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Essential Restaurant Fundamentals & Leasing Strategies for Property Managers and Leasing Professionals
Michael J. D’Amico
Kenneth S. Lamy, CRX
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mobile.icsc.org
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Introduction
&
Overview
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Presentation Outline
I. Fundamentals
II. The Essential Percentages
III. 100% Rule
IV. The Puzzle
V. The Pieces
VI. Case Study
VII. Win-Win Lease Terms
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True or False?
Shopping Center Managers and Leasing Agents usually
have a strong understanding of retail but few really
understand the challenges of the restaurant business!
How many in the class have
either worked in or managed a
restaurant?
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Today's goal is to begin a process to help you
get a better understanding of the restaurant
business and how occupancy costs impact
profits and ultimately the Tenant’s ability to
pay rent.
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See Handout
Pages
2 & 3
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It is essential that Leasing Agents
understand the connection
between
Occupancy Costs and Profitability.
It’s equally important that you have the
tools and knowledge to have a
meaningful conversation with an existing
or future Restaurant Tenant.
Let’s get started…..
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• KNOWLEDGE
• UNDERSTANDING
• APPLICATION
• COURSE OF ACTION
FOUR STEPS TO SUCCESS
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I. Fundamentals
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I Can’t Believe that Restaurant Closed.
They were always so busy!
FUNDAMENTALS!
©2015R² P²
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R² P²
Rules
RegulationsPolicies
&Procedures
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II. The Essential
Percentages
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See Handout
Pages
4, 5 & 6
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The Essential PercentagesCalculation of Key Percentages
1. Food Cost divided by Food Sales = Food Cost %
2. Liquor Cost divided by Liquor Sales = Liquor Cost %
3. Food and Liquor Costs divided by Total Sales
(Food and Liquor Sales) = COGS* %
4. Total Labor Cost divided by Total Sales
(Food and Liquor Sales) = Labor Cost %
5. COGS and Total Labor Costs divided by Total Sales
(Food and Liquor Sales) = Prime Cost*%
6. Total Expenses divided by Total Sales = Expense Cost %
7. Advertisement Costs divided by Total Sales
(Food and Liquor Sales) = Advertisement Cost %
• COGS - Cost of Goods Sold
• Prime Cost – Food, Liquor and Total Labor Costs
• Total Labor Costs – Direct and Indirect Labor Costs
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END OF MONTH
INVENTORY CALCULATIONS
BEGINNING INVENTORY
PLUS + PURCHASES
MINUS - ENDING INVENTORY
EQUALS = COST OF GOODS SOLD (COGS)
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DOLLAR CALCULATIONS
BEGINNING INVENTORY $5,000.00
PLUS PURCHASES $20,000.00
MINUS ENDING INVENTORY* $4,000.00
EQUALS (COGS) $21,000.00
SALES $68,000.00
COGS/ SALES = COGS % 30.88 %
Note: The ending Inventory becomes the beginning inventory for the next month
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SALES! SALES! SALES!Let’s Identify Sales Variables
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SIMPLE ENOUGH
SALES REVENUE ALWAYS INCREASE
OPERATIONAL COSTS ALWAYS DECREASE
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WRONG!
CONSTANT STRUGGLE BALANCING SALES AND
COSTS…USUALLY WITH INCREMENTAL RESULTS
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See Handout
Pages
7, 8, 9 & 10
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Sales Variables
• Food
- Breakfast
- Lunch
- Dinner
• Liquor, Wine, Beer
• Beverage
• Banquet
• Off-Site Catering
• To-Go
• Cover Charges
• Retail
• Gift Cards
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Let’s Identify Food & Alcohol Cost
Variables
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Food & Alcohol Cost Variables
• Waste
• Theft
• Menu Prices
• Purchases
• Sales Mix
• Promotions
• Discounts
• Portion Control
• Employee Comps
• Administrative Procedures
• Inventory Physical Count
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Let’s Identify Total Labor Costs
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Labor Costs
Direct Labor Costs
Staff Wages
Staff Overtime Wages
Management Salaries
Management Bonuses
Indirect Labor Costs
Payroll Taxes
Worker’s Compensation Expense
Staff Medical Insurances
Management Medical Insurances
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Let’s Identify Key Operating Expenses
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Key Operating Expenses
• Restaurant Supplies
• Maintenance
• Repairs
• Utilities
• Accounting
• Linen
• Legal
• Marketing/Advertising
• Promotions
• Licenses and Permits
• Uniforms
• Phone and Internet
• Equipment Rental
• Credit Card Fees
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CASE STUDY
PRIME COST
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See Handout
Pages
11, 12, 13, 14
& 15
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FOOD & BEVERAGE COST PERCENTAGE %
SALES:
30000 – Sales – Food & Bev – Dine In 211,509.70
30040 – Sales – Food & Bev – Happy Hour 4,986.75
30050 – Sales – Food & Bev – Take Out 7,824.45
30060 – Sales – Food & Bev – Catering 135.85
TOTAL FOOD SALES: 224,456.75
FOOD COSTS OF GOODS SOLD: 60,395.29
FOOD COSTS OF GOODS SOLD/TOTAL FOOD SALES: 26.91%
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ALCOHOL COST PERCENTAGE %
SALES:
30100 – Sales – Beer 5,919.50
30200 – Sales – Liquor 13,345.00
30300 – Sales – Wine 6,297.00
30310 – Sales – HH Beer 1,744.50
30320 – Sales – HH Wine 1,117.00
30330 – Sales – HH Liquor 4,060.00
TOTAL ALCOHOL SALES: 32,483.00
ALCOHOL COSTS OF GOODS SOLD: 10,349.86
ALCOHOL COSTS OF GOODS SOLD/TOTAL ALCOHOL SALES: 31.86%
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TOTAL COGS PERCENTAGE %SALES:
30000 – Sales – Food & Bev – Dine In 211,509.70
30040 – Sales – Food & Bev – Happy Hour 4,986.75
30050 – Sales – Food & Bev – Take Out 7,824.45
30060 – Sales – Food & Bev - Catering 135.85
TOTAL FOOD SALES: 224,456.75
30100 – Sales – Beer 5,919.50
30200 – Sales – Liquor 13,345.00
30300 – Sales – Wine 6,297.00
30310 – Sales – HH Beer 1,744.50
30320 – Sales – HH Wine 1,117.00
30330 – Sales – HH Liquor 4,060.00
TOTAL ALCOHOL SALES: 32,483.00
TOTAL SALES: 256,939.75
FOOD COSTS OF GOODS SOLD: 60,395.29
ALCOHOL COSTS OF GOODS SOLD: 10,349.86
PAPER GOODS COSTS: 2,347.35
TOTAL COSTS: 73,092.50
TOTAL FOOD & ALCOHOL COST OF GOODS SOLD/TOTAL SALES: 28.45%
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LABOR COST PERCENTAGE (%)
DIRECT & INDIRECTSALES:
TOTAL FOOD & BEVERAGE SALES: 224,456.75
TOTAL ALCOHOL SALES: 32,483.00
TOTAL SALES: 256,939.75
TOTAL LABOR (DIRECT) COSTS:
60020 Management 16,351.88
60500 Front of House 29,326.34
61000 Back of House 34,420.94
TOTAL (DIRECT) LABOR COST: 80,099.16
TOTAL DIRECT LABOR COSTS/TOTAL SALES: 31.17%
TOTAL (INDIRECT) LABOR COSTS:
63510 Payroll Taxes 9,080.10
63520 Workers Comp Insurance 3,008.42
63530 Health Insurance 1,337.00
TOTAL (INDIRECT) LABOR COSTS: 13,425.52
TOTAL INDIRECT LABOR COSTS/TOTAL SALES: 5.23% 36.4%
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TOTAL PRIME COST PERCENTAGE %
SALES:
TOTAL FOOD & BEVERAGE SALES: 224,456.75
TOTAL ALCOHOL SALES: 32,483.00
TOTAL SALES: 256,939.75
FOOD COSTS OF GOODS SOLD: 60,395.29
ALCOHOL COSTS OF GOODS SOLD: 10,349.86
PAPER GOODS COSTS: 2,347.35
TOTAL COSTS: 73,092.50
TOTAL LABOR (DIRECT) COSTS:
60020 Management 16,351.88
60500 Front of House 29,326.34
61000 Back of House 34,420.94
TOTAL (DIRECT) LABOR COST: 80,099.16
TOTAL (INDIRECT) LABOR COSTS:
63510 Payroll Taxes 9,080.10
63520 Workers Comp Insurance 3,008.42
63530 Health Insurance 1,337.00
TOTAL (INDIRECT) LABOR COSTS: 13,425.52
TOTAL COGS AND TOTAL LABOR COSTS: 166,617.18
PRIME COST:
COGS AND TOTAL LABOR COSTS/TOTAL SALES: 64.85%
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III. 100% Rule
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The 100% Rule: You can’t
grow yourself out of high
prime costs
Industry goal is a Prime Cost (PC) of
60% or lower
Franchise units Prime Cost (PC) target
of 60% or lower is essential. Why?
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Why
Assume 6% of Sales
• Franchise Fees
• Licensing Fees
• Advertisement Fees6% of Sales = % of Profit
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The 100% Rule100%
Sales
Food Cost
Liquor Cost
Total COCS Cost
COGS - Cost of Goods Sold
Direct Labor
Indirect Labor
Total Labor Cost
Prime Cost 60%
Total COGS + Total Labor Cost
Operational Expenses 20%
PBOFC 20%
Profit Before Occupancy, Franchise & Corporate Expenses
Occupancy 10%
Profit 10%
Franchise, Corporate Expense 6%
Owner/Franchisee 4%
Before Debt Service
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IV. The Puzzle
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Restaurants
National
or
Independent
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Independents
Multiple Units
Single Unit W/ Experience
Single Unit W/O Experience
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Independents
67 % of All Restaurants
Majority Generate Less Than
$500K in Annual Sales
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“I can't pay rent this month.”
“I need rent abatement.”
“The rent is too high.”
Statements to Avoid:
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Success or Failure
Profit or Loss
Rent or Less Rent
Next Generation
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Let's paint a picture of the
challenges facing the
restaurant industry
today…
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Challenges to Solve
� Economic slowdown
� High Unemployment
� Government regulation:
Minimum Wages
Health Insurance (ACA)
� Less disposable income
� Higher energy prices
� Looming inflationary
pressures
� Lower home values – Angst!
� Increased occupancy costs
� Any other comments / suggestions?“After months of analysis we reached the
same conclusion: when you’re hot, you’re
hot, when you’re not, you’re not…”
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Generally speaking …
Landlord and Tenant relationships are
challenging at best and adversarial at
worst.
“It’s always about the money”
Tenant: “I pay rent – I want services”
Landlord: “I give opportunity – I want rent”
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If in Doubt, Rule it Out
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V. The Pieces
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See Handout
Pages
16, 17, 18, 19
& 20
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Takeaway – Three Imperatives
1. Be Proactive
2. Be Quantitative
3. Become a Partnership
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How to get the Facts� Nine Point Stress Test
� Secret Shopper Program
� Restaurant Operations
Questionnaire
� On-site Interview
� Lease Language
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� Sales and Revenues
� Labor Costs
� Occupancy Costs
� Cost of Goods Sold (COGS)
� Prime Costs
� Franchise Costs
� Gross Profit
� Controllable Costs
� Net Profit
STEP ONE
NINE POINT STRESS TEST
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STEP TWO
HANDS ON - DISCOVERY� Secret Shopper
� Restaurant Questionnaire
� On- Site Interview
� Lease Strategy
� One on One Tenant Support
� Optimal Food Cost Analysis
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STEP THREE
KEY LEASE PROVISIONS
� Pre-schedule Landlord / Tenant Review Meeting
� Annual or Quarterly Tenant Financial Results
� Operations Review – Professional Consultant
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INDEPENENTS
Minimal Marketing Budget
� Based on a Percentage of Sales
� No Internal (In House) Management
� Unorganized- No Plan
� Sales “Killing” Promotions!!
� No Website, Video, Email or Social Media Marketing Service
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See Handout
Pages
21 & 22
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STEP FOUR
DIGITAL MEDIA MARKETING
� Fully Responsive Website
� High Definition Video Experience
� Email Marketing
� Social Media Marketing
� Logo and Print Design
� Consulting
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CONSULTING CHECKLIST
� Nine Point Stress Test
� Restaurant Operations Questionnaire
� Secret Shopper Review
� On-Site Interview
� Lease Provisions
� Tenant Support
� Optimal Food Cost Analysis
� Social Media Marketing Strategy
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VI. Case Study
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CASE STUDY
ABC GRILL
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Tenant: ABC Grill
Property: XYZ Plaza
2010 % 2011 % 2012 %
Food Sales $2,244,602 90.78% $2,524,665 95.35% $713,089 96.51%Liquor Sales 312,715 12.65% 331,810 12.53% 109,017 14.75%Promo Meals -84,660 -3.42% -208,812 -7.89% -83,194 -11.26%Total Sales $2,472,657 100.00% $2,647,663 100.00% $738,912 100.00%Food Costs 729,271 32.49% 861,341 34.12% 240,555 33.73%Liquor Costs 105,159 33.63% 114,558 34.53% 33,577 30.80%
0.00% 0.00% 0.00%COGS * $834,430 33.75% $975,899 36.86% $274,132 37.10%
Gross Profit 1,638,227 66.25% 1,671,764 63.14% 464,780 62.90%
Direct Labor 578,545 23.40% 643,355 24.30% 186,755 25.27%Indirect Labor 321,525 13.00% 348,842 13.18% 107,119 14.50%Total Labor $900,070 36.40% $992,197 37.47% $293,874 39.77%
Prime Costs ** 1,734,500 70.15% 1,968,096 74.33% 568,006 76.87%
Controllables 474,310 19.18% 478,299 18.06% 136,901 18.53%PBOFCosts 263,847 10.67% 201,268 7.60% 34,005 4.60%
Occupancy Costs 191,223 7.73% 218,765 8.26% 54,691 7.40%
Profit $72,624 2.90% ($17,497) (.60%) ($20,686) (2.7%)
* COGS - Cost of Goods Sold ** Prime Cost - COGS and Total Labor Costs
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VII. Win-Win Leases
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“Sprouts are a deal-breaker.”
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See Handout
Pages
23 & 24
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� Become PROACTIVE not REACTIVE
� Pre-Qualification of Restaurant’s Sales/Profit & Loss Statement
� Annual Review of Restaurant (Financial Physical)
� Tenant Improvement Determination
� Lease Options
� Tenant Rent Relief Request (Review/Evaluations)
� Powerful Tool for Restaurant/Landlord Consultation
� Client Support on Improving Restaurant Results
Useful Application of Services
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Financial Statement (P&L) Analysis Provides:
Client with National Restaurant Industry
Benchmarks and Trends
A Review of Sales and Related Operating Costs (Cost of Goods Sold, Labor, Prime and Occupancy Costs)
An Analysis of Key Financial and Operational Areas
Specific Recommendations and Comments are included in The LAMY Report
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Commitment
Commitment is what transforms a promise into reality.
It is the words that speak boldly of your intentions. And the actions
which speak louder than words.
It is making the time when there is none. Coming through time after
time, year after year.
Commitment is the stuff character is made of. The power to change the
face of things.
It is the daily triumph of integrity over skepticism
Abraham Lincoln
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Landlord-Tenant Relationship – An Overview
RetailersRetailers LandlordsLandlords
Expectations
Requirements
Expectations
Requirements
Lease
Agreement
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Leases Set Framework for Partnership
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The “X” Problem
X XOO O
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X XOO O
X
The “X” Solution
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What issues are you having with
your restaurants?
Open Discussion
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For Further Information
Michael J. D’Amico
Senior Restaurant Consultant
504.250.2160 (Mobile)
Kenneth S. Lamy, CRX
Founder and President
800.999.LAMY (5269)
985.630.5241 (Mobile)
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• Recording Package $150 usd
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icsc.sclivelearningcenter.com
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