It’s no secret that the restaurant industry holds fierce competition and extremely unpredictable demand levels. Empty seats during peak hours spell significant losses. A crowded entrance during a staff shortage leads to customer impatience, frustration, and dissatisfaction.
This makes forecasting for restaurants not just useful, but vital for survival. Predicting and planning for fluctuations in demand is the crystal ball that enables savvy restaurateurs to maneuver this tough industry more smoothly. Understanding the nuances of forecasting in a restaurant often determines whether an establishment will thrive or struggle to stay afloat.
In this article, we will explain what forecasting for restaurants means, related elements and factors that make it work, why forecasting is so important, and methods of forecasting. We will go over key factors and considerations that affect demand and sales forecasting as well as provide ways to manage shifts in demand.
What is Forecasting for Restaurants?
Forecasting for restaurants means trying to anticipate and prepare for rapid changes in business conditions so that maximum profits can be achieved. It’s especially important to forecast when frequent dips or spikes in sales occur.
Forecasting for restaurants examines both internal and external factors. Internal factors include historical sales data, past and present expenses related to ensuring that customers can order everything they hope to from the menu, trends in the popularity and pricing of menu items, profit margins, and more. External factors include seasonal trends, special events, and market dynamics, which play a significant role in the accuracy of restaurant sales forecasts.
Accurate predictions hinge on the balance between actual sales and forecasted figures, emphasizing the importance of well-informed estimates over arbitrary guesses. Quality forecasting addresses not only food and labor costs but also aims to enhance the customer experience and satisfaction. By honing in on these diverse factors, restaurants can create accurate forecasts that promote financial health and progress in the competitive restaurant business landscape.
Steps of Forecasting For Restaurants
Accurate forecasting provides a strategic advantage that not only minimizes the risk of disappointing customers, but also decreases waste, aligning restaurants with more sustainable practices.
Here are some actionable steps that will help restaurant owners and managers forecast:
- Analyze historical and actual sales data for a set period.
- Consider future periods and seasonal trends that may affect demand.
- Calculate the optimal stock level for key menu items.
- Factor in lead times from suppliers to ensure timely restocking.
- Monitor sales forecasts continuously to adjust inventory as needed.
Adhering to this approach ensures restaurants can navigate the intricate balance between availability and excess, resulting in a harmonious operation that stands ready to welcome the future with confidence.
Methods of Forecasting in Restaurants
Some people ask, “What are the methods of forecasting in restaurants?” The reality is that most restaurants today use Point-of-Sales (POS) or other software tools to assist them in the forecasting process. With capabilities ranging from analyzing sales patterns to integrating various operational systems, these tools aid in creating accurate forecasts that inform decisions on staffing, inventory management, and operational adjustments.
Modern POS systems can track and analyze every transaction, offering granular insights into customer behavior, popular menu items, and even average spending per customer. Integrating POS data for forecasting means operators can more accurately project sales and customer traffic, adjusting their strategies to cater to real-time demands.
Beyond POS systems, however, restaurant owners and managers should use regression and trend analyses as they yield specific insights for a restaurant. Regression analysis, for example, might reveal that for every ten-degree drop in temperature, a restaurant sees an increase in soup sales. Trend analysis could highlight that a particular cocktail gains popularity in the spring, pointing the way for potential promotional activities.
Utilizing these tools, restaurants can shift from reactive to proactive management. This fuels both day-to-day success and long-term growth.
Key Areas to Forecast in a Restaurant
The estimation of influential key metrics is fundamental to day-to-day operations and long-term strategies. Forecasting for restaurants is an intricate process that depends on what kind of information restaurant managers and owners are trying to glean.
Some of the top areas to forecast are inventory, labor, demand, and profit (which is comprised of sales and expense forecasts). It’s important to note that some of these areas will overlap.
Because of this, it is often helpful to look at the big picture and include other data that might not initially seem related to a particular forecast. A holistic approach to forecasting is recommended to maximize profits, efficiency, and customer satisfaction.
Inventory Forecasting
Inventory forecasting involves evaluating historical consumption patterns and considering the shelf life of ingredients and finished goods. This allows restaurants to calculate future needs with precision.
Furthermore, it helps restaurants to order exactly when new stock is needed, and not a minute before (so less space and cash are tied up), or a minute after (which could mean a lost sale due to missing ingredients).
Result: restaurant owners and managers can significantly reduce food waste and cost, effectively managing food costs and profit margins.
Trend Forecasting
Trend forecasting looks at how historical patterns impact current and future sales, inventory, labor, and more. It can be broken into short-term (next month to a year or two) and long-term (anything more than a couple of years). It often involves both quantitative research (data insights that are easily verifiable and quantifiable, such as sales numbers) and qualitative research (which is any data that is more difficult to verify or quantify, such as customer opinion of a particular part of a dish gleaned from an interview).
Result: restaurants can better meet the needs of their target customers, which in turn drives sales and customer satisfaction.
Labor Forecasting
Labor forecasting looks at a restaurant’s expected demand and plans accordingly. It involves careful consideration of and compliance with labor regulations. It strives to optimize by leveraging labor matrixes and assessing the mix of skills required according to predicted customer traffic.
Result: restaurants will be able to deliver top-notch customer experiences without over-incurring labor costs or violating labor laws.
Demand Forecasting
Demand forecasting involves predicting customer behavior and preferences, which can be incredibly tricky. Forecasters in restaurants analyze historical sales data, customer feedback, market trends, and even external factors such as seasonality and events in the surrounding area. Ideally, where possible, forecasters will also find a way to obtain insights on competitor data so they can compare and compete better.
Result: restaurants can read customers and competitors better and win a competitive advantage that will enable higher sales and reduced waste.
The fifth step, establishing strong relationships, is very important because it could determine the success or failure of your restaurant.
You need to partner with reliable food suppliers that consistently provide fresh, high-quality ingredients at a price point that works for your business. Vet potential suppliers for their compliance with food safety regulations and consistent delivery timetables. Establish contractual relationships that provide clear terms for both parties, enabling you to secure competitive pricing while still ensuring quality.
You also need to partner with reliable, hard-working employees who will show off your brand and drive the success of your business. Attracting the right talent—and retaining them—starts with a company culture that offers competitive salaries, benefits, and opportunities for advancement. Make sure your employees demonstrate the qualities your restaurant needs, regardless of experience level or other categories that might lead to incorrect assumptions.
Profit Forecasting
Profit forecasting, which includes sales and expense forecasts, is a crucial aspect of forecasting for restaurants.
Restaurant Sales Forecasting
Sales forecasting entails estimating future sales figures by analyzing past sales data and taking into consideration factors such as seasonality, marketing strategies, and changes in customer behavior. This allows restaurant owners to anticipate revenue streams and plan accordingly.
Here are some key considerations for sales forecasting:
- True menu item popularity: perhaps people praise a particular item (whether on social media or in the restaurant), but how does it actually sell currently and over time? How does price impact its popularity? Knowing which menu items are doing well (or not) is important to help restaurant owners and managers either remove or tweak dishes to meet customer tastes.
- Market trends and competition: depending on how competitors are behaving, restaurant sales might drop due to special promotions that reroute customers to their restaurant. Likewise, if influencers on social media are lauding specific restaurants and dishes over others, people might follow “food fads.”
- The predictability of seasons and seasonality: Holidays can make some items more popular during certain times of the year (such as turkey during Thanksgiving). Times of year, such as summer, can either increase demand (people are traveling and need a place to dine out) or decrease it (people decide to go on vacation or cook in their backyard).
- Unpredictable, unexpected external factors: snow or rainy days can significantly bite into restaurant sales. Special events, such as weddings, graduations, or the Super Bowl, can bring people to restaurants and cause spikes in demand (especially if a venue is close to the restaurant). If the economy tightens consumer’s wallets, they are less likely to dine out; the opposite can also be true.
Restaurant Expense Forecasting
Expense forecasting is equally important in determining the profitability of a restaurant. It involves projecting costs associated with ingredients, labor, rent, utilities, and other operating expenses. By accurately forecasting expenses, restaurant owners can make informed decisions about pricing, cost control measures, and overall financial management.
By effectively forecasting profits, restaurants can strategically allocate resources, optimize pricing strategies, and make informed decisions about staffing, inventory management, and operational efficiency.
Result of profit forecasting: enhanced profitability and increased preparedness to meet unexpected changes in demand.
Now that we’ve talked about the different areas to focus on when forecasting, let’s talk about the importance of forecasting and how it brings restaurants benefits that can’t be beaten.
Understanding the Importance of Forecasting in the Restaurant Industry
While forecasting does project future trends and occurrences, it’s not just about looking ahead; it’s an essential component for various vital functions within a restaurant such as inventory management, profitability and revenue prediction, informed planning, and strategic goal setting. In short, forecasting provides a foundation for profitable restaurants.
Restaurant owners and managers can forecast in practically every area of business, so it’s important to know why forecasting matters for a specific section (for example, check out our guide on why labor forecasting matters).
Here are just a few of the main benefits of forecasting for restaurants:
- Optimized staff schedules that meet business needs while keeping employees satisfied
- Balanced inventory levels that reduce excess and spoilage
- Greater understanding of menu item popularity/disfavor
- Better budgeting and cost-management
All of this lends to greater control over more variables through proactive measures, and:
- Better financial decision-making as guesswork is replaced by data-informed strategies
- Ability to weather storms through higher levels of market and demand awareness
- Smoother, more efficient operations that keep the restaurant open for years to come, at higher profit margins, too.
Conclusion
In a market where margins can be thin and competition fierce, accurate forecasting is a tool that can carve out a path to success by optimizing every aspect of restaurant operations. Forecasting for restaurants is essential to combat changes in demand smoothly within the restaurant industry.
By accurately predicting trends and occurrences, restaurant owners can make informed decisions about staffing, inventory management, pricing strategies, and overall financial management. This leads to enhanced profitability and increased preparedness for unexpected changes. It also ultimately sets the foundation for a thriving restaurant business.
Learn about SynergySuite’s restaurant operations software to help you with your forecasting and keep your business running smoothly.
