Thousands of organizations use Syft Analytics to measure their performance and plan for future success. Our Benchmark feature empowers these businesses to improve operations by comparing them to regional or industry competitors. By observing how other comparable firms are performing, business leaders can start formulating plans to boost productivity and achieve new heights of success.
To examine the trends throughout the UK in Q2 2024, we will concentrate our emphasis in this post on restaurants, an industry with a wealth of data on Syft. Continue reading to learn our main conclusions from compiled Syft data.
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, and it, therefore, does not represent all businesses of this type across all regions.
Now that we've considered where the data comes from, let's examine it and see what it can tell us about how restaurants are performing in the UK.
Reviewing restaurants over the past quarter
Sales and production costs (in the form of meals) are the primary emphasis of the restaurant sector. Notably, sales only happen after you've paid for the necessary supplies, machinery, and employees' wages. Put another way, you invest a significant amount of working capital upfront and must then wait for sales to start rolling in.
Where should restaurant owners focus?
A restaurant has a lot of moving components, and you might think about a variety of KPIs. For this article, we will focus on two crucial KPIs:
The Gross Profit Margin
Current Ratio
Let's consider these, in turn, and investigate how they can help restaurant owners improve their performance.
Gross Profit Margin
As restaurants typically have slim profit margins, comparing costs to revenue is crucial. Thus, understanding the Gross Profit Margin helps us know 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 include many expenses 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, suggesting that they may need to reconsider their pricing or other business aspects that could be made more efficient.
Current ratio
As a restaurant, you should aim for a current ratio of more than 1, which would put you in a better liquidity position. Having short-term liquidity is essential for running a sustainable restaurant business. Illiquid restaurants may struggle to pay their 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 UK, only those in the top 25% are able to do so.
💡 Pro tip
Take a look at data from the US, Australia, and South Africa to compare!
Thus, although their Gross Profit Margins may be high, the UK restaurants reviewed here are not very liquid. This is a point of concern because if there is an emergency, a surprise expense, or a change in demand, these businesses may not be able to handle these new expenses 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 in a good position 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 is a crucial tool for top companies, enabling them to identify areas where they lag behind and develop strategies to catch up or 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. Businesses can make informed decisions to drive improvement and sustain growth by leveraging these insights.
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: The Gross Profit Margin considers your Gross Profit (Sales less Cost of Sales) as a percentage of sales. For example, 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.