Zao was founded in 1997 as a small-box, full service casual dining restaurant featuring pan-Asian food. I came to Zao in 2000 as vice president of operations when we had three restaurants, all in the San Francisco Bay area. My goal was to mold Zao into a cost-effective operation staffed with the right people in the right jobs, following the right procedures.
The process began with a tough self-analysis of our business model, which quickly revealed that staffing procedures required a new direction. Zao had too many managers per store who weren't really managing anything. The chain had 400 percent turnover between 2000 and 2002 sZa serious issue. The self-analysis also revealed that Zao had no standard operating procedures, no specific recipes, and no production or labor systems.
We began our overhaul by developing standardized recipes and producing to the full extent of product shelf life. We hired general managers with casual dining experience who could manage everything within the restaurant.
The trickiest step of all was to identify the backbone ingredients of the food -- broths, sauces, dressings, meats, etc., and standardize them. Initially, we started producing those items at one restaurant to drive consistency. Through this process we learned a great deal about quality and bulk production, but we got ourselves into the distribution business -- where we did not want to be.
The solution called for a switch to outsourced product, but it had to be fresh, not frozen, and it had to be our recipes. Finally, it had to have quality control check points. After an extensive search and many trial runs, we found outsourced product that met our high quality demands. Outsourcing production, however, drove up food costs. To address the financial ramifications, we balanced our labor levels against the increase in food costs.
We immediately decided that, with multiple locations and differing wages, the only way to address the labor issue was through productivity and not with labor costs; productivity sales versus man hours is a great equalizer. We were able to drive down the total labor cost by staggering our end times on our food servers and cooks.
Now, in 2007, we are operating six stores in three states. We have daily operating procedures and standardized processes for opening and closing checks, and for quality control. Standardized recipes are available instantly. Any change to any ingredient instantly merges with the recipe step via a Web interface.
We now have real-time information and automated production. We've been able to monitor product shelf-life and ensure that we don't over or under produce. We added daily labor control with variance accountability. An automated system helps us determine how many employees we need for a given shift and their projected time in and out. With regard to turnover, since 2002 we have lost only one general manager.
Finally, our back-of-the-house solution gives us real time data with the ability to act. We contracted with Decision Logic Knowledge Management Systems ( www.decision-logic.com ). Their product gives us full-blown ideal versus actual food costs and a bevy of reports. This has been instrumental in not only engineering our menu, but has also enabled us to drive down the cost of goods.
Zao is proof positive that you can add to your cost structure and increase guest value, and still improve your margins by utilizing systems and technology. Many businesses solve problems by increasing price or trading off quality to reduce cost. At Zao, we went the other way. We fixed our costs and increased the value in the center of the plate. We then used technology to lower our cost of goods, control our labor and ultimately drove guest satisfaction and better margins.
Matthew Baizer is president of Zao Noodle Bar, a chain of pan-Asian style restaurants with six locations on the West Coast. This column is adapted from his presentation at the 2006 Restaurant Executive Summit.