Reaping Revenues

By Dr. Sheryl Kimes | September 01, 2006

Revenue management is critical to maximizing a restaurant's profitability. The concept applies to every revenue department and across departments in any hotel or restaurant. The process of managing the flow of oneÃ.Ã.•¬Ã.•.s business revenues should be tailored to the individual restaurant operation and what it is looking to accomplish. The primary goal is to maximize yield by boosting operational efficiency.

While implementing revenue management at a Chevys restaurant several years ago, we implemented a five-step process: first was gaining an understanding of where Chevys was from an operational efficiency standpoint; second was gaining an understanding of the causes affecting low revenues. Ã.Ã.•¬Ã‹Å"Why are they the way they are?Ã.Ã.•¬Ã.•. we asked; the third step was evaluating those causes by asking, Ã.Ã.•¬Ã‹Å"why is table turn-around taking so long to accomplish?Ã.Ã.•¬Ã.•., and Ã.Ã.•¬Ã‹Å"why is Chevys seat occupancy so low?Ã.Ã.•¬Ã.•.; the fourth step was coming up with a strategy to fix the situation; and the fifth and final step was evaluating success.

We zeroed-in on a high-volume Chevys with 230 seats, located in a San Francisco shopping mall. With the exception of Tuesday evening, the restaurant had customers waiting for a table every night of the week. We knew we had an opportunity to streamline operations and make the restaurant more successful.

The project began with establishing a baseline. We collected data from their point-of-sale system and ran several time studies. Next, we developed a strategy, looking at both operational improvements and their table mix. At the baseline, we evaluated four variables: seat occupancy, RevPASH (revenue per available seat hour), party-size mix and meal duration.

The study showed that the restaurant was earning between 13 cents and 14 cents per seat, per minute. More than half (56 percent) of its parties had one or two persons. Meanwhile, the restaurant offered almost exclusively four-top tables and a few six-tops. In addition, check processing time was lagging. After this evaluation, we chose to focus on the end of the meal to increase check processing time and seat occupancy.

We worked to improve efficiency, specifically examining table mix and the amount of time a party spent occupying a table. We laid out two goals: to increase seat occupancy by 10 percent during peak periods, and to decrease the table duration by at least five minutes. We redesigned the table mix to better match the party-size mix and worked with the staff to improve the service delivery process. We found an optimal table mix, changing a number of four-tops into two-tops, and increased the number of tables from 60 to 85, yet with the same number of seats.

We focused on the throughput strategies at the end of the meal. There were some issues with credit card processing via satellite, so we investigated other technologies. We worked on staffing and on pre-bussing and also looked at financial and customer satisfaction.

The end result was an increase in seat occupancy. We hit our goal, going from 49 percent to 54 percent occupancy. Peak seat occupancy went from 59 percent to 68 percent. Guest duration dropped by one minute. Table duration dropped significantly, primarily via the improved bussing and re-seating process. The return on investment was noteworthy Ã.Ã.•¬Ã.‚¬ approximately $50,000 was invested in the remodeling and table-mix redesign, and the establishment received about an $85,000 increase in revenue the first year.

By focusing on what the restaurant was doing previously, and what we could do to improve those operations, we were able to achieve our goals of making the restaurant more efficient and more profitable.

Dr. Sheryl Kimes is the Associate Dean for Academic Affairs of the Cornell University School of Hotel Administration. This column was adapted from her address at the POS Summit in June 2006.

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