The restaurant landscape is shifting — accurate financial benchmarking lays the foundation

• Franchisees’ and operators’ most frequently asked questions indicate the need for new benchmarks for the restaurant industry.
• Complicated assessments of sales, profit and performance have, in the past, relied on far-too-simple data. 

–Paul Compton, Director of Product Management at RMS

Here’s an all-too-real hypothetical: In early March 2021, an unexpected winter storm hit Texas, cutting power to 4.5M homes. As a multi-unit operator of a large QSR brand with locations throughout the state, I have questions: How many of my Texas stores were impacted? How did the impact in Houston compare to Dallas? What about our competitors in that geographic area — how did they fare?

Those are all reasonable performance metrics to want to know. But without visiting these cities, which was nearly impossible, where does leadership find the answers? Herein lies the rub: As necessary as the questions are, they can be challenging, if not impossible, to answer with the information operators currently gather.  

Operators have a heavy burden, with average restaurant profit margins as low as 3%-5% and shrinking post-pandemic. Assessing performance metrics such as gross profit margin, prime margin and net income is a daily task. So is managing the customer experience while running efficient back of house operations.

These complex assessments often rely on far-too-simple data — gut instinct, annual financials and inaccurate location comps, to name a few. While fuzzy benchmarks may have worked in the past, today’s environment is different. Challenged by increasing competition, supply chain complexities, rising food costs, higher labor rates and employee turnover, operators seek answers for ever-more-demanding questions, for example:

• What are a location’s sales and profit, and how are they trending?
• How do my sales and profits compare with my store’s potential?
• What are the long-term trends in my trading area? How did they change in the past two years?
• How do my sales, guest counts and average spend compare with recent trends?
• What were the impacts of the catastrophic events of the past few years (pandemic, weather events)?
• How much of my sales increase/decrease is attributed to these and other market factors?
• What was the impact of recent commodity price and labor rate increases?
• Am I doing a good job of handling cost pressures such as commodity prices and labor rate increases (compared to others)?

Large multi-unit operators have all these questions and more. They need to know how unit performance has changed due to market conditions in today’s changing environment.

• Are suburban locations now busier than downtown locations, for example?
• Is unit performance declining due to changing traffic patterns, or is performance being affected by poor management?

Today’s franchisees want to know how their average sales and profit compare to average comps. Yet “average” has changed since 2020, and the future is unknown.

New franchisees, entering the field in increasing numbers, want to know what to expect. They ask:

• What are the likely sales and profits of a new unit?
• How do I assess real estate/locations as consumer behavior is shifting, likely permanently?

Similarly, franchise consultants need to assess franchisee performance differently, particularly with an influx of new franchisees and new ownership groups. They want to know:

• What are franchisees’ most significant opportunities to improve their profitability?

As inflation remains at an all-time high, squeezing margins and wallets, if ever there was a time to have these answers, it’s now. Imagine the problem-solving and business improvements you could drive with the detailed and granular information that answers the questions above. That’s the power of benchmarking.

Our restaurant industry practitioners, researchers, data scientists and analysts understand the issues you face and the data-driven insights you need. Know that we are focused on providing our clients with the information and the tools required to create a profit plan.

To discuss your current financial benchmarking challenges and how to optimize future possibilities, request a consultation with our team of financial experts.