HAVE YOU THOUGHT ABOUT THAT? Let's talk options on how to make profit on pub food

I want to talk to you about the realities of running a food pub business in today's climate and the costs and considerations involved but also to provide a some ideas that might be the best solution for your pub business.

What's going on in the country now?

Rising food costs, rising energy costs, food banks and poverty. These are the real issues affecting people right now.

The strikes we are seeing today in many of the public service industries are just the tip of the iceberg. We have learnt that nurses are working beyond the hours they are paid for, some work almost double the amount of hours for nothing because their job is a vocation and you don't do it for the money? Nurses are but one example, but kitchen staff is our focus for this article.

Kitchen staff are renowned for working long hours, well beyond a 48 hour week (which is the maximum permitted within UK employment law) worked out as an average over a 17 week period, basically you can work more as long as you work less on other days, but ask anyone that works in a kitchen, you never get your time back. 

They get paid the hours you work right? Rarely, most employers pay a salary as they will not pay an hourly rate or promise working hours within the law and this is the thing you are forced to accept that hospitality is also a vocation.

The strikes are a wake up signal as they prove that people can't live like that anymore. It won't be too long before kitchens become unviable as kitchen staff realise that working excessive hours for low pay or not paid for extra hours worked isn't what they are willing to do with their life.

The economic climate and soaring costs might be the straw that broke the camels back for many hospitality businesses but the reality is that profitable food led businesses have always been few and far between.

The problem for many pub businesses is the food side of the business is too unpredictable which drives up costs and it is that reason which has made selling food the financial hot potato for many pub businesses for years. 

But pubs make loads of money from their food?

That really depends on the scale of the business and the costs involved. 

If your business is offering an all day food service then this will require a team of people. A kitchen requires management, diligent cleaning routines, ordering, menu planning, hygiene and allergen paperwork and that's before the prep and service. 

The overheads are huge, most places have to rent, even small shop units repurposed for selling food are looking at incredibly high rents. The reality for most pub "Landlords" is that they are actually tenant's legally bound to the premises and paying an eyewatering rent. They are also tied to the brewery which means that you can only buy all of the wet products (beer/wine/spirits and soft drinks) from the brewery at the prices set by them which are much more expensive than if you was to shop around. To give you an idea, these "trade prices"are often more expensive than the most expensive supermarket.

Pubs are closing because they cannot afford to pay the rent, business rates, stock prices, wages, energy bills and it goes on and on in this cyclonic climate of rising costs, it is a perfect storm.

However you can buy and sell your own food without restriction from the brewery and that is where there is a lure to gain financial freedom, and actually make some money.

This is the reality of a food business now.

Are you REALLY ready to make your fortune by selling food?

As the business owner you need to have strategies to generate enough demand to take you over the threshold to profitability, everyday, all year around. 

There are many considerations like who are your likely customers? Pricing - How much is too much to charge? How do you keep people returning everyday?  What is your unique selling point, how do you make yourself more attractive than your competition? 

Running a kitchen is not easy and its not for the uninitiated, you need a qualified person who has experience of managing a kitchen properly.. 

If you think you can answer those questions and achieve those things, you know how to make yourself attractive then well done!  But that is just the easy bit out of the way.

Next you must understand how to make a profit starting by understanding your profit margins AND the scale in which they become relevant.

Let's start simple but working out your GP target which is worked out based upon your main controllable cost, the price you pay for food. 

You have to know your running costs as well, but if your product, business model and planning is water tight, then all you need to focus on is the the price of raw ingredients of food.

Typically a pub gross profit margin, known as the GP can be worked out by applying the simple to understand 3X rule. 

• Take the cost of the ingredients, times it by 3 to get your selling price. So the cost of ingredients is 33% of the selling price. You may well have heard people in the game talk about their GP or gross profit and they typically aim for 67% which is simply the selling price minus the cost of ingredients.
• The next 33% is your running costs
• The final 33% is your profit

When you say it like that it sounds like a very healthy profit margin 67% Gross Profit and 33% Net. 

The real bottom line

The reality is that the true financial costs of running a food business is multiplying daily eroding the profit margins beyond reasonable control. I have no hesitation in saying that many pubs or restaurants are making about 5% Net profit, but no profit or worse is the reality for most because they are absorbing the costs without passing on the increases to the customers because otherwise there will be no customers. They plan to do this until they can do it no more. That's the truth.

What is the real cost of a plate of food?

Lets look at a very typical pub menu item with good ol' Fish and Chips, the nations favorite pub grub.

Once a budget friendly meal, now fish stocks are depleting affecting sustainability which has made the market price costs rocket.... But you are a pub restaurant, and what self respecting pub restaurant doesn't serve Fish and Chips? 

So let's cost it out, accurately.

Start by identifying the raw cost of the product.

Raw ingredients of a Fish and Chip meal with beer batter, chips and peas.

• Fresh Cod @£20kg so 200g portion is £4
• Beer Batter £2.20
• Chips (standard frozen) 50p
• Peas 50p, 
• Garnish 50p, 
• Sauce (squeezy packet portion) 30p 

Total £8.00

Why is the beer batter £2.20 you might ask? I've added this purposely to demonstrate the hidden costs on a simple plate of food. Assume this is the only fish sold today. To make the batter you need the beer, so you need half a pint to get you going with a decent mix. You get that  from the bar at the cost it would sell for across the bar or effectively you have stolen the beer from yourself. You might not use the batter mix again today and so will need to make it fresh again tomorrow. So you have to apply £2 for half a pint (assuming it is only £2 for half a pint nowadays?) Then .20p for the flour. Granted if you sell more from the same mix then it goes further, but it's still got to be included in your costing. NOTHING IS FREE.

So hold on £8.00 times 3 equals £24.00.. no one's going to pay that! Problem number one for caterers, supplying food to the standard and portion size expected for a price they are happy to pay.

Click this link to read this article about Michelin star chef Tom Kerridge charging £35 for fish and chips! But maybe you can start to see how that is completely possible?

I will get back to generating food within budget later..

Back to our Fish and Chips, that's £16 profit, that's a huge amount you might think, But before you go dancing into the sunset with your bags of cash you need to divvy out the rest.

So if £8.00 is the cost, and you multiplied that by 3 to get your selling price, the rest is broken down like this: you need £8.00 to replace those ingredients again for the next meal which is the first third, the next third is the £8.00 which is to cover all the wages, rent, energy bills, marketing you name it, that's where that goes. The final third is £8.00 which is your target net profit.

BREAK EVEN POINT.

But that's not the full story because this is an ideal world scenario, remember your Net profit is already decimated by increased costs, so now we need to understand the daily costs of opening the doors.

Although maintaining a healthy GP is crucial it only benefits you if you are generating enough business to support the structures that are needed to deliver it by clearing your break even point.

CASE STUDY 

Lets look at a typical small food led community pub, 2 in the kitchen, one out front serving. For the benefit of this exercise lets assume all are on minimum wage at £10.50 per hour.

This is an example for a lunch shift only, 10 til 3pm (12-1430 service)  that's 5 hours at say £10.50 per person on minimum wage. So £52.50 each equals £157.50. (A trained chef will never be working for minimum wage I will point out).

£157.50 is your gamble for wages alone, this does not include overheads again for ease let's just assume that the total overheads for a lunch shift takes you to £200. In order to show a profit with the GP target means you need to take £600 in just the lunch session. 

£600 = £200 ingredients, £200 overheads, £200 profit.

Now break that down again if your menu has an average spend of £10 per head you need to sell 60 meals, £20 a head 30 meals, £30 a head 15 meals.

Most pubs seem to pitch themselves and aim for around the £15 a head mark for a typical pub dish serving classics with a twist which is code for giving you less but making it look nicer. 

Do you think that at £15ph and £200 overheads most places appreciate that they have to do 40 meals to get into profit today, how many manage those numbers every lunchtime?

THE REALITY OF A PUB SERVICE TODAY.

A table of 6 walk in for lunch ordering the £10 a head lunch special, so £60 on food. This is all of your covers for this lunch.

Using the target GP of 67% means £40 of that is gross profit and an ideal world net profit of £20.

Special meal deals can work well to get bums on seats, you might not make much on the food but hopefully money is spent on drinks.

The people are on a budget and request only tap water. Served in jugs with glasses ice, slice of fruit and straws supplied.

It is a condition of a licence to provide free drinking water, but ice, cleaned and polished glasses, fruit and straws plus the labour are not cost free to the business, but are not charged to the customer. Technically it is costing you money to provide that service.

Now let's think back to the basic costs of opening for one lunch shift and 3 peoples wages and overheads. The £20 profit clearly does not cover the £200 costs, so you have lost £180 at lunch alone.

Hopefully tomorrow is a better day which will counteract the loss, this is the reality of running a pub kitchen and the reason so many are facing closure.

GO BACK TO THE BEGINNING AND START AGAIN.

If this is you and typical of your pub then it's time to stop and reassess.

When you made your original business plan for your food offering you did so by identifying your target market and implemented a plan to get people coming in everyday? Well if you did and that's not happening then you have either misjudged your market, or you simply have not applied your plan effectively. You certainly haven't attracted the people you needed to.

GENERATING FOOD WITHIN A BUDGET.

No one will pay £24.00 for Fish and Chips will they? It might be okay from Tom Kerridge to charge £35 for his delicious Fish and and triple cooked Chips in Harrods, but unless you are Tom Kerridge serving people in Harrods to people with no concept of value then you need to cut your cloth accordingly.

The problem is perceived value. The problem isn't that you are charging too much at £24.00 if the ingredients cost £8.00 but the perception is that this is wildly overpriced and that stigma is usually a insurmountable mountain to climb and come back from. 

So how do you identify how much is too much for your likely customer? 

First steps to identifying the price point:

• Research a comparable kitchen successfully supplying to a similar target audience for price point in your immediate area.
• Understand perceived value. People will pay for quality, but there is a line that people won't cross, you need to create something within a price people will pay.
• Add value to your product. Why sell a portion of chips for £3 when "Dirty Chips" sell for £10? 
• Identify products that people will pay more for but cost less to produce. One word, Pizza. But don't cheat, please. No frozen rubbish or ready made bases if you can help it, just a bit of fresh dough, a sprinkling of this or that, hot oven for a few minutes, £10-£15 of anyone's money.
• Shop around. Sourcing products for a price that achieves your target selling price that will sell.
• Adjust the portion to fit the target price.  Portion control is essential to maintain a good GP. If you want to sell fish and chips for £12, get the scales and calculator out.
• Understand why people would not naturally come to you and put in strategies to change that. Attraction is your key to success.

Ultimately you need a solid food proposition based on evidenced research, applied at key times for maximum results. 

What does that mean? If you live around a high population of retiree's then do a lunch special of classics. In the evening make a few nights focused on specific offers like a curry night, or two steak meals and a bottle of wine, by concentrating on specific dishes on specific nights dramatically lowers your costs and increases bookings.

You need to be able to articulate this through promotion including verbally, internal promotions with visible advertising, effective consistent branding and online marketing. 

Attraction Attracts Attention.

If you find yourself unable to make money then maybe it's time to think again. 

There are other options aside from closing your food business. 

Here are 3 other options that could work for you

1. Change everything.

Sometimes things just change, attitudes change, spending habits change (especially now) 

Maybe its time to look at what you do and ask an honest question, is what you are doing relevant or attractive anymore, and I have a great example by owners of a bistro on the busy food court piazza in old town Margate. (Wonderful in the summer)

SLAB was one of my first reviews and it was a glowing appreciation of how to pitch your marketing and branding. 

SLAB stood for Steak, Lobster and Burgers. The word slab literally means a large thick piece so you know exactly what they do, you know exactly what to expect, and given the premium nature of these dishes you know its not going to be cheap, so sit down, treat yourself, smile and pay the bill. It really is genius! 

Or was because (and this is my best guess) after a blisteringly successful summer was qualed by a longer and bitter winter. Unsold Lobster and Steak going to waste, it had to diversify and offer different dishes as the type of people that loved to eat Lobster and Fillet Steak al' fresco on the piazza were not there when it was cold and blowing a gale. They moved to cheap lunch meal deals and Sunday roasts in the winter. 

It must then have been obvious to the owners that their business model in SLAB was not sustainable all year around, and also people didn't have as much money to splash out on expensive dishes anymore and they clearly decided that SLAB wasn't as relevant or attractive as it once was, so they have changed their business completely.

It is now called The MED (yet to review) serving small plates and Tapas which lends itself perfectly to the setting whilst keeping the cost of individual dishes down which is good for the customer, and great for keeping their outlay on perishable ingredients lower and whats more a Tapas restaurant can be enjoyed as much indoors as it is out, so it can operate all year round. 

These are the same owners with the same vision for great food they started with but willing to diversify to remain in control of their business, and not their business in control of them. 

And they have done so without losing their attraction.

Never forget The Law of Attraction 

So how can a pub make money by serving food, but with less financial risk? 

2. Popty Ping! 

Did you know that Welsh people call a microwave a Popty Ping? It is simply the best name! 

The Welsh dialect has absolutely nothing to do with this next section other than to tell you something funny!

There is something else funny I want to share, there is another way of cutting down on your staff, your waste produce, your energy bills and still serve food with a healthy GP.

Buy it in frozen and microwave it.

I'm not condoning it, I have strong feelings of resentment to those places that do, but if your pub fits that bill of we want to do food but cheaply, then this is a possible route.

You will not have to look too far to see why many pubs have gone this route. One such example but no means limited to is Wetherspoons, if you have ever wondered how the super sized Ramsgate Royal Pavilion can churn out literally thousands of plates of food a day with barely a 20 minute wait, then know that 95% of the menu comes out of packets frozen and ready to be grilled, fried or Popty pinged.

Consistency in the product is also a reason to consider frozen and bought in, the quality is very high now, and there are multiple specialists which are in competition to provide you with the best quality complete meal options... This is why you dont pay £24 for Fish and Chips in most pubs.

It pains me to labour the benefits of buying in cheap food with no wastage, minimal prep, lower overheads but be warned because what you will lose is that essential ingredient for success...

The Law of Attraction. 

You may now be able to serve food cheaply, but it remains frozen food, it loses that homemade appreciation, you are conning people. 

In an economic climate where convenience is no longer affordable, your cheap food isn't really a reason enough to dine out... most people don't want to eat out for convenience, they do so for the eating experience....  so think about that long and hard.

There are hospitality chains that like to tout some of their pubs as "Gastro pubs" and they make full use of every corner cutting exercise in the book, but beware because laziness breeds discontentment, and people that love food vote with their feet.

If these are not the direction you want to take, there is another exciting option.

3. Get someone else to do it!

I originally intended to include this section within this article but it deserves its own feature, so please Click here to find out why a POP UP is way better than a POPTY PING!

If you enjoyed this article then read my article on The Law of Attraction.