The restaurant space is full of different concepts and innovations. One such restaurant concept is unlimited food format or an ‘All You Can Eat Restaurant ’ format. An all you can eat (AYCE) format traditionally runs at a flat pricing, which means that customers pay a standard amount which is the same for all and then they can eat whatever they want from the choice presented to them. This is the system on which buffets and food promotions work. But what is odd that such a format exists at all since you would think that if restaurateurs let people eat all they want for a standard price, then where do the profits come from? For that, we look at economics.
The Economics of All You Can Eat Food Business Formats
Unlimited food formats are shrouded in mystery not just for those who look at it as customers but even for those who want to enter the industry. This is so because they make money in the most hidden ways and means. If you are someone wanting to decipher the economics of all you can eat food formats whether it is for running a promotion for a few days or for opening your own all you can eat buffet, read on.
1. Projecting Sales
The first thing you need to do when you plan to run an unlimited food format based restaurant or promotion is to project your sales. You need to estimate the number of people that will come to the promotion or restaurant, not just to prepare the food but to actually price the entry. In an unlimited food format based restaurant, the price of entry covers the food costs. Projecting how many people will come at a given price is necessary to finalize this price and get your working costs covered. In an ideal scenario where the buffet that you present is sold out, the profit will be generated from all the markups and all the expenses that you will have saved. It is this inbound method of making a profit that puts all you can eat formats under scrutiny. Once you have projected your sales and included the markup on the entry price, basic profit is earned, the rest is dependent on the food people chose inside and markups on them.
2. Using Economies of Scale
Next thing that you need to understand about buffets or unlimited food proportions is that unlike regular restaurants, they will practice economies of scale. Practising economies of scale means that they will prepare the food in bulk (high scale) which will lower their operational costs. As costs come down, expenses come down and profit being dependent on both revenue and expenses, goes up.
3. Saving While Staffing
Whether you are planning to run a promotion based on unlimited food format for a day or you are planning to run a restaurant based on it, one area where you will definitely save is staffing. Every buffet is self-service. When in a restaurant, drinks are free they run on a self-service model. Even in promotional events, your unlimited food format will be self-service. In this model, the need of waiters is totally negated which means once again your expenses come down and so profits go up.
3. Law of Diminishing Marginal Utility
The basic parameter that unlimited food formats work on, is economics. Every decision is an economic decision and according to the standard economic model, when the price is constant people consume till they are satisfied. The satisfaction they derive out of food is lowered after each bite till they reach the level zero after which consumption is based on mere greed. This is called the Law of Diminishing Marginal Utility.
Taking this into consideration, most people will eat only what they can handle, leaving you in profits. The loop that exists is that some people want to get their money’s worth and so will eat more than they can handle. While it is true that these people can end up costing you money, in the end when you come down to it, the damage these consumers will do is far less than the profit you will earn from others. Plus, because you are saving on so many expenses in the back end, very rarely does such a mentality in consumers even end up costing restaurants money.
4. Balancing The Dishes
The next practice anyone running a good ‘all you can eat food’ format will follow is balancing the dishes. Unlimited food formats serve well-selected categories and number of dishes. Appetizers always come first, salads are served before the meats and people are made to load up on drinks. Customers are given less costing items when they are in the gusto of eating and more expensive items are brought out only when this spirit and hunger has died enough. Apart from that even within the categories of appetizers, main course and dessert, there are better dishes which sell themselves and then there are dishes which are not so popular yet make their way into plates. All these careful checks and balances make sure that the restaurant can always maintain profits.
5. Balancing Proportions
After balancing dishes next comes balancing proportions. These are the little things that make sure unlimited food formats stay profitable for the restaurant. Low costing items such as sides and salads are served in bigger containers and filled to the brim. This is to encourage customers to pile up on these. At the same time, higher cost items are made relatively small and served in smaller containers. The illusion plays out well and restaurants end up saving from the margins. The same is the case with which protein cuts are presented. They are good enough to enjoy but not the same as what you may get in a fine dining. By balancing cuts and proportions, all you can eat restaurants cut down their expenses and raise their profits.
6. Including Drinks
Drinks in an unlimited food format can work wonders. The markup on drinks is huge since restaurants get them for a very reasonable price. including drinks means that you are loading people up on liquid so they eat less, ultimately giving you more profits and reducing your cost simultaneously.
Things to Keep in Mind While Running Unlimited Food Promotions
While offering an All You Can Eat format is certainly going to attract customers, it can also turn disastrous if not done the right way.
Keep a Tab on the Timings
Just because you are offering unlimited food, it doesn’t mean that your customers get to stay all day your restaurant and keep eating. There should be a cap on the amount of time till customers can eat. This works well for Buffet restaurants as they usually serve the three meals of the day. For instance, the dinner buffet starts at 7 PM and goes up to 11 PM. During the four hours, customers can only eat so much. However, this can be difficult to achieve for all-day diners. A restaurant in China made this mistake of allowing patrons to eat all they could all day long and ended up getting bankrupt.
Look Out for the Freeloaders
You should also be on the lookout for freeloaders who share the unlimited food for one between two or more people. Although this scenario rarely happens at high-end restaurants, it is much more common at QSRs or buffet restaurants having a high footfall. Restaurants have also been known to ban customers who tend to take advantage of unlimited food formats and simply eat too much and keep coming in again and again!
Pay Attention to the Marketing
While marketing is a must for all types of restaurants, it becomes all the more crucial for restaurants offering unlimited food as a lot is at stake here. To meet the projected sales target, it is important to attract customers. Since the minimum spend of customers is also high, it gets even more difficult to gather footfall in such restaurants. Although Unlimited Food Promotions work well to attract customers, the price that comes along with such offers can also be a deterrent.
Here is a restaurant marketing manual that would help run the Unlimited Food Promotions successfully and also help in attracting and retaining customers.
In an unlimited food format, the equation is simple, profits can be derived not just by increasing revenue but also by decreasing costs. Unlimited food formats focus more on the expense part and squeeze their profit from the margins. At a flat pricing, the customers are tempted to keep pouring in as they feel they get the best deal for their money and the restaurant earns from the back end. Though a little tricky to master, once executed an unlimited food format is one of the most profitable formats in the restaurant industry.