Restaurant Revenue Management Toolbox

by Prof. Sherri Kimes, Emeritus Professor, Cornell University

Embark on a deeper exploration of the world of Restaurant Revenue Management tools and methodologies, guiding you on how to choose the best approach tailored for your restaurant’s success. Join us for an enlightening presentation led by the esteemed Professor Sherri Kimes, Emeritus Professor from Cornell University and an authority in revenue management.

WATCH:

Hi, This is Sherri Kimes, I’m a professor Emeritus at Cornell and in this video we’re going to be talking about some strategies that can use you could use to improve the profit from your restaurants. I’m going to call this the toolbox and so we’re going to start off with the introduction of course then talk about the toolbox and then also about how you use the toolbox.

When I talk about Revenue management I I always I always like to start off with this example that Rich Hanks the former VP of Revenue at Marriott used to use. His mother kept asking him “honey exactly, what is it that you do?” and he thought and thought and thought about it and he finally said well. Mom. It’s just like going to the mall so let’s pretend.

Here is Mom, and the stores are all up here in the mall, and here’s the parking lot and you got to figure out where you’re going to park well. You could park in this very first spot but and some people will because they like to walk. But most people I found they drive around and they try to find this spot way up near the mall and by the time you get there it’s gone, and you go okay, no problem, I’ll go back to that lousy spot at the beginning and now it’s gone too because somebody else parked there and so this is just like Revenue management. If you think about this for rooms. This is let’s say that it’s 6 months before arrival. You haven’t sold that many rooms and someone comes to you and says I really like to come to your hotel on that day while they’re peeling out cash and they say but I’d like a discount. So, the question is, should you say yes or should you say no. Sometimes you should say yes because you know you’re going to be really slow at that time but sometimes you should say no because you know that you’re going to be super busy on those days. Same thing happens with restaurants right. Let’s say it’s a busy Saturday night 7:00pm. You’ve got one table left, and someone calls to make a reservation so yeah I’ve got one table left and they take it and then they come and they sit and drink tea all night right? And then meanwhile the next call you got was from one of your best customers who spends quite a bit, and you have to say oh I’m so sorry, I don’t have a table available (because I gave it to those cheap tea drinkers) I mean it doesn’t work very well.

It’s kind of back to who do you say yes to. Just like rooms regular Revenue management. And so when we talk about restaurant Revenue management I’m going to focus specifically on restaurants and bars. I’m not talking about function space. But what I find so interesting about it is that it’s got so many different components that we don’t have in rooms specifically.

When we start talking about it, we have the guest/employee interaction the whole time going on which for the most part which is quite a bit different than we have with rooms and so if we go back to this good old definition of Revenue management you we talk about about selling the right room. Let’s talk about

selling the right seat to the right guest at the right time at the right price to maximize Revenue

It’s the same kind of thing right except we’re just changing the inventory unit when we get into a fast food or a takeout kind of place. This gets a little bit different because there aren’t seats but we won’t get into that part right now and so let’s talk about the toolbox. Why do I say a toolbox well. This goes back to about 10 million years ago and I was taking a course in how to become a a windmill technician. I just with my husband was out of town and I guess I was bored and I’d be up in the air. You know I’d be like 20 feet up in the air and there were three guys in this class who were from a country. Let’s just say English was not their first language and when we’d be up there I would ask for a screwdriver remember I’m up 20 feet in the air and they’d had me a hammer. It’s like oh that’s not going to work but you think about it. It was that English was their second language. Most people don’t know the name of tools in second languages and so I started thinking that kind of stuck in my mind because it was interesting to put it mildly and then about 10 years ago, maybe 15 years ago, when I started working in Singapore I started noticing that restaurants had a really bad table mix and that I went to some of them and said I could fix your problem. Your table-mix is horrible. It doesn’t match your party size mix. They said well that’s great that doesn’t solve any of our problems because we don’t have enough staff to be able to open all of our sections. So yes you could get more customers through but we can’t handle them. I said wait a minute, I felt kind of like an idiot right. I was pulling the wrong tool out to try to solve a problem, their Table-mix.  It was horrible but it didn’t matter in this situation.  So, with this toolbox let’s pretend.

The RM Toolbox for Restaurants

It’s got three shelves in it. So there’s this all-purpose shelf. There’s the cold shelf and there’s the hot shelf.

What do I mean?

1. The tools on the all-purpose shelf are things that are going to work no matter how busy you are;
2. The tools on the cold shelf are going to work when you’re pretty slow and you need customers;
3. The tools on the hot shelf are the ones when you’re super busy and you’re trying to make sure you get as many customers through at the highest spend possible.

Same thing we do for rooms,  so let’s start off with these all-purpose tools and so with this we start talking about things like;

• Menu Engineering: you’re making sure that we know which items are our popular and profitable ones.
• Menu design: how should we set this up. There’s a lot of research that’s been done on this in terms of how to do this so that you can generate more.
• Revenue server mentoring: helping our servers figure out what can they do to be able to increase the average cheque using upselling, what about
• Pre-selling; like we do with rooms “right now, could I upgrade you to a suite?” could I do this and there’s a charge for it. But it happens before guests get there and so they’re more likely to to accept it plus they like these sorts of things.
• I already mentioned data. One of the biggest challenges we have with restaurant. revenue management is that the data is not as good as what we’re used to in rooms, and you can’t wait for it to be perfect, but just realize that you need to work on getting accurate data.  Also there’s issues with system integration same sort of things we have with rooms, but just be aware that it’s not as developed as what we have for rooms and then we get in back to our toolbox.

You know the cold or hot. I had this great email once from some students. It was like at 3 in the morning and I was not up in the morning reading it at 3 in the morning but they must have been really tired and the qu the title of it was. “What’s hot!” wow 3 in the morning okay but basically what’s hot and what’s hot is when you’re busy as and you got full tables. You’re turning people away. You got people waiting.  Basically for a revenue management term, you have unconstrained demand. You’ve got more customers than you can handle.

Cold is the all the other times when it’s slow, we got mpty tables. You’ve got low seat occupancy, and I used to say hot, warm and cold. When I first did restaurant Revenue Management in Ithaca with one of my friends who had a restaurant and I was talking about we could have hot, warm and cold. He said Sherri, there’s two sides to a piece of paper and one side is hot. The other side is cold and seriously. That’s all we did for his restaurant. We had a piece of paper that said HOT with all the strategies to use, another piece of paper that said COLD and listed out all the strategies.  He laminated them back to back. We trained the staff and the manager. They just put this up in the kitchen and the manager when it was hot he would turn it over to hot, and since he trained everybody they knew what to do, and then when it was cold he just turned it over. It worked really really well. I was kind of embarrassed at how well it worked. But it’s simple, and simple often is the best thing for these sorts of things and you could see this.

This is a restaurant: you can see this is an all-day dining restaurant at a hotel.   This is looking at their seat occupancy and hot and I’m focusing here on over 60% is hot in my experience when restaurants have over 60% seat occupancy. They’re really busy now in a hotel if we have room occupancy of 60% you’d be going oh that’s not so good, but in restaurants you’ve got things like parties of one seated at tables for four, or you’ve got some time between customers, youve got different sorts of things like that going on so there’s some kind of built-in inefficiencies.

But you can see these cold periods where they need guests. You could also see the hot periods where they want to try to get as many people through as possible at as high a price as possible, same sort of thing as we do for rooms.

This is another restaurant here. I’ve got the RevPASH (the revenue per available seat hour) and I’m just using the color coding so you could see when they’re hot which looks like it’s typically about 6 – 8 or 9:00pom. On the weekends  in particular they get up to close to $6 Revenue per available seat hour but they’ve got sometimes like you know here. We look at 11:00 p.m. on Wednesdays, there’s nobody there so super super cold.

Distribution

Now we could try everything we wanted to try to get more guests in at that time but probably it’s not going to work right. But I mean but you can kind of see visually what’s going on so what are our cold tools. Our cold tools are going to be things like just like what we use for rooms. We want to make sure we’re on as many distribution channels as possible. So Open Table, Seven Rooms, RESI if you’re using you’re using delivery, DoorDash, Uber, you’re trying to get the word out there.

Promotions

Promotions: trying to get customers in now remember promotions are to build demand and so when do you need them and what types of promotions work, suggestive selling at the end of the meal “can I show you the desserts”. “My dessert lis,t let me tell you about them”.  We don’t want to do this when we’re super busy because it takes time and we got customers waiting to come through. When it’s cold, it doesn’t matter how long they the guest stay as long as they’re spending some money.

Reservations Policies

Then your reservation policies; you could relax these because again just like with rooms we kind of get rid of length of stay restrictions and things like that when we’re busy. Slow restaurants, the same kind of thing, a lot of similarities but then again a lot of differences and then the Hot Tools. With this we’re talking about we want to make sure we get the right guest in now. One of the problems with restaurants is in hotels, we always know when people book & we know how much they’re going to spend right, when they make the reservation with restaurants we don’t know and why don’t we know? Well,  partly, this is because the systems are not the reservation system and the Point of Sales system are not integrated but can you imagine this with hotels?  Would we ever accept reservations on a first come, first served basis… never never never because what if the people who wanted to pay the least amount booked first, it would be a disaster right? And so, with restaurants. Since we don’t have that system integration, really there are ways that you could use your CRM system to try to bring in the top guests during your busiest periods. Same thing we do for hotels is reducing no shows and late cancellations, so maybe a credit card guarante,e making it easy for people to do their cancellation, minimizing your acquisition cost just like with rooms.

There’s distribution channels. So, Open Table, they charge and so how can you get these reservations done directly when you’re super busy because you might need all these channels when you’re slow and then make sure that your reservation book is set up properly. Now. What do I mean by that let’s say that you’ve got the system set up so that people have three hours for a table but they only take an hour 45 minutes that table is sitting there empty the rest of the time and so this is just making sure that we’re trying to get as many customers through as we’re able to get as many customers through as possible.

But again, this toolbox, the three shelves the all-purpose that works no matter how busy or slow you are.  Cold is when you need customers, hot is when you are super busy and you want to get as many people through as possible.

I’ve used this with a lot of restaurants. I’ve used this in a lot of different Industries, and it works like a charm. It all comes back again to selling the right seat to the right guest at the right time at the right price to try to maximize your revenue and I hope you found this useful and I look forward to hearing about your successes thank you.

You can find out more and contact Dr Kimes at www.sherrikimes.com

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