- Analyzing hours of operation is an opportunity for profit
- Modifying hours on a store-by-store basis might be wise but requires quantitative, evidence-based data
- Brands can help their franchisees by supporting modified hours of operations
For fast casual and quick-service restaurants (QSRs) looking for a financial and competitive edge, operators may wonder if they’ve exhausted all options to drive same-store sales and profitability. Price seems obvious but take too much, too often or all at once and the results can be counterproductive. Menu engineering is certainly another sound choice but what other possibilities exist?
As the industry confronts a new baseline of staffing and inflation impacting traffic, RMS suggests evaluating hours of operations on a per restaurant basis as an area of profit opportunity worth exploring.
Analyzing hours of operation can be (and always has been) an effective strategy for pricing and profitability, says Sebastian Fernandez, Chief Research & Development Officer at Revenue Management Solutions. “Independent of the pandemic, large franchise brands often struggle to find the right balance for operating hours — especially on a per-store basis.” Assuming that hours of operation weren’t optimized pre-pandemic, says Fernandez there are opportunities to do so now.
Top considerations when evaluating hours of operations
“Is modifying our hours the right thing to do?” RMS gets this question from operators often. As mentioned above, the restaurant industry has struggled with this question for some time: Should one unit be open until midnight while another unit owned by the same operator stays open until 1 am?
The answer is, ‘it depends.’ The pandemic brought initially closures, then reduced hours once restrictions were lifted and vaccinations became available, yet staff were hard to come by. Then, in 2022, many restaurant brands returned to original hours of operation but were forced to cut back again due to on-going staffing shortages. “It’s very much a case-by-case basis,” says Fernandez.
By evaluating market data, demographics and location, franchisees can determine the feasibility of varying hours of operations among restaurants. For a college town, it might make good sense to expand hours but for a store of the same brand though located in an office park, hours might stay as are. “Very rarely do we recommend decreasing hours,” says Fernandez. “We typically work with brands to at a minimum, identify how to return to original hours.”
One size does not fit all
Any hours of operation project is based on quantitative, evidence-based data. While a blanket recommendation might be alluring, it’s not practical, says Fernandez. RMS evaluates demand around each restaurant independently to accurately model the impact of expanding hours.
Fernandez elaborates, “If demand is present (restaurant-specific trading area), then we estimate sales impact and compare that to a minimum threshold the restaurant requires to break even. If sales impact is higher than the threshold, we recommend expanding operating hours.”
How RMS maximizes profitability
Modifying hours is not necessarily a better approach than meeting demand or devising a strategy to build demand. “These approaches are not mutually exclusive,” says Fernandez. Brands should absolutely continue to build or meet demand where it is, he advises. “If everything else holds constant, there might still be restaurants that could drive sales and profitability by opening an additional hour during the weekend where there is more opportunity, and/or weekday.”
Because it’s best to consider market-specific solutions, only between 15% – 25% of restaurants will benefit from each specific recommendation. This is not a blanket recommendation a brand can make for all restaurants systemwide.
Ultimately, brands want to encourage franchisees to evaluate the profitability of expanding operating hours and see the evidence behind those profitability estimates. To illustrate what modified hours of operation would look like, RMS provides franchisees custom reports that detail which of their restaurants show opportunities, what the opportunity (additional sales profit) is, and how the estimate was determined.
All brands are looking for ways to build sales. While hours of operations is one way to drive same-store sales; marketing is another. Conversely, there are a number of steps corporate can take to support franchisees, such as the following examples of expanding late-night hours:
- Reevaluating menu options for late night (for example, Taco Bell FourthMeal, Jack in the Box Munchie Meals)
- Marketing to a late-night customer base at the:
- Market level: employ late-night media (TV / radio, digital), signage in market, promotions with third-party providers and delivery partners
- Restaurant level: use restaurant signage (pylon, monument, etc.), drive-thru board signage, point of purchase signage, on the customer check
- Test late night hours in a specific market
- Expand national media buys, website and mobile app promotions as more franchisees participate
- Support admin responsibilities to ensure the website, app and aggregators have updated hours of operations per restaurant
Creating a strategy for data-driven hours of operation
Analyzing hours of operation for franchised brands at the store and market-level is not new. For decades, RMS has been helping brands achieve perfect timing using their individual market data. Leveraging RMS’ patented analysis of POS data combined with market research, we identify what your customers want in each location, region and day part. Using these insights, you can calibrate hours of operation to best optimize labor and increase profitability — for each store.
If you’re interested in establishing optimal hours of operation for your restaurants, RMS is here to help. Request a complementary consultation.