Food & Beverage Forecasting – How Being Wrong is Right

Welcome to?CORE Profit Strategies. Every week I will share Food & Beverage advice, tips, and strategies to reduce costs, optimize operations, increase revenue, and create a foundation for profit excellence.

Every Food & Beverage operation has different factors that impact its business levels, and with profit margins being so slim there is little room for error. Wouldn't it be great to know exactly how much business is coming in? You would always schedule the right number of staff and order the right amount of food. Your customers would never wait, servers and cooks would be productive, and there would be no food waste.?

Doesn't that sound like the perfect world? If your food and beverage operation runs this way then there is no need to read on. However, most restaurants find themselves reacting to the business on a daily basis leading to poor or inconsistent customer service, frustrated employees being overworked or sent home early, and food waste. It doesn’t need to be this way! By creating an effective forecast, you can take out some of the guesswork and maximize your profit.?

There are so many examples of poor planning in the food and beverage industry. Everything from the restaurant manager texting their employees at 11:00 PM at night to tell them what time they're working the next day or if they're working at all to a restaurant running out of food midway through service because they didn't?think?it would be that busy.?

Why do Forecasts Fail or Stop?

It's likely you are aware of the benefits of forecasting and have tried to forecast at one point or another. Often times people stop trying to forecast because they think they are not good at it, or it never works out. Here is a secret, your forecast will always be wrong. That’s right, the plan on your forecast will be wrong, and it will seem like you have wasted your time.?

The goal of forecasting is to get as close as possible and, at the very least, eliminate the large, unexpected swings in business. It won’t be perfect, but never let perfect stand in the way of better. The more you practice, the better you will become.?

How to Forecast for Food and Beverage

There are several key pieces of information that can be used to create a forecast, and each operation will need to determine what has the greatest impact on their business.??

1) History

Everyone will use history to some degree, and by looking back at the previous year, month, or day of the week we can start shedding some light on projected business levels. However, in some cases, the history is inaccurate or, in the case of new restaurants, doesn't exist. That is not to say that this information isn't likely the most valuable part of the equation. For example, looking at what happened on the same long weekend last year can give you the building blocks of what may happen this year.

New operations will not have history to draw from, which adds to the challenge of forecasting. However, during their research and business planning there needed to be a projection of business levels. This combined with asking your competition or local business leaders can help fill in some gaps.

When looking at history, the tendency is to look at the same time or date from the previous year. This is one part of the history equation, and when using this data, be sure to take into consideration the day of the week as well. The one thing looking at year-over-year data doesn’t tell you is how the recent business is trending. Maybe a new restaurant opened in the area in the last six months and is cutting into your business, or a new apartment opened, and you have seen growth. You should look at cover average counts by the day of the week over the previous month, three months, six months, and one year. By using the different time frames you're able to eliminate or reduce the chance of error if something significant happened during any one of those periods.

Looking at customer cover counts may seem like a lot of work and a daunting task. There are different software solutions available that provide a great deal of insight and can forecast based on history. Even without a software solution, it can be as easy as setting up an Excel spreadsheet, downloading covers by the hour, by day of the week, then calculating the average covers over the different periods.

2) What is Happening

No matter if you use a software program or have set up your own spreadsheet, you will always need to add, consider, and adjust for what is happening in the local area that may impact your business for good or bad.

There may be construction happening that affects traffic and parking, and if most of your customers drive to you, then this inconvenience could reduce your business levels. Or if you have a large patio and they are forecasting terrible weather, you may see reduced volumes (keeping in mind that indoor dining may be busier than usual). There may be a citywide convention that will have more business travelers than your typical customer base, or a festival that's happening right across the street that will drive traffic all day long.

No matter what is happening it is important to use your history as a foundation and adjust for events or any other factor that may impact your business.

3) Covers / Occupied Room

In hotels and resorts, some operations use the covers / occupied room metric in their forecasts. To increase the effectiveness, you need to take into consideration the number of guests per room, as this can fluctuate.

Another way of looking at this would be to use a capture ratio, which is simply a % of the total number of hotel guests that eat on-site. Let’s say on Sunday, the house count is 100, and in the past, you served 60 covers. Your capture ratio on Sunday is 60%. Next week you have 140 guests in-house, then you would forecast to serve 84 customers.

When using this metric, it is also important to look at other factors:

• Hotels can have a very diverse customer base which needs to be considered. A convention group with set meals will look different than a leisure customer.?
• The number of check-ins, check-outs, and stay-overs.
• Are there other restaurants in the area? Are they closing for renovations or changing their hours?

Fine Tuning

Since you now know that your forecast will be wrong, you can start to learn from each miss. This leads to the second most important part of a forecast - looking at the result. How did your actual covers compare? What was the cause of the variance? You may find new pieces of data or information to add to your forecasting equation.

Now that you have a good idea of your daily business levels, dial it down to the hour. Use the same process, but break down the daily covers to covers per hour. This combined with a productivity metric (covers/hour worked) will have a significant impact on your scheduling.

Lastly, involve other people on your team and inform them of the process. This will do a couple of things, such as identifying some variables that you may not have considered, and by involving your team in the process they will be more understanding. If you forecast 100 covers and only do 140, they will be busy but will also know that you did everything you could to predict the business levels. If you forecast 140 covers and a snowstorm hits, they will understand the shorter workday or call in to have their shift cut. No matter what, it will create a much more positive environment when business fluctuations occur.

Do a forecast, celebrate the mistakes, and get better each day. You will see your accuracy, profits, and morale increase.

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