Increasing your restaurant sales by $150,000 a year is easier than you think. $412 a day, best approach: your existing customers.
As someone deeply immersed in the restaurant tech space for the past 13 years, I’ve witnessed the pressing need for serious changes. Frustrated by the lack of progress, I decided to step up and create a solution that would transform the industry, literally.
Overcoming Challenges:
Underestimating the challenges has been a humbling experience. However, my unwavering passion for driving change in the restaurant industry pushed me to persevere through setbacks and obstacles week after week. It has been a difficult journey, but never-the-less, here we are.
The Desire for an Elevated Dining Experience:
In 2010, I envisioned a restaurant where I, as a valued customer, could walk into my favorite restaurant and skip the line, and be seated promptly, even during busy Friday night rush hour. I wanted a personalized experience and genuine hospitality. I wanted my favorite restaurants to stop sending me the Kids Eat Free offer, I had no kids. I wanted to have a great experience, not be bombarded with a $5 free appetizer, or dessert. I wasn’t looking for “value”, I was looking for an experience, a VIP treatment, I was and still am looking for that Hospitality.
Fast forward to today, for the record, we are in 2023, and 99% of all restaurants are still sending out mass marketing, know very little about their customers, treat everyone the same, and use loyalty apps to devalue their own brand through deep discounting. So what is the deal? Why? Restaurants are taking no initiative to proactively communicate with their customers to come back, those who do, again, resort to mass marketing. All of those outside the hospitality industry understand the insanity of this.
Mass Marketing
This is obvious, marketers just read an article online that email marketing is extremely effective with a $36 return for every $1 spent, but that is for personalized marketing, not spamming customers! To make matters worse, since they don’t have a way to track redemption, their success metrics are; how many people opened the email, and how many clicked through. How the heck is that relevant? Am I the only one thinking, who cares how many opened the email? I want to know how many actually redeemed the incentive and exactly how much they spent because of that communication. I want an actual ROI number, not a guestimate, I want to know exactly down to the penny!
So what is the solution you ask? Get to Know Your Customers (KYC) by implementing an Actionable Customer Data Platform.
Thin Margins
Restaurant owners often complain about thin profit margins despite substantial markups on food and drinks. But food cost (COS) is no more than 30%, labor around 30%, tips subsidize wages – drinks are marked up 400%, least profitable items on the menu, food, is marked up 230% at minimum. So where is the thin-margin outcry coming from? I was genuinely interested to find out why restaurants claim that they have thin margins even though gross profit margins are 70%. In short, relying on my business management skills, I discovered every restaurant owner is trying to make a 20% net margin out of a $659,000 AUV with no proactive marketing or worse yet, burning cash through ineffective mass marketing.
So what is the solution to Thin Margins? Increase sales – will discuss why.
High Food Costs
Digging further, every restaurant owner is always trying to save every penny on food cost to a point that at times, as a customer, it is obvious that it is cheap food. Your first major product is FOOD, quality must be number one and it must be great. 70% margin on your food is an incredible profit margin, in fact, even if you spend 32% to have better quality food, your margins are still going to be incredible despite the increase in food cost.
So what is the solution to High Food Costs? Increase sales – will discuss why.
High Labor Costs
Labor costs continue to be a persistent challenge, exacerbated by the recent pandemic so labor continues to be a hot topic within the restaurant industry and it seems it is not going away anytime soon. With the pandemic, many restaurant employees realized they could work in a different industry, not deal with the headache and stress of working at a restaurant, and even get paid more in some cases!
So what is the solution to High Labor Costs? Increase sales – will discuss why.
I learned through actual experience that in business if money can solve a problem, you have no problems, but clearly, a lot of restaurants have a serious problem: they don’t earn enough money. How to solve this problem?
Proactive and personalized marketing
The days are long gone when you open the doors of any business and hope for the customers to line out the door to buy. Hope is not a business strategy. Business owners must proactively engage with prospects but most importantly proactively communicate with existing customers! Proactive customer acquisition and retention are critical to the survival of any business. And not even for a moment, make the mistake of thinking that restauranteurs are not business owners, a restaurant is a business, it exists to turn a profit so it can stay in business and continue serving hospitality. I understand the restaurant is your passion, but if it is not profitable, it becomes a nightmare!
Implement an Actionable Customer Data Platform (CDP)
In order for your marketing to be effective, it must be personalized, but in order to personalize your marketing messages, you must Know Your Customers (KYC). The second time we mention KYC. The way to Know Your Customer (KYC) is to have a single source of truth, a CDP where every piece of information, about every customer, is stored in it. Having an online ordering system is not a CDP, loyalty is not a CDP and a CDP without actionable insight is useless. You are not implementing CDP to stare at data and geek out. If CDP cannot increase revenue, do not implement it. I defer to Pankaj Patra, the CIO of Brinker International and I quote “Technology for the sake of technology is useless, technology must serve a business purpose, period.”
Different types of CDP
Loyalty as CDP
Loyalty is probably what every restaurant owner goes back to when anyone asks, do you Know Your Customers? They proudly reply, oh yes, we have a loyalty program with our customers’ data! Well congratulations, you have a list of all of your bargain hunters! The ones who only come in when there is free food. Unless you spend hundreds of millions of dollars as Starbucks does on their Loyalty Program, chances are, you are never going to get more than 20% of your total customers to join the “bargain hunter” program. So what happens to the other 80%? Just ignore them? It does not seem logical to only focus on 20% because you believe there is no alternative. To make matters worse, focusing on 20% of the least profitable customers is an even worse idea.
Pushing the matter further, the majority of the brands use their loyal customers and mass market to them! Why? I have not the slightest clue. Perhaps lack of expertise, lack of manpower, or lack of financial means.
Problem with Loyalty in lieu of CDP: You are getting a max of 20% of your customers and the data is incomplete. Typically the list is the lowest profitable customers in your business.
Advantages: None. Yes, it is easy to implement, and 20% of the least profitable customers will join, but the lack of expertise to properly monetize this program makes it extremely dangerous. Listen to my Podcast about how to run a successful loyalty program.
Over-the-top (OTT) CDP
This CDP system tries to integrate into all existing tech stack, get some information from POS, some from Online Ordering, some from Loyalty programs, etc. This is already a very big step towards a more solid solution than Loyalty as CDP, but it falls short, most specifically, falls short in meeting the business objective: monetize the data and earn money.
The problem with this approach is that integrations can take months to years and you are only integrating for what you believe you need today. What if business logic changes in a year? Go back to integration again? Worse yet, with the introduction of Artificial Intelligence, you are feeding incomplete data to an AI engine and then wondering why the output is incoherent.
Advantage: More complete data but still missing the point, how to monetize the data to drive increased revenue?
Disadvantage: Further integrations to marketing automation are required. If one tech provider makes a change, the lifecycle may break, and consistent upkeep is required
Native CDP with built-in Monetization
This is where Milagro comes in. When we decided to build our Restaurant Operating System (ROS), we knew that our ultimate goal was simple, Use customers’ past behavior to drive future revenue. Now let’s go figure out how to deliver on that goal. We realized that CDP is not an add-on, it is not over-the-top, it must be included and part of the core of the system, so when John makes a reservation or joins the waitlist, a profile is created when John is seated at table 44, POS knows it is John and updates the transaction history, when John leaves the restaurants and gets a feedback request, CDP already knows it is John and updates his feedback, if John decides to join a loyalty, the entire history is already present. Easy enough so far.
Next, CDP will now automatically sort through and tag every customer dynamically with their favorite items, what items they order most often, what time of the day they visit, what locations they visit most often, where they live, their birthday, and of course recency and frequency. Easy enough so far.
Lastly, this is where the rubber hits the road, Marketing Automation will be able to use the dynamic tags and automatically send out the Right Message at the Right Time using the Right Channel to the Right Customer. To close the loop, for every incentive, Milagro’s CDP will precisely measure the ROI of every customer and every campaign, with no guestimations; how much revenue did every campaign generate and exactly which customers contributed to the success of that campaign.
So why go through this entire life cycle?
- Because 60% of restaurant guest visits the restaurant just once!
- Because proactive and personalized marketing drives top-line revenue.
- Because average restaurant sales in the United States are about $659,000 a year.
- Because at this revenue mark, profit margins are thin, food cost seems high at 30%, and labor is painful at 30%, but most importantly, KYC combined with Marketing Automation drives additional visits which increases top-line revenue.
- Yes because a restaurant with an average check of $35, open 7 days a week, can increase sales by $447,000 a year by bringing 15% of their customers in for 3 additional visits a year! Yes, that is 3 additional visits a year.
Finally, a complete CDP is extremely easy with a capable POS system. A CDP must gather the information of every single customer, 100% of customers and this is why the POS system in every restaurant is the single most critical piece of technology because it holds the transactional data of every single one of your customers! Listen to our podcast with Kendall Ware, CFE discussing how CDP helps restaurants earn money.
I will close by giving 3 specific pieces of advice to any restauranteur and fellow business owners;
- KYC and proactively communicate with them, never spam them
- Serve great food and deliver exceptional service (hard but required)
- Be Unreasonable in your Hospitality, read or listen to Unreasonable Hospitality by Will Guidara
We are taking an unreasonable approach to how we serve the hospitality industry and I am always looking to partner with visionaries and thought-leaders in the industry to partner and collaborate because together, we can elevate the customer experience and make life easier for fellow restaurant owners (business owners).
I am very honored to be working with some of the brightest minds and visionaries in the restaurant industry, the one and only, Mr. Wade Allen, Kendall Ware, CFE, Pankaj Patra, and our beloved Mo Asgari. All of whom are very highly respected and are amazing individuals at heart.
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