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Forecasting in the restaurant industry

Bridget Holmstrom - Sunday, March 29, 2015

Forecasting in hospitality

Forecasting in the restaurant industry is no less important that forecasting in any other business sector.  Business activity in the hospitality sector is often highly cyclical across different months but also according to the day of the week and possibly the hour of the day.  For instance it maybe that a restaurant is in the business area of a town or city.  In this case a restaurant is likely to busy over lunch and early evening from Monday to Friday. However the weekends are likely to be very quiet and may be not worth opening.  The restaurant is also likely to be quiet during the holiday periods in August, Christmas and Easter.  Using forecasting techniques and understanding the cyclical nature of sales can help the restaurant optimise sales and manage costs. 

Sales Forecasting

One of the key sources of information is the historical data from the prior periods.  Provide this information has been kept and is maintained in a usable fashion then the restaurant manager can mine this information to develop a forecast for the future.  There are some statistics that the restaurant manager should know and can use make some valuable predictions about the future.

1) Occupancy% = the number of covers /  number of seats x 100

2) Average check = food and beverage sales / number of covers, it may also be helpful so have two different calculations, average food check and average beverage check.

It also pays the restaurant manager to know exactly what the menu sales mix looks like.  Quite possibly there may be a different profile for the lunch service compared with the dinner service.  

The restaurant manager can the use the occupancy %, the average check information and the historical revenue data to forecast the upcoming periods.

Costs of Sales

Estimating the sales information by menu item can then help inform the manager on the expected food costs and the expected purchasing requirements.  It is important to be very clear about the cost of producing each item on the menu.  The cost of sales are variable costs as, in theory at least, if there is no sale then there is no cost.  However without careful procurement and husbandry of food can result in high food wastage costs.

1) Food cost of sales  = food costs / food revenues x 100

2) Beverage cost of sales = beverage costs / beverage revenues x 100

This percentages are important as they enable the restaurant manager to predict the level of costs that must be deducted from the revenues.

Overheads

Overheads cover all the other costs of doing business including payroll, over which there is a fair degree of control, business rates, rent, utilities, communications.  The costs can be forecasted using prior year information and applying reasonable and known percentage increases for inflation.  It is also an opportunity to review these costs to see where there are opportunities for savings to be made.

And don't forget to do the cash flow forecast as well.