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The Pareto Principle and Restaurants

“The Pareto principle, also known as the 80/20 rule, is a theory maintaining that 80 percent of the output from a given situation or system is determined by 20 percent of the input. … More generally, the principle can be interpreted to say that a minority of inputs results in the majority of outputs.” Read more here.

I fully believe in the Pareto Principle and I believe that it can be pretty accurately applied to all aspects of life.

I have a theory that is solely based on the Pareto Principle and my own observations from my lifetime career in the restaurant industry. It is….

That 80% of the restaurants in America are just getting by and 20% are making all the profits. The 20% group of profitable restaurants chains are constantly evolving and changing. Just because you were in it last year doesn’t mean you will be in it this year.

The restaurant industry in America is large and complex. We are constantly adding new restaurants every day, new brands, new concepts, new types of foods. It is crazy to watch how many new concepts are started every year. Yet the total unit count in the US stays pretty stagnant.

This image is from Statista.com

For every brand new Jersey Mike’s location, another sub shop goes away. That is how Jersey Mikes can have added over 1000 units in the last couple of years and yet the total number or restaurants isn’t growing like crazy.

Think about the number of restaurants that you visit every month. How many of them are just killing it? Include every restaurant, not just the new hot fine dining restaurant in your town. Think about every sub shop, fast food restaurant, delivery order you get. Are everyone of these restaurants turning a huge profit. Are the owners making a great living or are they just getting by?

I worked for P.F. Chang’s in the early 2000’s. We were one of the hottest concepts at that time. We would have a 90 minute wait on a Monday night. When was the last time your location had a 90 minute wait on a Monday Night? P.F. Chang’s isn’t as popular as it was back when I worked there but they are still a really good and profitable chain.

I joined Quiznos in 2008 they had grown from less than 1000 locations in the early 2000’s to just over 5000 locations when I arrived. Now they have 350 to 400 domestic locations. When was the last time you saw a Quiznos, not just ate there?

The franchise restaurant companies will tell you that their biggest issue is that customers can’t find a location when they want one. They have to grow to be more convenient. There are 3 empty Subways, all on the verge of death within 2 miles of my house in the North, East, and West Directions.

I’m not saying that of the 80% of the restaurants that none of them are making a profit. I’m saying that they aren’t making a ton of profits. I’m saying that they are existing but not thriving.

You can see the Pareto Principle working in other ways. 80% of the industry press is gotten by 20% of the chains. I see Sweet Green Articles all the time, there are 20 other salad concepts that you never hear about.

80% of new franchise sales are going to the 20% of the hottest franchise brands.

Whether you agree with me or not; why is this important? It’s important because you have to understand this if you aren’t in the 20% then you have to be better. You have to be great operators, systematize and control your businesses. Eek out every dollar of profit that you can from every shift. You don’t have a choice. You have to fight and control and fight some more. Your road is harder than those concepts that are currently residing in the top 20%.

When I was on the management team at the P.F. Chang’s Tyson’s Corner in 2001. We grew weekly revenue by $80,000 a week over a 12 month period. We were hot, we had people lining up to work, we had low turnover, we used to put 10 2 Tops in the hallway of the mall at lunch time and fill them. We could do no wrong. We weren’t plagued by the problems of slower restaurants because we were in the 20%.

Things that I see in restaurants that are in the 80% that need to change:

  • They are dirty
  • They are understaffed
  • Their quality is hit and miss
  • Their food is just OK

I want to suggest to the whole industry that this is one of the toughest restaurant markets that we have ever been in. With new forms of competition, new technologies disrupting our businesses, and way to many locations.

I want to suggest that we can’t operate anymore like we did 30 or 50 years ago. We need to analyze every aspect of our businesses and determine if this is still the right way to operate based on the conditions of todays market place. This is just one example.

Waiters for lunch shifts. Lunch shifts suck in most restaurants because you don’t make that much money. In most restaurants with servers all the side work is divided up by station and you have to fill each station with staff just in case you get busy.

Instead of following this the traditional model, maybe a different approach could work.

  • Hire two full time lunch servers that work 8 hour shift and work open to close every day. (Base this off how big your restaurant is)
  • These two full-time servers do all the side work in the restaurant, they set-up lunch and they do the closing side work as well.
  • FYI: look at how your restaurant is set-up, tables, etc. look to streamline this process and create efficiencies.
  • These two full-time servers should get paid a higher hourly wage and should be treated as full time employees. If your company offers benefits they should get them.
  • Then use gig labor for the rush. Hire and train a bunch of people who do gig jobs (Uber, Lyft, Door Dash, Task Rabbit, etc.) and bring them in from 11:30 to end of rush.
  • These gig labor employees, show up and serve customers during the rush and then as soon as it is done and it is time to cut labor, get them off the clock and out the door.

This is a different way of looking at staffing a shift. It could make you very successful because all the team members are winning. The full-time employees are making great money working a full work week and getting a higher wage. The gig employees are coming in for a couple of hours, working a gig, getting some cash in their pockets, living their lives on their terms and they aren’t caught doing all the stuff that people hate about serving tables. They can get in and get out.

I will say to make these kinds of changes in our businesses, which are totally doable, we have to invest in systems and analysis of our own operations. We have to be so systematized that we can plug and play people into different roles within our businesses.

Also, we have to realize that this won’t work on every position but that shouldn’t be a reason why we don’t take advantage of it where it can work.

If you are looking to systematize your restaurants, consider the OpsAnalitica Platform. Our Food Safety and Ops Management Platform can provide you with the real-time structure and learning you need to run better operations on a shift-by-shift and location-by-location basis.

Creating and Executing a World Class Restaurant Audit Program

Restaurant Audits, OER’s, Quality Inspections are just some of the names that restaurant/hotel chains use to describe their location audit process. The names are different, but the intent is the same, get a fresh set of eyes on the location and measure how they are doing vs. the brand standards.

Remember the reason you conduct restaurant audits is that you need to protect your brand from yourself. Poor operations or unsafe restaurants can erode brand equity and lower sales for the entire chain. Food Safety is of paramount importance, and with our current social media-driven culture a foodborne illness outbreak can spread like bacteria over the web and can reduce sales by about 1/3 nationally and keep them there indefinitely.

For some chains, especially franchise systems, the conducting of the restaurant audit may be one of the few times a year a representative from the corporate office will visit the location so it can’t be overstated that you don’t want to waste that visit with an ineffective audit program.

When designing or updating your audit program, there are a couple of questions that you want to answer first.

  1. What technology are you going to use to conduct these audits?
  2. What are you looking to get out of your audits?
  3. How often are you going to be visiting the locations?
  4. Who is going to be conducting the audit?
  5. How comprehensive, how much stuff are we going to cover, in the audit?
  6. How long do you expect this audit and any subsequent coaching to take?
  7. How are you going to handle action plan items?
  8. Have you thought about Site Visits?

1. What technology are you going to use to conduct these audits?
You do not want to do your audits on paper, Google Docs or a combination of paper/Excel for scoring. Your audit is one of the most important interactions you have with the location, and you need to make sure you are capturing as much data as possible at the question level including photos and auditor comments and paper and excel are not made for this.

We have heard from some of our clients that have switched from paper to the OpsAnalitica Platform that we have cut their audit times by 75%, in most cases this results in several hours of busy work per audit. This reduction in needless paper pushing provides your auditor more time to interact with the restaurant teams coaching and training or if that isn’t their role it allows them to conduct more audits per day.

These are some features that you should be looking for when choosing auditing software.

  • Tablet/Phone/Laptop based software – you will use mobile devices to conduct the audit, but most people will want to use their computers to plan and manage themselves.
  • Geolocation – the ability to know that the auditor was on-site when conducting the audit.
  • Able to inspect offline – you won’t always have wifi at the location
  • Ability to take pictures
  • Ability to leave additional comments at the question level
  • Auditor Help Functionality – where an auditor can get more information about the standard at which a question is being judged or easily share the corporate standard with the location management team.
  • Flexible scoring
  • Tagging – question, and response tagging aids in deep dive analysis of the audit results.
  • Audit Report – this needs to be auto-generated by the system, printable is fine, but an online version is better as audit reports with photos and comments can be very long, and you want to make sure that people can enlarge the photos.
  • Action Plan Tasks that can be tracked and verified.
  • Auditor Functionality that allows them to plan their audits effectively
  • Reports that allow you to compare auditors to chain for auditor calibration
  • Gap and Question level reporting where you can look at the audit results across the organization to identify Operations issues that need to be addressed.
  • API – to pull app data out of the system and use in other BI tools.

To wrap of the technology portion of this blog, you want the technology you choose to be robust but also easy to use and bulletproof. When people are in the locations, they need to be able inspect and not be screwing around with their tech. Your field teams need a platform that will assist them in the planning, conducting, and follow-up stages of their audits. That provides them and the management teams their auditing with a seamless experience. From a corporate perspective, you want the software you choose to be flexible, easy to update, and you should be looking for a software partner that can work with you to refine your process over time.

2. What are you looking to get out of your audits?
We have found that a lot of people don’t have an answer to this question.

  • Are audits just an excuse for sending the field teams to the restaurants?
  • Are you looking to capture operations data so you can refine your internal procedures and run better restaurant operations chain-wide?
  • Are you just concerned with food safety or adherence to brand standards?
  • Are you auditing because that is what we do, but you don’t use the data unless an individual restaurant needs to be shut down for violations?

It’s ok, based off of your business model to subscribe to any of the above or something else. I would suggest that you get clear with your team about your stated audit goals. I am a firm believer that you should be auditing to collect data on your restaurants and to use that data to identify locations that put the brand at risk and to drive system-wide operational changes.

You should know what kind of results you want from the audits you are conducting because the answer should influence every other question.

3. How often are you going to be visiting the locations?
Audit frequency is a determining factor in a lot of different parts of your audit program. The fewer times a year you plan on visiting a location, the more comprehensive your audit should be. If you are going to be visiting more often, then you can have a shorter inspection, or you can vary certain sections of your audit so that you look at core critical issues every time and less important sections alternate between different visits.

Most restaurant chains that we have worked with audit between 1 and 4 times a year. Chipotle for instance is auditing 12 times a year, though we haven’t heard many restaurant companies conducting that many audits per year.

We have worked up a use case that can save a company a lot of money if they use daily checklists to augment their auditing program, they can conduct fewer audits per year on the top 20% of their restaurants without sacrificing brand protection or overwhelm their field teams. If you want to learn more about that, you can learn more here.

Two other factors to keep in mind when determining how often you are going to be visiting.
1. How complicated are your operations? If you are a quick service chain with a minimal amount of on-site prep, examples would be a sandwich or ice cream chain; then you may determine that fewer audits are fine for your business because you have less risk based on the simplicity of your food prep and model.

Whereas if you are a full-service restaurant that is prepping most of your food on-site, you incur more food safety and quality risks, and therefore it may warrant more audits.

2. What is your geographic footprint? Are your restaurants in one city or are they spread out around the country? Are your auditors going to be traveling to audit the restaurants, incurring travel expenses for each restaurant they visit or do they live in their territory and can just drive to their locations to conduct the audit?

Travel expenses should be factored into determining auditing frequency. In some cases, it may make more sense to use 3rd party auditors when travel expenses dictate. This can also be affected by who is conducting the audit and what their role in the company is.

4. Who is going to be conducting the audit?

We have found that there are people in 3 different roles conducting audits in restaurants, they all have their pros and cons:

  • Field team member: usually an area manager or director.
  • Dedicated QA person: this person works for the brand, and their whole job is to conduct audits.
  • 3rd Party Auditor: like Steritech of EcoSure

Field team members are usually directly responsible for the restaurants they are auditing.  This is a very cost-effective model because the person is already on the team, they have intimate knowledge of the restaurants, and they are well versed in the operating standards of the chain, which allows them to audit and coach as they go.

The cons of using your field team to audit are that they aren’t impartial and there are inherent conflicts of interest in their scoring. For instance, a field team members performance is often tied to their patch of restaurants.  So by being completely honest and scoring restaurants appropriately, especially if the restaurant is underperforming, that score can reflect poorly on the field team members ability to manage their territory. In some cases, this could affect their take-home pay or bonus.

We know of many chains, Focus Brands and Quiznos for instance, where auditing is a small part of the field team members job.  A lot of their job is more sales related, selling franchisees on upgrades to systems, technology, remodels, etc..  Or just selling the franchisee on following the brand standards.  If your job is to sell and to audit, there is another conflict of interest where doing both parts of your job are at odds with each other, and most people will choose the path of least resistance.

Whenever you have conflicts of interest with your auditors, you can expect to get inaccurate audit scores, with the scores skewing up.  The problem with this is that you will have a false sense of security when it comes to the operational readiness and food safety aspects of your chain. You could believe everything is fine and then be blindsided by an issue.  Remember with data; garbage in is garbage out.

Dedicated QA people are a great way to combat the inherent conflicts of interest with using your field team people to conduct audits as QA people aren’t tied to the operating metrics of the restaurants they inspect.

The biggest cons to using QA people is that they often aren’t able to coach or train as well because they aren’t operators they are QA people.  There is also the inherent cost of having QA people on your payroll, having dedicated people who just inspect increases your audit costs in a lot of cases because you will still be sending your field teams to visit the restaurants.

3rd party inspectors are probably slightly less independent than QA people and more expensive per audit.  3rd party inspection services, like Steritech, field highly trained auditing teams that go around the country inspecting many different kinds of restaurants.  Because they have sophisticated equipment and training, they are very good at auditing.  Plus Steritech calibrates their auditors to brand standards and keeps them honest.

They can be very expensive, several hundred dollars per audit. You have to take cost into account when deciding to use a 3rd party vs. your own resources.  We have heard that Yum uses 3rd party auditors and pays for the initial quarterly inspection but if a unit fails the inspection, then the franchisee has to pay for a reinspection.

I’ve always been suspicious that 3rd party auditors could skew scores to ensure that their company keeps the contract. I don’t have any evidence of this and I’m sure the 3rd party auditing firms control this but there is an incentive to tell corporate what the want to hear so that they keep using the 3rd party firm.

5. How comprehensive, how much stuff are we going to cover, in the audit?

This goes back to everything we have discussed so far.  What are you going to do with the data, how often are you going to audit, and who is going to be conducting the audit?

You have to decide for yourself and your goals about how comprehensive your audit is going to be.  Here are some things that definitely should be in a comprehensive audit.

  • Food Safety – a must have for audits
    • This should include checking for all critical health violations.
      • Dishwashing – Dishmachine rinse and chemicals or 3 compartment sinks
      • Sanitizer Buckers
      • Handsinks
      • Proper food storage both dry and in the coolers
      • Labels on all food
      • Dumpster areas and rodent control
      • TEMPERATURES!!!!!!!
  • Restaurant Cleanliness and Maintenance – speaks to brand standards
    • General restaurant cleanliness
    • Wear and tear on building
      • Obvious signs of damage
      • Lack of upkeep
    • Bathrooms and dining areas
    • Kitchen cleanliness and organization
  • Food Taste
    • Pick random items, especially if they are prepared on-site and taste test.
    • Tasting food reduces comps when you catch your own mistakes.
  • Brand standards
    • Menu boards and POP
    • Guest service – observe transactions and rate the service provided
  • Administration
    • Proper employment records for all employees
    • Checklists and food safety documentation
      • Food safety documentation is one that often gets overlooked and not having this should cause a massive hit to audit score.
      • We have a pencil whipping problem in the US when it comes to food safety documentation, and it is unacceptable.
      • If you ever get someone sick at a restaurant, it is your documented adherence to food safety procedures that will give you the best chance of limiting your liability.  The FDA subpoenaed all of Chipotle’s logs a couple of years ago.  When you can’t supply that documentation, you are basically admitting to not following established best practices for food safety and therefore are more guilty.
      • You can effortlessly track and keep all your food safety records, track checklist compliance, and more if you use the OpsAnalitica Platform for daily checklists.
    • Required Employment Signage
    • Food Safety Certification Training

6. How long do you expect this audit and any subsequent coaching to take?

Audit time needs to be understood for planning reasons.  How many audits can you do a day? How many audits are you expected to do a month or a quarter?

We ran some numbers for a time savings business case a couple of years ago, and it is staggering how quickly audit time can add up.  As an example, if you can save 2 hours per audit and you do ten audits per month, that ends up being six weeks of time saved at the end of the year.

Understand for yourself how long these are expected to take so you can properly plan your audit program and make sure that your team can conduct their audits and do their other job functions if applicable.

7. How are you going to handle action plan items?

This is probably the most important part of auditing, and subsequently, one of the hardest things for auditors to do is to manage all of the action plan items that are created on audits. Action Plan items speak directly to the legal concepts of Due Diligence and Due Care.

In very lay terms, due diligence is doing your audit, self-policing your locations to make sure they are operating up to your brand and food safety standards.  Due care means having a plan in place to handle deficiencies and document that those issues are rectified.  The problem becomes when you audit your restaurants, identify issues, and then don’t take care of them.

We have all seen the news reports, the company knew this was an issue but didn’t do anything to fix it.  Knowing but not fixing greatly increases your liability but more importantly plays horribly in the media if it ever comes to that.

The basics for handling action plan items are:

  1. You have to identify action plan items.
  2. You should create one action plan task per item to ensure that all are handled.
  3. Assign the responsibility of rectifying the item to a person(s).
  4. Assign a due date for when the issue needs to be fixed.
  5. Verify, usually through pictures or re-inspection, that the item has been fixed.
  6. Document all of this in case the issue you identified caused someone harm.

Following up on action plan items is best accomplished by a task management program.  You can use email if you don’t have a task management program but email is very lax on enforcement, and you are more prone to miss action plan items.

We hear from our clients and prospective clients that completing action plan items is one of the hardest things they have to deal with because often time the auditor has moved on to their next audit and aren’t at the restaurant to supervise. Obviously, if you do several audits a week and you identify multiple issues per audit, it starts to add up very quickly.

I don’t know how other software platforms handle this but we have an explicit action plan task that can be created off an inspection report and links back to the item. You can track all of your action plan tasks in your inbox and you are notified as they are completed or if they are late.

It is great to have people fix their audit issues on the spot when possible.  Just like using tasks, you need a way to document the fix for reporting purposes. In our system, if you don’t want to create a task you can add additional photos and comments on the inspection report for documentation purposes.

Put together a system that allows you to easily assign and track that each deficiency that you identify is fixed in an appropriate time frame.  You open yourself up to a lot of liability if you can’t ensure that items are being fixed.

8. Have you thought about Site Visits?

There are three levels of operations inspections that chains should be doing to drive better operations.

  1. Audits: used to identify operating trends and restaurant performance
  2. Site Visits: quick critical only focused checklists that non-location employees complete every time they visit a restaurant.
  3. Daily Checklists: used to drive behavior and to document food safety procedures on a daily basis.

Site visits are seldom used and recorded by most major chains, I believe that their audit software doesn’t do a great job of facilitating multiple inspections, and this is a huge mistake.  Site visits are 10 to 15 question checklists that focus on the most critical operating standards from a FOH/BOH perspective.  They should be completed everytime a person from the restaurant chain, that doesn’t work at the location, visits the restaurant.

Site visits provide the following benefits:

  1. You collect more operations data:
    1. These are quick and take place at different times of the day so you can get interesting data about how well the restaurant is operating during the rush or right after.
  2. More flexible than audits:
    1. You don’t want to be changing your audits to constantly reflect current operational priorities because this dilutes their historic relevance. Instead, you can use site visits to gauge how well the restaurants are doing on current operational initiatives.

Using site visits in conjunction with your Audit program will help you understand how the restaurant is performing in between audits and provides very interesting operations data. It also allows you to identify and quickly address critical issues.

In conclusion, auditing is about protecting your brand from yourself. It is about ensuring that your restaurants are operating at or above standard. Audits are about teaching and coaching your team members, providing feedback, and holding people accountable.

Restaurant Audits are an integral part of managing multi-unit restaurant and hotel chains.  They provide us with a report card on how we are doing.  I highly encourage you to review your audit process using some of the standards I highlighted in this post. If you are looking for consulting assistance to review your audit program or restaurant audit software to conduct your audits on, please feel free to schedule a call with us at OpsAnalitica by clicking here.

We welcome the opportunity to discuss what you are currently doing, show you how our software could help you optimize your process, and to give you a quote.

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