At Syft Analytics, we have access to the data of thousands of organizations that use our software to measure their performance and plan for future success. While many businesses join Syft specifically for reports or consolidations, the Benchmark feature is a powerful tool for improving operations by comparing them to regional or industry competitors. Top businesses around the world use benchmarking to improve their performance. By seeing how other similar organizations are faring, business owners can begin to make plans to improve their performance and reach new levels of success.
In this article, we'll narrow our focus on an industry with ample data on Syft - restaurants - to see the trends across the US Q2 2024. Read on for our key takeaways from aggregated data on Syft.
About Syft Benchmarking
Syft’s Benchmark feature gathers data from businesses across various sectors to compare trends across regions. The data is an aggregation of anonymized data from Syft entities.
📓 Note
This data is restricted by the number of entities on Syft from each region and industry, and it, therefore, does not accurately represent all businesses of this type across all regions.
Now that we've considered where the data comes from, let's dive in and see what it has to say.
Reviewing restaurants over the past quarter
The restaurant industry focuses primarily on sales and production costs (in the form of meals). Importantly, sales only take place after you've spent money on the necessary ingredients, equipment, and staff salaries. In other words, you spend a lot on working capital upfront, hoping customers will start coming through. There are many moving parts in a restaurant and various KPIs you can consider.
Where should restaurant owners focus?
When analyzing restaurant data from Syft, we focused on the Gross Profit Margin and Current Ratio. Let's look at each of these in turn and how they can help restaurant owners to improve their performance.
Gross Profit Margin
Comparing costs to revenue is crucial for restaurants, which typically have slim profit margins. Thus, understanding the Gross Profit Margin is key to understanding how efficiently a restaurant manages its cost of goods sold (food and beverages) relative to its revenue.
A higher gross profit margin indicates a more profitable and efficient restaurant. However, it's worth noting that this metric doesn't account for many other overheads restaurants may have, such as electricity, wages, rent, rates, insurance, and utilities. As such, in a hospitality business, it's recommended that you aim to achieve a minimum of 70% gross profit across your sales mix.
What does the data tell us?
Our benchmarking data found that, across the board, all regions reviewed stayed relatively consistent over the quarter, with the upper quartiles mostly achieving that desired 70%, except in South Africa, where it peaked at 64%. However, the middle 50% and lower quartiles mostly dropped below the mark, which suggests that they may need to reconsider their pricing or other aspects of their business which could perhaps be made more efficient.
Current ratio
As a restaurant, you should aim for a current ratio of more than 1, as this would put you in a better liquidity position. Having short-term liquidity is essential for running a sustainable restaurant business. Illiquid restaurants may have difficulty paying suppliers or staff.
What does the data tell us?
Syft’s data shows that the US is the only region with restaurants in both the top 25% and middle 50% that can cover their short-term debts with short-term assets if needed. In the other regions, only those in the top 25% are able to do so.
💡 Pro tip
Take a look at data from the UK, Australia, and South Africa to compare!
Thus, although their Gross Profit Margins may be high, these businesses are not very liquid. This is worrying because if there is an unexpected emergency, surprise expenses, or a change in demand, these businesses may not be able to handle these and could face bankruptcy.
What actions can restaurant owners take?
Judging by the data, while many restaurants may be managing their gross profit margins well, they are not well poised to cover their short-term debts. So, there are potential risks they must prepare for.
Analyze order levels: In a recent episode of the Beyond Insights podcast, Chay Stockdale, Head of Advisory at Iridium, suggests that restaurants use a data-driven approach to analyzing order levels and finding ways to match those order levels with kitchen prep.
Extend payment terms with suppliers: Chay also suggests extending payment terms with suppliers to help manage cash outflow.
Create a liquidity plan: This can help you keep tabs on invoices and income, assess your assets, and forecast potential issues or opportunities in the future.
Review demand for products on the menu: This can help you to assess which meals are most popular and then cut meals that take a lot of working capital to plan for but which aren’t ordered frequently.
As Chay says, "There's a lot of optimization you can do to optimize your working capital." The first step is to analyze the data you already have.
Closing thoughts
Benchmarking serves as a crucial tool for top companies, enabling them to identify areas where they lag behind and develop strategies to catch up, or to recognize areas of strength and enhance their processes further. Analyzing the past quarter's data on Syft reveals a diverse landscape: while some restaurants are thriving, many others could benefit from reevaluating their processes and pricing strategies. By leveraging these insights, businesses can make informed decisions to drive improvement and sustain growth.
Glossary
Current Ratio: The current ratio is calculated by dividing current assets by current liabilities. This metric measures an organization's liquidity, i.e., it indicates how easily you’ll be able to cover your short-term liabilities.
Gross Profit Margin: In basic terms, the Gross Profit Margin considers your Gross Profit (Sales less Cost of Sales) as a percentage of sales. E.g. In the case of restaurants, it shows you how much money you have after accounting for the direct costs of putting food on the table before considering all your other fixed costs, such as rent.