Restaurant Costs: Breakdown and Cost Reduction Strategies

Any business opportunity comes with both fixed and variable costs, and restaurants are no different. When considering opening a new restaurant or optimizing an existing one, understanding and managing restaurant costs is crucial. According to research conducted by the National Restaurant Association published in a blog in August 2022, food and labor costs may consume approximately  33% of a restaurant’s bottom line. However, there are some cost reduction strategies in restaurants that franchise owners may be able to implement to increase or maintain their bottom line.

Breakdown of Restaurant Expenses

First, it’s important to understand what type of costs you may accrue when opening and running a restaurant. There are many different types of restaurant costs involved—from franchise royalty fees to food and labor. In the National Restaurant Association research above, the costs for labor, utilities, occupancy, and more were analyzed. Let’s divide the expenses into five main categories, in a similar fashion to the National Restaurant Association:

1. Startup costs: For new restaurants, initial expenses can include lease and insurance deposits, improvements and renovations, kitchen equipment, initial inventory, and marketing for the launch. Franchise costs such as the initial franchise fee, construction, and site development fees also fall into this category if you’re considering a franchise model.
2. Operating costs: These are ongoing expenses such as utilities, rent, and inventory replenishment. They will likely constitute a significant portion of the monthly outgoings and can be fixed (stay the same each month, such as rent) or variable, which can fluctuate significantly depending on how efficiently you operate the business.
3. Food costs: One of the largest expenses, food costs, can be optimized through efficient inventory management and careful menu planning. With a franchise option, this can be streamlined as the franchisor has already developed efficient operational systems and likely has connections and relationships with food retailers.
4. Labor costs: You’ll need to pay yourself and the people who work for you. Wages, benefits, and training for your staff are crucial and can be a large part of a restaurant’s costs.
5. Marketing, advertising, and promotion: Continual promotion can help attract and retain customers. This includes both digital and traditional marketing strategies and requires ongoing funding, whether outsourced or handled in-house.

Restaurant Cost Reduction Strategies in Restaurants

Finding places to reduce costs and increase efficiencies while managing your budget and actual expenses can add up.  It’s a balancing act, and you may be better focusing your time and efforts on a few main tasks to help reduce costs and prevent excess spending. If you’re opening your own restaurant, this may be overwhelming, but if you’re partnering with a franchise, you can benefit from guidance and help with some of these cost-reduction strategies.

Optimize Food Inventory

Implementing a strict inventory management system can help avoid waste and reduce food costs. In a January 2024 article published by Fit Small Business, each dollar saved by reducing food waste translates to $14 in revenue. Utilizing inventory management software can be a game-changer in tracking and controlling food usage. In a franchise model, the franchisor can help you navigate how and when to order food. They likely have vendors they use to help mitigate extra costs and send the needed amount of food items. Collective buying power can also reduce costs to the franchisee.

Negotiate with Suppliers

Investing in a franchise like Penn Station East Coast Subs can significantly streamline your operations, as we handle the complex task of negotiating with food and paper suppliers. This approach not only upholds high standards across all locations but also leverages collective buying power to secure more favorable pricing for our franchisees, allowing you to focus on managing your restaurant more effectively.

Streamline Staffing

Labor costs are another large expense for restaurants. A Forbes article by Gary Occhiogrosso published in July 2023, shows how to reduce labor costs in a restaurant. The article suggests cross-training employees so they can perform multiple duties and roles. This may help reduce under or over-staffing. In addition, using technology for scheduling, timekeeping, and monitoring labor metrics can be helpful in reducing labor costs.  Penn Station’s proprietary training program (MyPennPath) has demonstrated to improve efficiencies for franchisees who utilize the program.

Reducing Costs with a Restaurant Franchise Model

Investing in a restaurant franchise such as Penn Station East Coast Subs can position you to excel by providing several advantages:

• Proven business model: Franchises offer a tested business model that has been replicated across several states and markets. This can reduce costs and the risk compared to starting a restaurant from scratch.
• Franchise costs and support: While there are initial franchise costs, the ongoing support franchises provide in terms of marketing, training, and operations can lead to significant long-term savings. The guidance alone can be invaluable. . You also have a network of other franchisees with a wealth of knowledge and experience ready to provide useful ideas and information.
• Brand recognition: You may own the only restaurants of your brand in your area, but there are others around the nation that people will recognize when traveling to or from your location. Being part of a recognized brand can drive customer traffic, which can be a major revenue boost.

Invest with Penn Station East Coast Subs

By choosing reputable brand like Penn Station East Coast Subs, you can leverage our business model and support systems. This can not only help in reducing restaurant costs but also in navigating the competitive landscape and assist you in reaching your personal and professional goals. If you’re considering a franchise opportunity, delve into the franchise costs and benefits with Penn Station to embark on your entrepreneurial journey.

At Penn Station East Coast Subs, we offer a robust franchise model that helps in managing restaurant costs effectively. This includes:

• Comprehensive training
• Marketing and advertising support
• Financial reporting
• Operations
• And more!

Ready to get started on opening your own restaurant? Request information on Penn Station East Coast Subs today.