What can a financial analyst do for you?

In the early 1990’s, the hotel industry experienced a major shift. As the 1992 recession ripped through the commercial real estate market, hoteliers needed more in depth analysis of their competition’s room rates, and hotel revenue management techniques began being adopted by a few intelligent firms. Twenty years later, there is not a hotel company in existence without a revenue management division. Has the Great Recession caused the same sort of major paradigm shift for the restaurant industry? What type of information is available to restaurant owners to assist them in their daily operations?

The restaurant industry has evolved very quickly in the past twenty years. The percentage of American income spent on dining out increased dramatically over the duration of that timeframe. Will that growth repeat itself in the next twenty years? If not, how can you better prepare yourself for major capital expenditure decisions?
• Are you fully utilizing the data at your disposal in your POS systems?
• What buying patterns are occurring throughout your market, and do you have systems in place to capitalize on them?
• Are you getting the most for your marketing dollars?
• Is your inventory turned as often as it should be, and can you streamline your menu to reduce labor costs?
• What data does your competition base their decisions off of?
• Are the processes you used in opening your past establishments polished enough to replicate in today’s cutthroat market?
• Are you in the process of completing a business plan, and do not fully comprehend the pro forma financial statements?
• Are your financial projections sophisticated enough to raise equity capital, or to obtain a small business loan?
• Have you used your existing financial data to see if you are utilizing your assets to their utmost efficiency?

You are intuitive, that is what has made you a successful restaurateur. Today’s market has its serious challenges, now is the time to put your business first.

Is now the time for Restaurant Revenue Management?

The concept of revenue management is relatively new in the hospitality industry; the first Cornell Quarterly article referencing it was published in 1988*. Today, every hotel company imaginable has their own revenue management department, as if their very survival depends on it. Restaurants on the other hand, seem relatively reluctant to adopt such techniques.

Revenue management is, “in essence…managing (of) customer behavior at the individual level via price and availability of constrained resources to maximize profits”**. In other words, it is the practice of revenue optimization. Hotels change their pricing consistently depending on supply and demand, yet food and beverage prices remain relatively static.

The practice of discounting during low demand periods (happy hours and early bird specials) highlight the very essence of revenue management techniques, and can have success. On the flip side, the idea of charging a premium (increasing the price of food during peak times of the day or during weekends,) remains very negatively viewed by restaurant consumers***.

Is it equitable to charge a premium for a table with a view of a landmark? Could a high end food and beverage outlet succeed by charging different amounts to different guests, depending on where they sit and what time they dine? Could this practice succeed in a wine bar in NYC, or just in a TGI Fridays at a baseball stadium? Please feel free to comment.

* Cornell Hospitality Quarterly, "Improving Hospitality Industry Sales" February 2010 55.
** Cornell Hospitality Quarterly, "Improving Hospitality Industry Sales" February 2010 54.
*** Cornell Hospitality Quarterly, "Percieved Fairness of Demand-based Pricing for Restaurants" February 2002