World Class Restaurants and Cost Management

This is what I know.  Running  a restaurant is a tough business.   About 60% of them fail within the first 3 years.  Profits are hard-won.  They are highly vulnerable to changes in ownership or chefs.  And customers can choose to eat at many other restaurants, an option that they exercise unpredictably.

This is what I didn’t know.  World class restaurants have the same problem.  Sure, the prices are much higher: a check can easily exceed thousands of dollars; these restaurants are seemingly able to charge what they like.  But the challenges are the same; and cost management is still one of the keys to success.  I recently read an article about Eleven Madison Park in New York.  San Pellegrino, which maintains a list of the top 50 restaurants in the world, recently annointed it as the 10th best.  Yet this restaurant, like the other 49, must create a world of elegance, opulence, and the finest cuisine while ruthlessly managing costs.

How do they do it?   The full answer would demand details beyond this post.  But let me cite two examples.  Restaurants want to maximize the number of people they can stuff into an evening’s meal service.  The term of usage is called “turns”.  The more turns in an evening, the more revenues and, with the exception of food, the costs remain the same.  But how do you more rapidly “turn” customers that are spending thousands of dollars for a meal?  After a polite interval following cocktails and the order, Eleven Park Avenue invites them, based on its clock management standards, to look in on the the kitchen to see their meal being prepared.  Like sheep dogs managing the flock, guests are ready to eat.  And at the end of the meal the table is invited to the bar for a complementary after-dinner, exquisitely prepared, beverage.  The turn is worth more, much more, than the drink.

The other trick is a cleverly constructed menu.  Food wastage is a big problem for restaurants.  They have to order the food before people order it and there’s often food that patrons never order.  (Remember, food and labor account for 70% of a restaurant’s costs.)  So how does Eleven Maidson Park address this problem?  By dividing the menu into 16 quadrants, each one with the name of a main ingredient like trout, or asparagus, or foie gras.   Each night, the chef gets to decide exactly how to prepare the dish with the featured ingredient, cutting down on the number of  menu choices and, by extension, the amount and variety of food it has to purchase.  The guests are pleasantly surprised with what they get; Eleven Madison Park quietly manages its costs.

Eleven Madison Park is a small business.  Its annual revenues probably don’t exceed $12 million.  But, like every small business, it needs to carefully balance its resources to both satisfy its choosy customers and manage its considerable costs.


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