage in the process.
The harsh reality is that in a crisis such as COVID-19, the survival of the business is paramount, and unfortunately we had to let go of a lot of casual staff across both of my venues because we simply could not sustain these ongoing costs to keep the business running. Based on a reduced revenue of 80-90% less than what we were doing previously, we were forced to scale back our human resource dramatically and immediately. Being in the hospitality business, the vast majority of our staff are either on temporary skilled, student or working holiday visas, which are not entitled to the JobKeeper program, so therefore we retained full time staff as best as we could, and the business had to absorb the ongoing cost of this without any government assistance. I’m sure many other venues find themselves in this same situation.
At the stage of reviewing my financials early on, I had to assume that there was no relief being provided for rent and considered this to be a fixed cost, which at that point I had no control over.
Gas and Electricity is an essential service which is required by the venues to continue to operate, and therefore I was not able to control or reduce this cost.
External delivery commissions
Besides rent and utilities, this was the biggest cost in my business based on my COVID-19 projections. I have been working with Ubereats, Deliveroo, Menulog and DoorDash for almost 5 years since my first venue started. As we were forced to offer takeaway and home delivery only, this was going to have a severe impact on my profitability because of the high commissions paid to these companies, which range from 30% - 38.5%.
If it doesn’t make dollars, then it doesn’t make sense
I have spoken to hundreds of restaurant and cafe owners all over Australia, from multi-site restaurant brands to single-site husband and wife cafes, and everything in between, and I have found that not all, but MANY of these business owners do not understand their financials, or are not giving them enough attention.
If we are to break down the average costs of a restaurant or cafe, it would look something like this:
Cost of Goods: 33%
Fixed/Operational Costs: 30%
TOTAL COSTS: 96%
Net Profit: 4%
Delivery Commissions: 35% (average)
Net Profit after commission: -31%
If you are to calculate the external delivery commissions from your net profit margin then you are left a loss of 26%-34% on each order.
Some may argue that you have existing costs running in the business which are absorbed into those percentages. The reality is that it takes time, resources and money to facilitate these orders, and venues are losing a lot of money by using external delivery providers.
In my view, this then becomes a commercial decision as to whether you are comfortable accepting that loss as a cost of marketing to have your brand or business on the platform in front of potential customers who may or may not know who you are. If you’re OK with that, then that's great, and if you’re not, then that's fine also. My point is, at the end of the day it's a choice and venue owners have the power to make that choice.
I decided that these costs were something that I could control because it was my decision and ultimately the decision of many venue owners all across Australia to use these external delivery platforms. Therefore, I began to investigate alternative ways of offering online ordering to my customers in a more affordable way, to minimise my reliance on these services and ultimately reduce my commissions to them.
In the next part of this series, I advise on how to set up your own online ordering system, and how to turn your restaurant into an online business. Part 3 will go through marketing techniques to drive sales on your website.
If you’re interested in the changes I’ve been making with my businesses and would like to find out more, please feel free to contact me on 0403669699 or firstname.lastname@example.org or head to https://www.hustlemediagroup.com.au.
Check out KeyPay's COVID-19 Hub for the latest legislation updates and how to manage COVID-19 related processes in KeyPay.