Wednesday, April 6, 2011

Oh yeah, this is a business...

When we started this blog, it was with the intention of sharing with others our experience with starting up a restaurant in Boston. So in the spirit of education through experience, we have decided to discuss the nitty-gritty of the business...the cost of goods and factors that drive them.

In our business plan, we estimated that our cost of sales would be in the 18-20% range (this is typical for a quick service place, whereas a higher end full service restaurant runs in the 30-35% range). After a full month of operation, we calculated our cost of sales to be closer to that of a full service restaurant. The factors driving the higher figure include: uncertain demand which resulted in unused product, waste which is simply due to the learning curve (more specifically, burning waffles, inconsistent portioning, and getting the recipes right), and the high prices of ingredients.

We are confident that in the coming months we will be able to reduce our waste significantly and also anticipate demand more accurately, but as for the rising prices of food...that is an area that will require us to get creative. We did as much research around food costs as possible when writing our plan, but focused too much on our staples (potatoes, oil, eggs) that we disregarded other secondary ingredients such as cheese (used in two of our sauces). We also added poutine to our menu later in our conceptual stage, which meant we did not fully understand the cost drivers of this dish. And of course there are those factors that are behind anyone's control. For instance, due to an unexpected increase in demand for potatoes, there was a shortage, which resulted in a spike in prices.

Fortunately, we have kept a close eye on our financial data by tracking all of our purchases and daily product sales, which has allowed us to see the implications of our earlier decisions so that we may make necessary adjustments (for example, renegotiating contracts with vendors and reassessing menu items - we took a pesto sauce off the menu because of the triple digit price of pine nuts).

The lesson here is to understand the particulars of your menu items. We are all about quality, homemade deliciousness, but in addition to being passionate food purveyors, we need to be business minded restaurant operators - and this is a difficult balance to achieve.

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