Food and Beverage Revenue Management - Essay Example

FOOD AND BEVERAGE REVENUE MANAGEMENT RESTAURANT PROFILE Red Bamboo is a restaurant specializing in traditional yet modernly presented Southeast Asian fare. Red Bamboo's vision is to offer the best ingredients and produce available and come up with cuisine that is distinctly Asian but with globally compelling flavors. Red Bamboo presents a concoction of taste representations - Thai, Filipino, Vietnamese, Singaporean and Malay. Though the menu focuses on seafood, the restaurant also dishes out meat courses/platters, salads and pastas. The restaurant also has a wine list that is selected to compliment and bring out the best of the cuisine. Established in 2004, Red Bamboo offers a casual and relaxed atmosphere but guarantees an enjoyable dining experience. The star of the restaurant is the food, so people are encouraged to visit in relaxed garments or casual attire. The restaurant is conveniently situated in the heart of Central Dublin's food and restaurant district. The restaurant can conveniently seat around sixty to eighty-five guests and is open seven days a week for lunch and dinner: YIELD MANAGEMENT As in any food business, Red bamboo also encountered problems in controlling yields and revenues, especially in its initial year of operations. The management then decided to use an effective yield management mechanism to address the problems which will eventually affect the overall operations of the restaurant (Kimes, 1989). Yield management is an approach aimed at improving revenues and increasing the course of consumer demand. In order to achieve these goals, yield management utilizes the fundamental stratagem of giving the precise service at the right point in time to the right consumer at the appropriate price (Kimes, 1989). Each segment of this approach entails definite tactical levers that enable the management to come up with an efficient and advantageous yield management plan. The factors that greatly affect the outcome of this strategy are best known as the 4 Cs which are cost, clock, calendar and capacity. Calendar procedures entail control over the timeframe when the transaction/reservation is made. Clock-related strategies rotate on the timing of the service delivered to the customer. Capacity issue is associated with effectively selling seating that is on hand based on the existing demand. Last, cost refers to the appropriate value of the service (Kimes, Chase, Choi, Lee, and Ngonzi, 1998). It is imperative to provide a measurement tool or give definition to the sale which is the outcome of the service provided. For Red Bamboo's case, the management referred to it as available seat per hour or seat/hour (Kimes, 1989). The guiding principle for an effective yield management plan is to take full advantage of the revenue that could be made on the available seat/hour (Kimes, 1989). For purposes of easier identification, management referred to this as REVSH. Being able to quantify in a time-related approach the goal of the process, the management of Red Bamboo then refocused on the specific stratagem levers that will impact REVSH. Among the levers that were initially identified are the following: meal preparation, menu plan/design, operational process, labor setup, etc. Red Bamboo's management first looked into the physical capacity of the restaurant. Red Bamboo conveniently seats sixty persons in its main dining hall, twenty in the bar and when weather permits, can seat around fifteen in an outside patio/area. When the revenue management plan began, Red Bamboo's menu consisted of twelve appetizers, twenty-five entrees and six desserts. In order to ascertain baseline information on mealtime length, arrival sample and REVSH, data was collected on an hourly fashion; though point of sales and observation by the staff. From these collected data, the management then estimated the average periodic meal duration by calculating the standard deviation and variance during meals (Miller, Dopson, and Hayes, 2004). It was found out that the average meal duration of customer was one hour and fifteen minutes; unfortunately the deviation was high at thirty minutes. This meant that customers finish their ordered meals in a little over thirty minutes but tend to stay behind for more than an hour. Additional investigation revealed that the meal lengths were often a result of operation process intricacies. The management summed the REVSH in hourly gaps. For dinners, the numbers ranged from 0.65 during Mondays at off-peak hours (5:00 p.m.) up to 5.66 on a Friday (8:00 p.m.). It was very surprising for the management of Red Bamboo that REVSH during lunch period was only around 1.00 or less. In the yield management study, the timing on each meal segment was documented, beginning on the period the customer/s are seated, the time that they were provided and greeted with the menu, delivery of the appetizers (if applicable), timeframe and delivery of the entre and until the time the guests departed the restaurant. The management analyzed why the meal segments' duration resulted that way. It was observed that majority of the guests have been seated for around fifteen to twenty minutes before they were able to enjoy the appetizers that they ordered and an additional twenty minutes have to be added before they can partake on their entrees. To further identify the reason for the service duration, the management used a service outline which clearly enumerated the process in a step-by-step presentation, explaining each segment and providing possible problems or service inconsistencies that eventually can cause interruptions and delays (Miller, Dodson, and Hayes, 2004). The management also used a fishbone blueprint which provided a graphic representation of the problems by categorizing the causes (Miller, Dopson, and Hayes, 2004). Through this tool, the management of Red Bamboo identified that among the problems that needs to address is the elevated deviation of meal lengths. Management involved the personnel to come up with the possible solution approaches, also taking note of other aspects of the operations like equipment, methods of meal production and the actual products. The management was able to identify other problems associated i.e. holding time for tables that were placed under reservation especially during peak times and when there were a lot of walk-ins waiting, lack of enough storage in the kitchen, resulting in additional time incurred during meal preparation. To remedy the difficulties arising from irregular meal duration, Red Bamboo's management trained its staff and employees to adopt a yield-management approach, developed standard operating measures, improved table organization and management, developed standard delivery period for each meal segment, continuous bussing and reduced payment timing. The management felt that the yield management plan should be stressed more during busy or peak days/time or period. To encourage movement during peak periods, the Red Bamboo ceased to accept reservations and operated on a first-come-first-served basis, assigned devoted host for each table, halted suggestive marketing approaches, streamlined/narrowed its menu selection, bumped up its pricelist and did not offer any special promotions. The tables were arranged preset to enable servers' center instead on table organization and management. To recap, the yield study conducted by the management of Red Bamboo identified that REVSH may be increased using two different sets of strategies, depending on the restaurant's situation (busy or slow periods). MARKET SEGMENTATION Red Bamboo's market covered an extensive, diverse and densely populated cosmopolitan area of Central Dublin - a location where individuals are known to travel and eat out. Aside from this, the area is also accessible and frequented by tourists and university students. Central Dublin is located a hub of shopping and business activity and is one of the most advantageous locations in Ireland. In Central Dublin alone, there are currently sixty-eight restaurants in operation. The customer base of Red Bamboo came from three (3) major segments: the local population (which has a year-round populace of more than 500,000 as of 2006) who generally (around 80%) work within the area of the city, tourists (the tourism industry of the city is on the rise, reporting a 95% hotel occupancy rate as of 2005 and attracting 4.5 million people annually) and university students (Dublin City Council, 2005 and Longman, 2002). The cuisine, food concept and restaurant image of Red Bamboo attracted a variety of customer profiles ranging from students, ethnic groups to individuals who are open-minded and curious to try Asian fare. The management of the Red Bamboo saw that with the mix of restaurants in the area, which majority are pubs, bars and restaurants catering to local Irish cuisine, ethnic restaurants are under serviced but current trends do point that the growth potential for this restaurant type is considerable and will continue to rise in the next years to come. The management also felt that concentrating on the three segments mentioned will eventually bring out the most revenues, especially when the tourism and population rate was stable and projected to be on the rise. Although there are almost seventy restaurants, pubs and bars in operations in Central Dublin that sell their staples at comparable prices, the Red Bamboo offers a different food selection. There are also other Asian restaurants in the area but these establishments do concentrate and specialize on a specific cuisine (Indian, Chinese, Thai or Japanese). Red Bamboo had the advantage to offer different yet interrelated cuisines - providing more choices for the average customer under one roof. The number of establishments in existence also point out and indicated the presence of a large and strong market (Miller, 1980). Red Bamboo initially made its successful entrance into the industry because of the novelty factor but eventually carved a loyal following by offering competitively and quality menu items. Price elasticity on a per segment basis was also responsive because the management designed product offering that address each segment of the market (Miller, 1980). For students, the restaurants especially during lunch hours do offer fare that not only appeal to students but also suit their budget - i.e. menu regulars like noodles, dim sum, rice toppings, etc is part of its "early bird" menu. For tourists and locals, Red Bamboo offers ala-carte items and set menus designed to appeal on their purchasing capability (Miller, 1980). DURATION MANAGEMENT The uncertainty of departure in restaurants is a common problem in any restaurant operations. As discussed earlier, gaining control over the length of time a customer lingers are important goals to pursue to come up with effective yield management. Since guests can stay for as long as they like, it is imperative for restaurant managers to have a practical know-how of the typical meal duration the restaurant. In addition, it is also beneficial for the restaurant to identify processes that slow the duration of the meal (Jones and Merricks, 1994). Red Bamboo initially have a problem in forecasting arrivals based on reservations alone and tended to hold over a table when the guests haven't arrived and later failed to honor their reservations. Because the majority of the restaurant's clientele are walk-ins, the management decided to scrap reservations and cash in its steady walk-in business. By doing so, the restaurant avoided scenarios of reconfirming reservations and losing business due to no-shows. To ensure manageable meal duration, the management also revises its menu every four months (Kimes, 1989), removing items that require disproportionate prep time or offering these labor-intensive items only during slow periods. The management also identified items on the menu which may lead to customers to linger more than usual (Jones and Merricks, 1994). Whenever possible, the management also learned that movement and duration was shortened in a courteous fashion through pre-bussing, prompt check delivery and settlement. Red Bamboo also encouraged migration and movement of its customers to the patio area or the bar, the location where coffee/tea and dessert is offered. The management also established measures to reduce the time required to reset vacated tabled in-between clients (Kimes, Chase, Choi, Lee, and Ngonzi, 1998). MENU REEVALUATION Planning a profitable menu in the food service industry requires knowledge about food, management and financial cost to the establishment. Knowing a great deal about the target market who will patronize the food or menu items that will be produced is also essential (Miller, 1980). In the case of Red Bamboo, the management has a regular menu list or "favorites" - items that are staples and are frequently requested by clients. Under the ala-carte section, however, items are changed every four months and availability of the items is not only dependent on the availability of the produce and ingredients, but also on its popularity index. At the beginning, Red Bamboo's menu consisted of twelve appetizers, twenty-five entrees and six desserts. Nine of its appetizers (Crispy Shrimps and Crablets Platter; Squid in Spicy Salt, Thai Shrimp Poppers, Stuffed Crab Claws, Grilled Oyster and Mussel Platter, Shitake Mushoom medley, Vietnamese Spring Rolls, Dumpling Selection, Salad Selection), fifteen entrees (Tom Yum, Beef in Oyster Sauce, Goi Ga, Steamed King Fish in Soy Sauce, Singaporean Chili Crab, Crab Maritess, Thai Crab with Vermicelli, Cantonese Lobster, Poo Ja, Vietnamese grilled squid with lemon grass, Beef Rending, Chicken Satay, Pad thai, White Chicken, Hainanese Chicken, Sambal Chicken, Nasi Goreng, Lotong, etc.) and three of its desert (Pulut hitam, Buco pandan and Sticky Saigon cakes) fall under the regular and student menu. Complementing wines in the list are well-represented: Dalat Vietnamese White Wine, Vina Esmeralda, Vina Sol, Sta. Digna Suvignon Blanc, Cottlers Bridge Cabernet Merlot, Mountain peak, Villa Brava, Caramar Estate, Coronas, Sangre de Toro, Gran Coronas, Gewrztraminer, Viognier, Riesling Kabinett, etc. Once the staff and management of Red Bamboo have a solid idea/information on the average number of guests selecting a particular menu item on its ala-carte offering, a popularity index id then computed. To compute the popularity index, the management defines the percentage of the total guest over a specified time frame who have chosen a particular item as against to a list of other menu alternatives (McVety, et al, 2001). The projection of the popularity index is greatly improved by using point of sales historical data. Red Bamboo develop assumptions on the preferences of future clients (and that it will be the same as the past guests) by incorporating a particular formula. The formula is as follows (McVety, et al, 2001): To effectively forecast an individual item in the menu, the following formula (McVety, et al, 2001). is used by Red Bamboo: The predicted quantity that is to be sold is basically the number of specific menu item as specified by the number of expected diners (McVety, et al, 2001). Once Red Bamboo was able to identify the items that the guests favor, the management was also able to establish on the number of the menu item the kitchen staff are asked to prepare. The management also takes into consideration other factors that could influence the number of guests arriving i.e. competition, service quality, weather, etc (McVety, et al, 2001). CONCLUSION As with any change process, any revenue management plan has the risk of alienating customers, especially if the guests feel that the reasons behind the changes are not fair or not logical. There is also the risk of misdirection of the restaurant's focus that may damage the morale of the staff, especially if the organization's will concentrate on short-term revenue approaches rather than long-term plans, affecting the delivery of efficient and quality service and responsiveness to the client's needs (Cross, 1997). Restaurant revenue management simply put is a method to selling a seat to the right client for the right price at a suitable time (Cross, 1997). The methods and tools of revenue management that was used by Red Bamboo can also be utilized by other establishment heads to examine the effects of changing the control over a process. The performance enhancement enjoyed by the Red Bamboo is a direct outcome of its improved table management, service delivery, staff instruction/training, etc. Determining the baseline performance is the first step in assessing its revenue capabilities. Once the fundamentals are identified, establishing a tailored strategic plan with realistic performance goals based on the peak periods of the establishment can eventually be outlined and carried out. A consistent and strong management approach is needed to focus the organization towards the realization of these goals. Finally once the measures are being implemented, it is imperative for the management to reevaluate the performance every other month (Cross, 1997). REFERENCES Axler, Bruce H. and Litrides, Carol A., 1990, Food and Beverage Service, Wiley: New York. Cross, Robert G., 1997, "Launching the Revenue Rocket: How Revenue Management Can Work for Your Business," Cornell Hotel and Restaurant Administration Quarterly, Vol. 38, No. 2, pp. 32-43. Dublin City Council, 2005, Annual Report, Dublin City Council, Dublin City, Ireland. Jones, P. and Merricks, P. (eds), 1994, The Management of Foodservice Operations, Cassell, London. Kimes, Sheryl E., 1989, "Yield Management: A Tool for Capacity-constrained Service Firms," Journal of Operations Management, Vol 8, No. 4, pp. 348-363. Kimes, Sheryl E., Chase, Richard B., Choi, Sunmee, Lee, Philip Y. and Ngonzi, Elizabeth N., 1998, "Restaurant Revenue Management: Applying Yield Management to the Restaurant Industry," Cornell Hotel and Restaurant Administration Quarterly, Vol. 39, No. 3, pp.32-39. Lillicrap, D., Cousins, J. and Smith, R., 2002, Food and Beverage Service, Hodder and Stoughton, London. Longman, Ben, 2002, The Future of Ethnic Foods: New profit opportunities, consumer insight and NPD, MBA Group Limited, London. McVety, Paul J., et al, 2001, Fundamentals of Menu Planning, 2nd Edition, Wiley: New York. Miller, J., 1980, Menu Pricing and Strategy, Van Nostrand Reinhold, New York. Miller, Jack E., Dopson, Lea R. and Hayes, David K., 2004, Food and Beverage Cost Control, 3rd Edition, Wiley: New York. Read More