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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.

Tom Moxcey’s Out of the Box Thinking

This week’s interview is with Tom Moxcey, former CEO of Rock Bottom, Old Chicago’s and Charlie Browns. Tom talks about his amazing career starting in Boulder, CO in 1970 through today where he is a restaurant gun for hire that will come in and fix broken restaurants by actually managing them, not just consulting and moving to the next project. Tom spends some time talking about the prestige of working at restaurants and how he feels that has been degraded over time and some of what he believes will be the unintended consequences of the current minimum wage increases. This is a great interview that you don’t want to miss.

To contact Tom, you can reach him through LinkedIn at by clicking here.

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