Restaurant profitability has rarely been out of the headlines this year thanks to skyrocketing food prices, labour shortages in the restaurant industry, and the rising cost of debt (to name just a few factors). It’s an environment that has prompted volatile consumer demand, catapulting restaurant forecasting to the top of most operator’s agendas as they seek to understand changing consumer behaviours and maximise efficiency.
What is restaurant forecasting?
Forecasting uses historical data to predict future market trends. Restaurant forecasts have broad utility and can be leveraged to project anything from the revenue expected for a particular shift to which menu items will be in highest demand.
Restaurant forecasts allow operators to make informed decisions about their business operations. A good forecast ensures that a venue has the right number of staff working to optimise customer experience without inflating labour costs. It can determine what quantities to order ingredients in without risking the costs associated with excessive food waste and can predict when demand from customers is likely to be highest. Using historical sales data, it can also help forecast restaurant sales.
Why is restaurant forecasting so important in 2023?
A restaurant forecast should sit at the heart of the business, determining everything from shift schedules and opening times to order quantities and staffing levels. Yet, many restaurant owners don’t forecast beyond revenue. Instead restaurants operate a rules based approach, setting a weekly budget for labour and inventory as a percentage of expected revenue.
Historically, this system has worked well. Consumer demand changed little and was relatively predictable – operators could trust that weekends would be busier than weekdays, and customer demand would peak during holidays. But this approach fails to consider how demand might fluctuate based on external factors such as the weather or local events. It also fails to account for the changing availability of resources such as staff, and the ongoing macroeconomic factors putting pressure on restaurant operations.
The last three years have been characterised by huge disruption and a host of new trends. Flexible and remote working is now far more widespread, for example. This brings with it a change in how and when people use restaurant and hotel spaces. Unseasonal weather has also had a variable impact on profitability; bar sales were down 7.5% year-on-year in August thanks to increased rain, while the managed restaurant sector enjoyed a rise in sales of nearly 9% compared to August 2022. Similarly, the cost of living crisis has seen many operators suffer from reduced demand as customers cut back on unnecessary spending. In short, comprehensive restaurant forecasts based on multiple sources of data are now the only way to understand fluctuating demand and optimise through today’s adversity.
A forecast is the starting point for all restaurant planning and has a huge impact on customer satisfaction, staff morale and profitability.
Employee scheduling
Scheduling is a juggling act every restaurant manager will be familiar with; the need to ensure you have enough staff scheduled to avoid missing sales, without rostering so many staff that you erode profit margins with high labour costs.
Restaurant forecasting is the answer to this particular conundrum. An accurate forecast can provide insight into likely demand peaks, giving managers the information they need to schedule exactly the right amount of staff for every shift. This not only helps to maximise revenue, but also supports a motivated and engaged workforce, avoiding understaffing which is a common cause of stress, anxiety and burn out.
Read more of how Fourth helps our customers to reduce time and increase efficiency with data-driven scheduling.
Inventory management
Demand is multifaceted, and restaurant forecasting isn’t just limited to expected footfall. Forecasting food and beverage future sales enables managers and operators to understand and predict demand across other aspects of their business as well; such as the popularity of menu items throughout the week, and how factors like local events might influence that.
Leveraging additional data from external sources, like weather reports, means restaurant forecasts can provide critical insight into what ingredients are likely to be needed and in what quantities throughout the week. This ensures you have the right ingredients to meet demand, without risking the additional cost associated with over ordering and the resulting food waste.
Getting inventory management right and avoiding wastage is particularly important in an environment where food and beverage costs are on the rise. The smallest change can have a profound impact on the bottom line, a fact well demonstrated in April when beleaguered Mexican chain Chipotle upped its earnings forecast unexpectedly after a fall in avocado prices.
Dig deeper into Fourth’s data-driven Inventory Management.
Estimate profits
Most operators will be familiar with restaurant forecasting in the context of forecasting sales and estimating profits. These forecasting methods traditionally model predicted sales revenue against projected expenses and losses for a given period. For restaurants without a detailed forecast – those operating a rules based approach to planning – it is this metric that determines the weekly budget and labour costs, normally set as a percentage of expected revenue.
Estimated profit is the foundation of all restaurant budgeting and forecasting. A restaurant forecast for estimated profit that is accurate, data-driven reliable and can account for demand volatility creates a robust framework on which to base everything from purchasing to staff scheduling. Without an accurate restaurant sales forecast, smart decision-making is difficualt.
Better customer service
Over half (55%) of consumers have reduced their non-essential spending this year, with eating out one of the most common expenses to cut back on. In this climate – where consumers are retrenching and cutting down on spending – customer service grows in importance. When people go out less, eating out becomes an occasion and consumer expectations around each experience generally increase. A good experience leads to return business and great reviews, and that supports profitability.
Restaurant forecasting is the starting point for everything that matters to both your staff and your customers. Guests have great experiences when staff are attentive, polite and perform well. Staff in turn are at their best when they have a manageable workload and a good work-life balance. This is dependent on an effective schedule, which requires an accurate demand forecast to ensure you have the right people in the right place at the right time.
Similarly, a lack of availability for menu items can negatively affect customers. Just as with staff experience, effective inventory management – ensuring you have the right amount of ingredients to meet demand without investing in too much stock – starts and ends with a reliable restaurant forecast.
Informed goal setting
Goal setting requires managers and operators to set achievable targets for staff. Goals vary between restaurants, but might include sales revenue, time to serve, or the number of covers in a particular seating.
Goals should be attainable without being too easy. Operators that set unachievable goals risk discouraging and demotivating staff, while goals that are easily achieved encourage complacency. Restaurant forecasting allows managers and operators to fully understand demand and create appropriate goals aligned to their targets for profitability and customer service.
How to do restaurant forecasting
There’s no right or wrong way to create a restaurant forecast – a forecast can be a simple calculation of likely demand or a more comprehensive assessment of a range of data. Every venue will have different needs and requirements.
Existing restaurants
The vast majority of businesses will already have some degree of restaurant forecast, even if it is currently the sole domain of the finance team and limited to sales projections.
Operators considering updating their forecasting capabilities should always start with understanding the forecast their business currently uses, which teams and processes rely on it, and the data and assumptions it is based on. This provides a framework to assess accuracy, identify any information gaps and ensures a new forecast meets the needs of the entire business.
Forecasts are only as good as the data they’re based on. More data provides an opportunity to identify more trends, which increases the accuracy of restaurant forecast predictions – particularly useful during periods of volatile demand. The addition of third party sources, like weather forecasts, competitor openings, special events, or even street closures, alongside the business’s own historical data can have a huge impact on forecast accuracy.
New restaurants
Restaurant forecasting for a new venue is particularly problematic since there is little historical data to base predictions on. When just starting out, you have no choice but to base predictions exclusively on third party data.
Neighbours can be a good source of information, even if it is only anecdotal observations on what drives demand or which days of the week are busiest. Similarly, vendors and suppliers may be able to provide you with averages and baselines for restaurants of a similar size in the area, providing a helpful foundation for forecasting.
In the meantime, create a rudimentary restaurant forecast for sales by multiplying intended opening hours by the number of expected customers per day by the anticipated average spend.
Don’t forget to revise your restaurant forecasts regularly in the early days, updating it as more information becomes available and your understanding of demand improves.
How valuable is AI in restaurant forecasting?
Restaurant forecasting can take many shapes. Traditionally, it was a formula in a financial spreadsheet or the result of an experienced manager manually considering extenuating factors. However, an increasingly complicated economic environment has reduced the reliability of these forecasting processes. From weather forecasts to demand projections, holidays to interest rate hikes, there is simply too much information that needs to be fed into a forecast now to do it manually.
Artificial intelligence (AI) is designed to spot trends and predict outcomes based on historical data, it is an ideal tool to help with restaurant forecasting. Data technologies like AI have the potential to take the forecasting burden off teams. This restaurant forecasting software can analyse a huge volume of information and provide reliable predictions in even the most tumultuous times, increasing restaurant forecast accuracy and allowing operators to better anticipate demand.
Automating restaurant forecasting with an AI tool also allows for information that is typically only known to a few people in the business – such as the assumptions behind a forecast, or the rules around scheduling – to be included in forecasting models. This disseminates information and reduces the risk of it being lost if key individuals leave the business.
From scheduling to supply chain and procurement to prep and production — No more guesswork for hospitality and retail with AI Forecasting from Fourth.
When should you perform restaurant forecasting?
There’s no perfect time to perform restaurant forecasting and the right cadence will vary based on the size of the business, its goals and how established it is.
Better data analytics and AI are enabling businesses to forecast continually in near real time and constantly adapt to what is happening around them.
Factors to consider when restaurant forecasting
Restaurant forecast accuracy is dependent on the quality of underlying data. In the current climate, that means considering every available data point.
Daily capacity
Demand cannot outstrip supply and understanding the daily capacity of a venue – the maximum number of customers that can be served – is the first step in building a forecast. Don’t just think about the number of covers in your venues and how quickly tables can be turned around, also consider limiting factors such as staff availability and kitchen space when calculating your restaurant’s daily capacity.
Staffing
Finding the right balance between over and understaffing is an ongoing struggle for many operators, particularly when faced with labour shortages. Staffing encompasses far more than simply having enough people scheduled to meet demand, and forecasts for scheduling should include rules based on a number of other factors, such as the minimum amount of staff needed to ensure safety in a venue or the amount of staff you have available during certain times of the day.
Weather
Weather is one of the biggest factors governing demand – and one of the most unpredictable. Thankfully, weather forecasts for extended periods are readily available. Including weather predictions in your restaurant forecast is one of the simplest ways to anticipate volatile demand and ensures you are not overstaffed on rainy days or caught unaware by a sudden burst of sunshine.
Events
Events are easy to overlook but can be a big driver behind demand volatility. Nearby events can either compete for trade or bring a sudden influx of potential customers into the area. Feeding information on past events into a restaurant forecast means you can get a good understanding of how those events impacted demand, enabling you to schedule staff and manage purchasing confidently during future events.
Holidays
Holidays bring with them a degree of predictability, particularly when it comes to menu choices. Comparing demand data from holiday periods for past years provides vital information for a restaurant forecast, but this shouldn’t be the only information used to forecast demand during this period. Insight gained from previous months’ trading in the run up to a holiday is just as important, particularly at the moment when consumer behaviour is changeable. Comparing demand patterns over holiday periods from earlier this year to past years could also give you insight into likely trends and help to predict consumer behaviours.
Seasonality
The impact of seasonality varies between venues. Restaurants with a seasonal menu, indoor and outdoor seating, or those located in tourist hotspots, will be familiar with managing demand fluctuation season to season. A restaurant forecast can be helpful in determining seasonal opening hours and staff scheduling, allowing you to maximise the number of customers served while minimising overheads. Likewise, forecasts are critical in reducing inventory issues during periods of peak or depressed trading, and can help to limit food waste.
Conclusion
Restaurant forecasting is the starting point for all planning and operations – and it’s never been more important.
Operators are battling fires on multiple fronts. Volatile demand, changing consumer behaviours and ongoing staff shortages are difficult enough to navigate, but add in cost of living restrictions, supply chain issues and skyrocketing interest rates and there is very little room for error. Restaurants need to run at maximum efficiency, and restaurant forecasting software that provides reliable demand predictions is critical if operators are going to optimise staff scheduling, inventory management and profit estimates.
Fourth’s AI and analytics solutions can help your restaurant to supercharge its forecasting capabilities. Talk to our team today to find out how.
Talk to our team today to find out how.
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