I've received quite a few emails from managers asking about the Pareto Principle, and the ways that it can be applied to their restaurant. I’ve touched on it before with regards to where profits come from on your menu, but I’ll give a quick refresher. Here we go….
THE PARETO PRINCIPLE
The Pareto principle is named after an Italian economist named Vilfredo Pareto. Way back in 1906, he discovered that 80% of Italy’s land was only owned by 20% of the population. Soon after, he observed that 20% of the pea pods in his garden were producing 80% of his peas. After conducting surveys of several other countries, he found that his 80/20 observation actually held up.
This concept has since gone on to show itself applicable to all manner of situations (and was named after Pareto after the fact).
Wikipedia defines it like this: for many events, roughly 80% of the effects come from 20% of the causes.
Which works well enough for me. Another name for this idea is “the...
Menu items that are very similar fight or cannibalize each other for sales. When Steve Jobs returned to Apple in 1997, the first thing he did was ask his team one simple question, "What products would you recommend to a friend?" When he did not get a very clear answer he reduced the number of Apple products from 350 to just 10!
Think about your menu. What items are your "hits"? Those dishes that your team just knocks out of the ball every time? That is what your menu should consist of! Too many items leads to what psychologists call "the paradox of choice" is when too many choices leads to anxiety about our choices. So when your menu has too many items, guests get frustrated and tend to go for the "safe" choice. The bad news is that your safe choice might not be a big profit maker.
Sometimes what you do NOT put on your menu is more important then what you do.
Here are some key questions to ask about your menu:
The majority of restaurants have not a clue as to why their customers are their customers. Most restaurants make assumptions about what really drives their business. Many think that price drives sales, and for some segments this is true. The problem is that when you constantly drop the price of your product you start a dangerous trend.
By reducing the price consistently you have now devalued your brand and simultaneously created price junkies. It's hard to get customers to pay full price when you set the precedent of lower pricing for similar items.
When you operate your business from the mindset of "fear". Fear of losing customers to another restaurant, then you set the stage for a spiral of bad decisions. You drop prices more often to drive sales and the thing is that IT WORKS...on the surface. Behind the scenes is that those price drops eat away more and more at your profits. Yes, more people are coming into your restaurant, yet less and less is going to your bank account. Combine...
When you work with over 400 restaurants a year you see patterns of success and patterns of failure. Just based on observation I am pretty dead on accurate to the chance a restaurant has of making it. Other times it's the Profit & Loss Statement (P&L) that confesses to me the real situation as to how bad things are. Looking at so many P&L statements and the numbers start to pop out at me like how Keanu Reeves' character Neo in The Matrix could see the code embedded in everything.
Running restaurants is relatively easy. It's the human element that makes things complicated. Some people have a hard time getting excited about numbers. Especially in the restaurant business which is for the most part comprised of extroverts. Now do not fret. If you are a people person and not a numbers person, have no fear because you can hire someone with the opposite strengths of yours.
You just need to be able to extract the data hidden in your restaurant reports and pull out the figures that...