The restaurant industry is a brutally competitive space and with the F&B landscape undergoing drastic changes, eateries are finding new and innovative ways to stay ahead of the competition. A restaurant that survives embraces a myriad of solutions that ensures it maintains a healthy P&L so it can keep operating at maximum efficiency.
One solution that has become an increasingly popular choice among eateries is cloud kitchens. They provide a vast array of benefits, such as central locations and a large customer base, while requiring significantly lower investment in comparison to traditional brick-and-mortar establishments.
If you want to learn more about how cloud kitchens can help the P&L of your restaurant, you have come to the right place.
Profit Margin – What is it Exactly?
Your profit margin is the amount of money you have garnered from sales. If you subtract your restaurant’s expenses from the total revenue accrued, you will know your profit margin. Just note that this can be shown as a percentage or as a figure. You can apply this profit margin equation to certain dishes in order to gain a better understanding of which items on your menu are doing well, and which dishes might need to be spruced up or replaced. Alternatively, you can work out your profit margin over a specific period of time, such as a week, a month, or even a year.
The majority of your revenue will naturally come from the sale of food and drinks, but your expenses can come from a variety of places, including:
- Cooking ingredients
- Kitchen equipment
- Repairs that need to be done
- Rent
- Utilities
- Staff salaries, benefits, and other labour-associated costs
- Marketing activities and business promotion
- Taxes
- Credit card & POS system fees
These are just a few of the expenses your business may incur, but note that your profit margin depends on how your establishment is doing, even if your revenue stays the same. Given the fluctuation in costs and expenses, restaurants usually have a P&L between 3-5%. However, a restaurant at the summit of the industry has a P&L that is closer to 15%.
So, What are Gross Profit and Net Profit?
When it comes to profit, there’s actually two kinds – gross profit and net profit.
Gross profit relates to the amount of money your eatery has left after factoring in the Cost of Goods Sold (CoGS). This will give you a good idea of how well your business is running and the theoretical profit it can make. To work out your gross profit, you can use the following formula:
Gross profit margin = ((selling price – CoGS) / Selling price) x 100
Let’s put this formula into action. For example, if your restaurant was to sell MYR 1,000 worth of food and it cost MYR 500 to make it, then you would do the following to work out your gross profit:
((1000 – 500)/1000) x 100 = 50%
Net profit, meanwhile, centres around the actual profit of your establishment and can be calculated using this formula:
((Total revenue – total expenses)/revenue) x 100
However, it is important to keep in mind that even though the revenue might be the same, the variance in expenses can affect your net profit. For example, if a dish was made incorrectly and had to be redone, it would take the expenses to MYR 560. As a result, this is how the net profit would be affected:
((1000- 560)/1000) x 100 = 44%
What Are Some Ways to Boost the P&L of Your Restaurant?
There are many ways to do this, but three of the most effective methods to increase the P&L of your restaurant are:
- Increase sales volume
- Decrease your costs
- Raise the prices of your dishes
Eateries will definitely want to focus on the first two, and for those wondering how they can reduce their costs, here is a recipe costing guide that will be of immense help. Restaurateurs should do their best to steer clear of increasing the prices of items on their menu as it can result in a loss of customers, which will hurt the business’s overall profit margins in the long run.
How can Cloud Kitchens Help Your Restaurant’s P&L?
As a restaurant owner, you might be searching for the best solutions to increase your sales volume and slash your overall costs. This is exactly where cloud kitchens excel over traditional brick-and-mortar establishments, as they provide a multitude of benefits without the need to invest a significant amount of money.
What are these benefits, you might ask? Well, here are 7 of the most notable ones:
1. Operations Expenses are Drastically Reduced
Since cloud kitchens don’t have a dine-in area, there will be no need to purchase furniture or have fancy decor or an appealing front-of-house area. All that money can be reinvested into other aspects of the business that make it more profitable.
2. A Significant Drop in Rent
Rent prices can be the bane of restaurant owners as they can be extremely high, especially if your eatery is in the heart of Kuala Lumpur for example. Renting a cloud kitchen is nowhere near as expensive, but you will still be in a centrally-located area that has a large customer base.
3. Labour Costs Fall as Well
Since you only need a team of chefs to prepare the food in a cloud kitchen, your labour costs won’t be as high compared in a traditional restaurant. This is because you won’t need waiters, bartenders, or even general managers.
4. No Nightmare Rental Contracts
Rental contracts can be a nightmare for traditional eateries as they are long and usually set in stone, meaning there is no way to get out of them if things go awry. This means business owners have to ensure they set aside a big portion of their revenue and put it towards paying hefty rents.
Cloud kitchens provide more stress-free rental agreements as they are much more flexible, meaning you have some leeway if you want to withdraw from the contract. Plus, the rent is nowhere near as burdensome as brick-and-mortar locations.
5. Get Started Much Quicker
Opening a restaurant brings about a mixture of emotions as you can be both excited and nervous about how the business will do. When opening a traditional brick-and-mortar establishment, there is a sizable investment required as you need to find a central location, do all the renovation work and get all the licenses required to operate. This entire process can take up to a year, or even more if anything goes wrong.
A cloud kitchen, on the other hand, is already situated in high-traffic areas and comes equipped with some of the tools you will need to get started. As a result, you save plenty of time and money, and are able to open your doors much sooner, meaning you can start bringing in the cash a whole lot quicker!
6. Everything Runs Smoothly
When working in a cloud kitchen, all the orders that come through aren’t in a jumbled mess. Rather, it’s all on one tablet and clearly shows what the customer has ordered. Furthermore, even if your restaurant works with different food delivery platforms, all the orders will still be shown on that tablet, meaning you won’t need an elaborate set-up.
With everything in order, you can focus on serving top-quality food to your customers so they keep coming back and spreading the word to their family and friends. This will definitely give your restaurant’s P&L a push in the right direction.
7. Be Part of the Ongoing Revolution
Online deliveries have surged due to the COVID-19 pandemic and there is no sign of it slowing down anytime soon. In Malaysia, the online food delivery market is expected to reach US$336 million this year. With so much potential, you can be in the thick of the action when operating out of a cloud kitchen. Don’t forget that companies like Kitchen Connect have facilities right in the heart of Malaysia, so you will have full access to plenty of hungry customers that order food regularly.
Ready to Get Started in a Cloud Kitchen?
It’s safe to say that cloud kitchens offer a plethora of benefits to the P&L of your restaurant. However, you can’t solely rely on a cloud kitchen to get the job done. It also comes down to having the following:
- Qualified chefs with a deep-rooted passion and knowledge of food
- An appetising menu with fair prices
- Cuisine that targets specific people or is ideal for an under-supplied market
- Top-notch advertising, promotions, and brand awareness
- Excellent suppliers that you can rely on
If you have all this in place, then there is nothing stopping you from boosting your restaurant’s profit margins.
Still undecided on whether a cloud kitchen is right for you? Find out more by filling up the form below and get in touch with us! We’ll be more than happy to assist you in any way possible.