Learning from Restaurants

Cutback Cuisine – WSJ.com:

If you’re a regular reader, you know I like to try to draw from non-traditional sources and industries. This article from WSJ caught my eye and made me think of some Lean concepts.

As in many businesses, restaurants are caught in a double pinch right now. Raw material costs (food) are going up and the sluggish U.S. economy is dampening demand, especially for some moderately-high to high priced restaurants.

“Price increases are across the board; the commodities have just gone crazy,” says Brett Reichler, a corporate executive chef of B.R. Guest Restaurants, owner of the Blue Water Grill. “Flour is up 30, 40%. Beef’s on the rise, fish is on the rise. Nothing is inexpensive any more.”

Some restaurants are going the route of many manufacturing companies — trying to “pass along” the costs as if it’s an entitlement. This is no more true for food than it is for automobiles. Just because the price of steel goes up, that doesn’t mean you can automatically increase the price you charge for cars. The prices are all driven by supply and demand, as is true in any industry that’s totally warped by regulation or monopoly power.

The WSJ article focuses, however, on the restaurants that are taking action instead of just complaining or trying to raise prices. Some restaurants are looking at what menu prices customers are willing to pay and they are “engineering” the food and ingredients to hit a profitable cost in comparison to that menu price.

This is reminiscent of the Toyota practice of “value engineering” where products are designed to hit a cost that allows profitability given a market-driven price. This is different than the old “cost plus” mentality where manufacturers try to “tack on” a profit margin on top of designed or incurred costs.

Some examples from the article (which make me drool because a weakness of mine is nice restaurants):

Restaurants have long engineered menus to allow the bigger profits from pastas and vegetable side orders to subsidize such loss leaders as rib-eye steaks. But rising prices have prompted a furious new round of behind-the-scenes shuffling. San Francisco’s Slanted Door is known for its rack of lamb. On many days, chef and owner Charles Phan offers a more-profitable lamb sirloin stir-fry instead, shaving his food costs by a third. It is a temporary fix that draws some complaints. “Everyone wants that rack,” he says.

At Le Cirque in New York, diners can choose from four pasta dishes, up from two a year ago. “Pasta’s a great item for reducing food costs,” says co-owner Mauro Maccioni. He estimates that he is paying 5% more for the food his restaurant prepares, including big increases for truffles and butter. He touts as good values his new pasta dishes, which include a chestnut-flour pappardelle with wild mushrooms and a veal ragu.

In the case of the Slanted Door, I guess you could argue that the chef is not meeting customer demand (for racks of lamb). He has to weigh the trade-offs of profitability and the risk of driving away a loyal customer who might be upset.

They talk about some menu items subsidizing others. We can also see this at fast food restaurants. Do you think the price of a burger and the soda are driven by true costs? Of course not, they charge what the market bears. Sandwiches are often cheaper (compared to their costs), but they make up for it by charging a relatively huge markup on a beverage.

Chefs are also getting more creative in making full use of their food and ingredient purchases, to reduce waste:

Some chefs, such as Raphael Lunetta of JiRaffe in Santa Monica, are yanking pricey entrees from the menu to promote as daily specials. He says a good pitch by waiters for the roasted rabbit with herb polenta gnocchi, for example, helps sell more of the dish and reduces leftovers.

Another strategy is to offer less of an expensive meat and add a cheaper cut. Diners who order “Roasted Pekin Duck” at the Powerhouse Restaurant and Bar in Chicago get a half-breast and a duck confit instead of a whole duck breast. The substitution cuts costs nearly in half by allowing the restaurant to buy entire birds instead of individual duck breasts. “You’re not paying for processing,” says managing partner Mitchell Schmieding.

Anyway, I hope you have access to the full article, it’s definitely worth reading. As you do, think through the possible parallels to your business. Can you learn something from your local fast-food joint or a snooty French chef?

One chef sums it up:

Skilled chefs, says Mr. Chang, transform whatever comes their way. “If you need to make real food out of nothing, that’s real cooking,” he says. Echoing a culinary maxim, he adds: “It’s easy to cook a sirloin. It’s harder to cook with potato scraps.”

Not much whining there — just good business.

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Mark Graban's passion is creating a better, safer, more cost effective healthcare system for patients and better workplaces for all. Mark is a consultant, author, and speaker in the "Lean healthcare" methodology. He is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. His most recent project is an eBook titled Practicing Lean that benefits the Louise H. Batz Patient Safety Foundation, where Mark is a board member. Mark is also the VP of Improvement & Innovation Services for the technology company KaiNexus.

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11 Comments on "Learning from Restaurants"

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  1. Anonymous says:

    Not sure it is “lean” driven, but I heard in a recent news podcast (either NPR or WSJ, can’t remember which) that some restaurants are cutting the wait staff completely, with the chef actually serving the patrons. This is like cutting an operation from a manufacturing process. Personally, I do not see the wait function as non-value added, but quite the contrary a very high-value add if executed properly. Just thought I would share this with the community.

  2. Mike Gardner says:

    I was in the restaurant business about a hundred years ago and I think the entire argument is out of whack. Food costs generally averaged us around 40%. What manufacturer wouldn’t want that ratio? Labor costs were minimal–mostly minimum wage or close to it. Overhead averaged close to direct labor as a percentage of sales. Items like coffee or soft drinks were marked up by about 1000%. Mexican food had a material cost of about 15%, which made up for the higher material cost of steaks, etc. Maybe these restaurants just need to manage their business functions better instead of screwing around with the menus and the like. Food service is a pretty simple business, which is the main reason there are too many restaurants fighting for the same pie. It’s probably time for a shake-out.

  3. David says:

    One problem with the restaurant biz is that “Taylorism” has often been applied to the wrong things and in the wrong ways. I’ve been in many restaurants where the words spoken by the phone answerer, the host/hostess and the wait staff were all highly scripted…yet clearly no one had analyzed the actual serving process from a logistical point of view, and obvious inefficiencies were in view.

  4. Mark Graban says:

    Anonymous – that’s an interesting question about the waitstaff. Are they the equivalent of “material handlers” (just bringing the food and check) or are they “value adding?” If you’re at a restaurant where re-fueling your body is the primary goal, then the waiter probably is “required waste.” If you’re at a restaurant where the “experience” is important along with the food, then the waiter might be adding value.

    Having the chef bringing food out begs the question: is that the best use of the chef’s time and talent?

  5. Mark Graban says:

    Mike – great point. Their obsession over materials cost might be similar to a manufacturer being obsessed over direct labor even though it might be just 10% of their cost. It’s the most visible cost, but maybe not the most critical.

    It sounds like your suggestion is that they should be optimizing the overall business, not just the materials side?

  6. Mike Gardner says:

    Restaurant failures are usually traceable to “common cause” problems–poor location, poor quality, and poor service. I have never decided not to return to a restaurant because of the price, but I have avoided them because of poor service. Only rarely do “special cause” problems–food poisoning, fire, rats & roaches–cause restaurants to fail. Restaurant owners must understand if their customers believe the goods and services they receive add sufficient value to warrant the price asked. If the answer is yes, they can probably raise the price a little and not lose business. If the answer is no, it does not matter how much they cut food costs, they are going to fail. In addition, restaurant kitchens are loaded with waste and would be prime targets for lean.

  7. Kathleen says:

    In the quest for lean, what of the value in assigning costs where they’re due? It is inappropriate that the dietary practices of vegetarians and vegans are subsidizing the notoriously inefficient and ecologically unsustainable meat eating practices of the average consumer, keeping their menu prices lower. Were costs attributed appropriately, perhaps more would abstain from participating is such wanton expenditures of energy costs and environmental degradation. Meat is neither lean nor green.

  8. Tom Ehrenfeld says:

    “As a cook, your station, and its condition, its state of readiness, is an extension of your nervous system–and it is profoundly upsetting if another cook or, God forbid, a waiter disturbs your precisely and carefully laid-out system. The universe is in order when your station is set up the way you like it: you know where to find everything with your eyes closed, everything you need during the course of the shift is at the ready at arm’s reach, your defenses are deployed. If you let your mise-en-place run down, get dirty and disorganized, you’ll quickly find yourself spinning in place and calling for backup…..”

    This passage from p. 58-59 of Anthony Bourdain’s Kitchen Confidential. The chapter Who Cooks, and particularly the passage on the importance of a clean and prepared mise-en-place (the cook’s setup) is about as lean as can be without mentioning lean.

  9. Anonymous says:

    Hi Mark, just got back in and saw your comment on the wait staff possibly being similar to material handlers. I see it another way. I think they are more like an operator in a chaku chaku line, although they are not just loading so it is not true load-load. Anyway, the wait staff can bring so much more to the restaurant by being visible and attentive to the patrons, something that the chef can not do from the kitchen. Maybe this could work in a small operation where there are only 6 to 12 tables and specific seating times. It would be interesting to know if anyone has seen this model work successfully, meaning how was the overall experience.

  10. Mark Graban says:

    To anonymous 3/15:

    I raised the question of “are waiters just material handlers” to be thought provoking (or so I hoped). Sometimes, material handlers are definitely necessary to support those who add value (the cooks). You’re right that the waitstaff CAN do much more than bringing the food.

    Bringing a glass of water might be “value added.” Is taking the plates away? I’d argue that’s “required waste”.

  11. Mark Graban says:

    Tom E. – great comment. You might interested in my old post on Julia Childs’ “lean kitchen.”

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