Quarterly Benchmarking for Bar & Restaurant Owners with Jordan Silverman to Boost Your Profits

Right , we're not seeing a big change in like what a chicken costs now compared to what a pig costs . It's going up , but not significantly . But what we are seeing is consumers fighting back on price increases . So there's only so much people can increase price .

So we did this about three months ago and we're getting our benchmarking data from Starfish which , as many of you are aware , is a partner of the podcast . So joining us today is Jordan Silverman . He is here because , if you listen to the one we did a few months ago , I said you know I probably should ask Jordan this a couple times .

So I figured , rather than me trying to figure everything out on my own , having Jordan here , having him give us some context and add his thoughts in because he's looking at this data as much as I am would be very helpful for all of you . So hopefully we get less conjecture and more reality than we had when we did this three weeks ago .

But before we get into that , real quick , obviously we mentioned Starfish that's one of our sponsors , but I want to mention our other sponsor real quick , which is spot on . They provide a great POS option . So if you're interested in learning more about that . It's down in the show notes .

But , as I said , jordan Silverman of Starfish is joining us today , and Starfish I have mentioned this in the beginning of most podcasts , but they take AI data out of your accounting software and I think now they're connecting with , I want to say , four or five different ones , so QuickBooks , restaurant 365 , xero , some other options there and they use their AI to

really dig into your numbers and find inconsistencies , changes , abnormalities , and then alert you of that .

Starfish , I want to say , jordan , you're just past your one-year anniversary , so that's exciting and that's fun , and I saw on LinkedIn when you posted that and I forget the exact number , but you had some number of hundreds of thousands of dollars that you've saved people so far .

You had some number of hundreds of thousands of dollars that you've saved people so far .

He goes into all sorts of detail about what the product is , how it works , and we really break that down . So that's there .

Also , if you have not listened to it and you're curious about some of the background or some of the numbers we're referring to , there was an episode that came out right at the beginning of July that went over numbers for the previous quarter .

So that may help give some context to something that we're saying seems a little odd , and so you can see where those numbers have gone a long time . And so , like I said , jordan and I are just really going to jump in these numbers and discuss them and full disclosure . We have discussed this a little bit before the episode , but not entirely .

So we may have some disagreements , we may have some points where we're just kind of thinking out loud , but that is what data analysis is at the end of the day . So , with that said , jordan , before we get into the numbers , is there anything you want to add , anything you want to talk about real quick .

So I've worked in the restaurant industry for the last 10 years on the tech side . What I noticed is almost every single restaurant or small business analyzes their costs the same way . They go down their P&L line by line and they see how they're doing compared to last period or even worse , chris , nothing at all .

They just hope that things get better month over month . So what we're doing is automating that analysis . So we integrate , as you said , into accounting systems , we pull in the P&L and then , on a weekly basis , we email our clients proactively tasks or action items that show them step-by-step how to lower costs or increase revenue .

So when we say that we've saved our customers over $400,000 , what that means is we emailed them proactively . Here are some ways to lower your costs . They took those actions that is everything from food to labor , to utilities , to cleaning supplies and everything in between and their costs actually went down because of it .

So that's not in potential savings , that's in realized savings . Now , why benchmarking ? First thing I'm going to say is we're going to dive into benchmarking a lot here . Benchmarks are meant to be directional . They are not meant to be to the penny , they're meant to be directional .

When I was running my first business , I spent way too much money on things like legal and advertising and things that did not matter for my stage , and I wish I had someone telling me hey , jordan , you're spending too much on these categories for your stage , for your size , for your type of company . Slow it down a little bit . Focus on what matters .

That's what the benchmarks are there to serve as as a warning of . Your labor costs are too high , your management is too high , your utilities bill is way out of whack for where it should be .

So everything we're going to talk about today is based on my own need , and our customers are using it today as a directional beacon , a guide of where they should aspire to be and where they need to focus , and I think that note on benchmarks is really important .

So your model may be a little bit different than the industry as a whole , but nine times out of 10 , if you have a cost that far exceeds a benchmark , you have a problem .

Is your product mix right , it's it's . You can't just say prime cost should be 55 because , to your point , if you sell way more food in one quarter and way less beer , well beer costs a lot less on a percentage basis than food generally .

They're running a 43 , 44% cost and I said to him like hey , that's got to be closer to 30 because that's the industry average . This guy was super nice . The edge came . He said no , jordan pizza place might have an 18% cost or a 15% cost , but a steak place 40% is actually really good .

So the product mix , as you said , chris , whether it's a restaurant or a bar , is everything for what it should look like .

Versus that pizza I'm selling for $18 , I'm not making 24 bucks .

There are also outliers on the rural , suburban end , and that's so that everybody knows how we have this data divided when we go through and talk about major markets versus smaller markets , or major cities versus non-major cities , or urban versus suburban , rural , however you want to phrase that .

And you know , on the rural end , if we get really sticks rural , well , your costs are higher . Not because your costs are higher , your costs are higher because you can't charge more than five bucks for a Bud Light , if you can even get five right Like it's . There's just less elasticity in what customers will accept as a price . Yep , totally .

So with all that preamble , let's go ahead and talk some numbers .

So first thing I want to look at is net profit and for those of you that listened in July , one of the things we talked about was that , looking at net profit , we looked at top performers and then we looked at averages across all of the starfish data and top performers , quarter to quarter at that point had been pretty flat .

Now we've seen kind of a marked decline among those top performers , going from 33% to 21% for those in urban areas , major cities and going from 37% to 29.6% for those in suburban and rural areas .

Now , when Jordan and I were talking about this beforehand , he had some insight into some of what is causing this , which I'll just go ahead and let you talk on why you think that is yeah .

Just to take a step back , we're going up fiscal calendar , right , so that is July , august , september . Okay , that's Q3 , July , august , september , which for most of us is summer . So what we're seeing is a lot of these things are changing based on summer .

So we're seeing , somewhat consistently , q1 and Q2 are kind of the same , and then Q3 and Q4 are pretty different because of A the weather , and then B the holidays . So that's what we're seeing in terms of differences from a sales standpoint for Q3 and Q4 .

They're not in this city as much as they can be in summer because it's hot and it's loud and it's annoying and they would much rather go to the woods , to a beach somewhere , get out of the city . So those folks out of the city then do a little bit better sales-wise . Those folks in this city do a little bit worse .

And the other thing too there that I would add on to what you said is that there are costs increasing across the industry and the fact that the top performers have come down a little bit in some ways in my mind just illustrates that the ceiling has moved a little bit lower . Right , we're not .

They're not necessarily doing anything worse , just the sales overall were lower , so that ceiling on the percentage of profit moves a little low listen .

We're not seeing a big change in like what a chicken costs now compared to what it did cost . It's going up , but not significantly . But what we are seeing is consumers fighting back on price increases . So there's only so much people can increase price .

So those three things of sales kind of going down a little bit over the summer , consumers hitting their ceiling in terms of what they're willing to pay , and then wages , hourly management , everyone going up . It just brought that ceiling , as you said , down Absolutely . But what's ?

So a little lower , but not a really big change at all . Versus rural suburban areas we were seeing 9% last quarter , now we're seeing almost 14% . So that's a pretty significant growth in that part of the market . When it comes to average bottom line and my inclination , it just goes back to that seasonal tourism .

It goes back to people going on vacation to these more rural suburban areas and spending more money there .

We're going to go through some individual costs and look at them , and in the last episode that we talked about benchmarking and went over the data , the first thing we looked at after net profit was occupancy costs .

Occupancy costs because A they're relatively , they have variance season to season , but they're flatter than most things that we deal with in a lot of ways . So it's a good indication for me kind of of where sales are looking . And also because when we start dealing with energy price increases and some things that have been going on , that can be a big spike .

That is hard from our side as a bar owner to really price in and play with . Because , to your point , jordan , if chicken isn't getting more expensive , inflation has hurt us .

But we've also kind of had grace from our customers because if I charge you more for bacon and you go to the store and bacon's twice the cost it was four years ago , you understand , yeah , right , the customers can have logic in their four years ago .

You understand , yeah Right , like there's a , the customers can have logic in their own brain that makes that work . Whereas if our energy prices go up 20% and then our prices go up 5% , to account for that , there's a little bit more cognitive dissonance with the customer and they can't draw those lines together quite as easily . You're not passing that along .

No , you're not , that is true . So , looking at occupancy costs , when we look at major cities , we saw the first quarter . We looked at 6.4 , 11% last quarter . Now we're up to 14 . And I will say some of that is an increase in rent as a percentage . Obviously . Also some of that's an increase in utilities .

And then , when we look at non-major cities , we saw 4.9 first quarter , 11% second quarter and we're seeing 11% again third quarter . So it's not a huge change in either regard .

Third quarter so it's not a huge change in either regard and my thought process , as I was starting to look through this , is that , well , 11% to 14% for a major market could be as simple as it's been really hot this summer and people are running their AC . What are you thinking , jordan ?

So I expect and the data kind of shows this is higher in a major city , so I expect and the data kind of shows this occupancy costs to be slightly higher simply because of that

. What's been really interesting to look at is we are seeing customers not only increase their electricity , their gas , their utilities year over year , but almost 2 to 2.5x compared to what it is in the winter and spring . Wow .

So what we're seeing a lot of is utilities bills up somewhere between like 10 and 20% year over year , but sometimes that could be literally two X from what it was in Q1 , beginning of Q2 .

So when you're looking at utilities , I always recommend to my customers that's one of those that I always recommend looking at year over year , not period over period , because the jump from May to June to July to August is really significant .

And I don't know if you have any data from your customers if they've done that , because in theory , if you're buying more electrical equipment , your utility costs should go up , because electrical equipment almost always costs more to run than the same piece of equipment on natural gas yeah , um , I don't have the data , but I can tell you qualitatively , we are

having a fair amount of customers look into it , but getting scared off by the upfront costs , which makes a lot of sense to me .

Maybe next year , maybe when we got more profit , maybe next year , but I'm not seeing a lot of people actually make it .

But who knows when that will happen or what will happen ? Predicting politics is not a game . That I'm . I'll predict bar and restaurant numbers all day long .

Now , everything we're talking about with heat and electrical use , obviously that doesn't matter if you're in New York City or in upstate New York , right , your weather is basically the same , and the weather , or , I'm sorry , your utilities , are going to go up the same amount from AC usage .

Yeah , do you think that the non-major cities have stayed more consistent just because they've seen an increase in sales where the major urban areas have seen stagnant or decreasing ?

But I don't know what the driver is , and I'm trying to figure that out just the same as you , because I honestly don't know what the main driver is .

We have some of the best data that exists right now that we're talking about , and even with all of that working in our favor , we don't always have the answer right . Some of this is there's just not the industry volume of data and the academic studies and things that give us clear-cut answers .

Some people split out gas and electricity , some people all just in utilities . So rent sometimes it's rent , sometimes it's rent plus cam , common area maintenance sometimes it's rent plus percentage . So what I would say is use these directionally , as we talked about at the beginning , and then just look for your business .

Your focus and occupancy cost should be year over year . That's my recommendation .

On prime costs , so the first quarter we looked at this . Major markets we were looking at about 65% . Non-major markets , we were looking about 78% . Those both dropped last quarter to 56 for major markets and 53 for your suburban rural markets . And then this quarter , analyzing it , it's gone pretty much to where it was first quarter .

So it looks like we had a dip in spring for whatever reason , and we can speculate on that in a little bit . But essentially , where we are now and where we started the year seem to be basically the same from what I'm looking at . Yep , so with the decrease last quarter , I mean , I'll be real honest .

The first thing that occurred to me because jordan supplies the benchmarking data but I have to do math , like for prime cost , because I'm looking at individual percentages the first thing that occurred to me was that I did my math wrong last time and because it seems odd to just create oh , they both dipped and now they're both back almost exactly where they were

. Other thought that occurred to me is it could be a volume thing and just seasonality in the market . So I'll just ask you do you think I did my math wrong or do you think it's a seasonality thing ?

Right , that's not something most people understand . Right Is that there's a bare minimum . You probably need one front of house , one back of house , at a minimum for your bar , ideally more as you grow , but at least one front , one back . But your sales might not justify that . Or you've got two and two and your sales aren't there , so you can increase .

So , number one I think it's a volume thing .

One of the other ideas I have and I've just started talking to customers about this is as college is in session , there's an abundance of workforce that a lot of restaurants can tap into that might not be as high paying as a full-time employee , that might not be as high paying as a full-time employee , and over the summer they go away from campus and they do

other things . So that's my other ongoing thought is potential lower labor costs for some of these people .

Say , now we're in the middle of fall semester , it's football season , there's all this craziness Versus a few months ago , where I could literally drive over there on Friday night and park on any street I wanted . I'll be real honest I like Bloomington , but I like it a lot more in the summer because all the college kids are going .

Anecdotally like , everyone is agreeing on this point , yep , and so the average years of experience have to be way lower now than they used to be . That also means that there are a lot more jobs available for those college kids , cause there's a lot fewer lifetime bartenders , lifetime servers out there .

So yeah , I don't know what that means at the end of the day , but it's very interesting .

I mean , there there are more tech companies now that are kind of in , do some kind of benchmarking , but if you think back five years ago , no one had data like this .

No , no , yeah , and for the record and this is not just because Jordan's a partner of the show and I like him personally , but his data is , out of everything I've seen from anybody , probably the best out there- as far as consistency and level of detail .

Appreciate that Because that's one thing , and we're going to go into some of the details here , because in the last episode when we talked prime cost , we just talked about it generically

. Here I want to actually talk food , beer , wine , liquor and labor real quick . But a lot of the benchmarking that folks get access to doesn't have that ability to get to that level . So we talk about these kind of you know , 55% prime cost . Well , okay , that doesn't . I can't do anything with that If I have a prime cost benchmark across the industry .

So , with that said , let's get into the specifics a little bit here . So , with food and we didn't do these last time , so I don't have comparisons but I do have numbers Food wise , we're seeing 40% food costs in major markets , 25.7% in smaller markets . I took this solely to mean and we'll measure this so that next quarter we can talk about a comparison .

But I think that in my mind , that difference we're talking about 15% higher food cost in major markets is probably largely due to quality of food . Now , I don't know your customer base well , so I don't know if that's true , but we were talking before the show .

If you're selling a steak , if you're selling a really high-end porterhouse , that you're charging 50 , 60 bucks for a 40% cost on that is very reasonable , versus if you're selling French fries , you're not getting a 40% cost on your french fries and surviving as a bar . So I think , some of its quality of food .

And then , just because you know , like where I live and we were talking about this before we started recording as well where I live there are price ceilings .

Just because I live in a rural area and people are not going to spend that much , right , if you tell somebody seven dollars for a side of fries , they're going to laugh at you and you'll be out of business next week in New York City .

If you say $7 for a side of fries , I'm sure there are some restaurants where people would consider that a really good deal . Do you think that's just a market difference in those two numbers , or do you think there's something bigger there ?

So we talk a fair amount with the distributors Cisco , gfs , et cetera and one of the things that they're pushing really hard is the best way to lower prices is based on drop size . Now , for those of you that don't know what I mean when I say drop size , I'm talking about the dollar amount of the delivery that you are getting .

The bigger the delivery , the lower they'll price it , because they don't want to send a truck back and forth multiple times . That is a distinct advantage to non-major cities , because major cities , the hardest thing is space and storage . So because of that , it's lower drop sizes , more frequent deliveries .

As opposed to the non-major cities , they can get less frequent deliveries and bigger drops .

Yeah , I could get the biggest deal on fries in the world , but I can't store them . Yeah and in . Yeah , I was working with a client of mine that's up in Indianapolis and we were talking and she's like yeah , I think I might just put a freezer out . A client that does that , right , and so you . But it's , it's .

The ability to put a freezer out back is great if you have dirt , but if you're in oryx city , yelled at multiple times by his landlord .

You know , maybe a handful , maybe , I would guess , very few . Yeah , right , cause some family owned the same bar since 1850 or something , so they own the building .

Yeah , versus , you know , if you get into rural America , if you go to the middle of nowhere in Nebraska , it's closer to like a hundred percent of people own the dirt because , well , in the same way , their family might have owned the dirt since 1850 , but it's a lot more dirt and they can build on it whatever they want , correct , correct .

So that's food costs , right , where we're seeing it higher in the major markets than the non-major markets by a significant point . What was interesting to me beer costs . Major markets we're looking at 18.75 . Non-major markets we're looking at 16.7 . So we're almost identical .

On beer costs , I was trying to figure out why non-major markets , I'm sorry , were a little lower cost percentage , because usually and I already mentioned this but non-major markets . You just can't charge as much . And my thought was rural folks are more likely to drink a Miller Lite or a Coors Light or a Bud Light than a craft beer .

And you get in the cities and they're selling a lot more high-end craft beer than they are Miller Lite . Yeah , totally , totally hear that . So do you think that's the entire explanation of that margin difference there ?

right . I would assume that in major cities they're getting better margin , but they're just selling less of it and different types . So , yes , I think that's like pretty much it and what was interesting is moving on to wine .

My brain , first thing I went to , was well , a , the percentage is so high because we're looking at a lot of people selling bottles yep , right , so they're not , they're not . They're not getting 4X what the bottle costs , like they were just selling it by a glass .

They're , they're selling bottles and they're accepting more contribution dollars in exchange for less contribution margin . The same way you went on a stake , but I think those 16 points in my head . I looked at that and well , well , that's because you can't sell the stuff for the same amount .

Yep , totally agree . Now what struck me as interesting was that we see , yep , totally agree . And with non-major markets we're looking at a third 33.33 .

And you know , if you listen to me talk on the podcast , if you listen to any of the consultants , any of the cocktail folks , any of the bartend training folks , we're all going to say that number should be around . You know , 20-ish , new York City , a lot of those guys will argue 18 .

You'll hear me a lot of times say 22 , 23 , 24 , because I know in those rural communities you're not getting there . But 30 seems hot . Do you have any idea why 30 would be where we're sitting on that ?

Okay , so before I worked at starfish , before I started , before I started starfish , I worked at a company called market man , which is an inventory software for bars and restaurants , and we noticed over the summer a pretty big team exchange in terms of liquor , where people stopped ordering drinks neat or on the rocks and started ordering actual cocktails in the

summer . And a lot of times cocktails have more ingredients and , in turn , might have a higher cost . That's my initial thought but I don't know .

I mean , you have , in some cases , more money in everything that's not booze than the booze itself , and so that would make a lot of sense to me .

I mean , I've always noticed the uptick of what I would call summer drinks in summer or beach drinks when you're going to the beach , but I had not thought about it in that way , and what I would say is like so many of the customers that we see .

A lot of people get an Excel or a tool like MarketMan or Mies type in their recipe and say I want this percent margin , so this is the profit , this is the retail price . But when you're forgetting things in the recipe or when you're not doing the right amounts , it's a whole different ballgame .

Right , because if I have a cocktail menu , it's all winter drinks and they're all 12 to 15 dollars .

Yeah , and then here comes summer , here comes , you know , I don't know , maybe we're talking about a place in like virginia or north carolina , on the beach , right , because winter , winter is really winter there , but summer is wonderful beach weather , yes , and so that that summer comes around . And I'm still stuck in my customer's mind in that 12 , 15 .

Maybe I could push 15 , 16 , but I can't change from a 12 to 15 dollar cocktail menu to a 17 to 20 dollar cocktail menu . Agree , yes , they're totally agree . And , by the way , anyone listening , if you go on the show notes notes there's a thing on the very top that says text the show .

If you think , because I am curious , if you think anything we're saying is just completely wrong or if we have something of conjecture and you're going yeah , that happened to me , that's true , let me know um because the the more information we have a we'll share it on the podcast and let everybody know .

Hey , hey , jordan and I talked about this and we were just dead wrong or right . I mean , hopefully we're right , but we could be very much wrong but also just because it gives some more validity and everyone . The only way to look at the industry and benchmarks is to get as much information as we can from everywhere and try to synthesize it together .

Yeah , very well said . So last piece of prime cost , to talk about labor cost , which I know you and I have a lot of different thoughts here and we're looking at about 33% in major markets , about 30% in non-major markets . To me , that is really really close together .

I don't really see any statistical difference there , especially given that , well , to put it simply , in Indiana you can still pay $2.13 as a tipped minimum wage . There aren't many states where that's true . I think it's like 15 now or so , it's 15 or less but there are a number of states where that's true and those are not major markets .

And a lot of the major markets . You're dealing with minimum wages that are $20-ish , so it's a huge difference in labor costs . It's well 10 times as much , so those numbers being close , that I'm reading is pretty much the same . What are your thoughts on the labor side ?

But you're correct , we are not seeing major labor cost differences based on location , which is really interesting .

There's just a bigger market , there's more money , there's more people , there's more customers . You said , year over year you've seen a big jump , and I don't have those numbers .

I don't see anything more than that . What I can tell you is that the increase is happening across the board , but the number one place it's happening is hourly labor . Management wages are increasing . We're seeing management wages up about 10% to 15% year over year .

So management wages are up for sure , but the hourly labor is the majority of the increase that's happening year over year .

The third-party delivery push is having a significant impact on margins , significant impact . So that's the other thing we are seeing , and this heavily skews towards major cities , where major cities are seeing a lot higher percentage of sales come from third-party , especially year over year . So what's interesting is , like COVID hit third party spiked almost 100% .

Right Then , post COVID , everyone wanted to start going to restaurants , everyone wanted to eat out , and now we're seeing third parties start to take up again with the back to office .

Yeah , it's just , it's crazy . So I don't see that . But with that increase in delivery with the back-to-office , that would make a lot of sense , especially on food costs and indirectly , potentially even labor costs , right ?

Because if you're doing a whole bunch of delivery , you have to have more kitchen staff and you're doing that at a much lower margin than if you were serving it in the front .

Yep , yeah , so , yep , yeah so . Jordan and I have been talking for quite a while about numbers , so if you're still , with us good job hanging out and hopefully this has given you guys a whole bunch of insights on what's going on . Now just my key takeaways and then , jordan , I'll let you give yours .

We're seeing the top performers not doing quite as well , but on average it seems like the industry is chugging along pretty well . We have a lot of headwinds , I would say , whether it's labor delivery , which I hadn't thought of before , to Jordan's last point or just changes in seasonality For summer we had some of that .

The seasonal changes should go away , but there are definitely some headwinds against the industry . That being said , from looking at the numbers , to me this is not a . They don't look bad . I wouldn't say they look particularly promising either . I would say it's kind of just a neutral situation . Jordan , what was your key takeaways ?

So you can count on , based on history , if your sales are going to increase or decrease in some . You can see if your P-Mix is going to change and you're going to sell more cocktails than shots . You can see all of that in your data . So if you do it manually , just go to QuickBooks or Excel .

If you want us at Starfish to do it for you automatically , great . That's the first thing . Look at the historical information . That's the first thing . Look at the historical information . The second thing I would say is labor is increasing , the cost of labor is increasing .

You need to find innovative ways to lower your costs , because I don't and Chris , please tell me if you disagree I don't see food , liquor , beer , wine decreasing in cost anytime soon . I'm not saying it's going to continue increasing , but I don't see it decreasing in cost anytime soon . So if your food and beverages .

If your F&B is staying the same and your labor is going up , you have two options . Option number one your profit margin goes down and nobody wants that . Option number two is start to look in the nooks and crannies . Start to look at your chemicals , your paper items , your utilities bills , really start to be strategic about where you can save and spend money .

So I think those are my two big takeaways . Is benchmarks are here for directional , but look at your business and your business history . And then , number two , look for any savings you can , because if you can stack $100 here , $200 there , $1,000 , it makes a huge impact . Every dollar you save is a dollar of profit .

And if it's profit , right , that's good , and I own the bar myself , that's straight to my pocket , that's my vacation money . And so your point about look in the nooks and crannies , look at this stuff that you know we didn't talk about today Because we talked about the big picture items , the numbers that everybody really cares about .

Look at the stuff we didn't talk about . And if labor is increasing , which it is , we can't argue that . That's how you can offset that .

Gloves , they can cut their glove costs by a tenth . So let's say it's not $10 . Let's say it's $10 . It's now a dollar . They figured out that if they change their to-go bags from color to black and white , 40% savings . A nickel on every bag , for example . So don't just think about your primes .

Your primes are where you start , but look in every single place you can , because that's where you'll make real money .

Plus , you talk to different people than I do , so it was really fun , I think , to come at it from two different angles and to really dive into kind of what's gone on the last quarter and what that means for the industry , for everybody listening .

If you enjoyed today's episode , make sure you like , subscribe , leave a review , all that stuff that everyone tells you to do , that you should do . And with that , everybody , I hope you have a great week and we will talk again later .