The Pareto Principle for Restauranteurs (Or, How to Have an 80/20 Restaurant)

By Donald Burns, Foodable Industry Expert

Every once in a while you stumble upon a theory or principle that actually could have a big impact on your business. The Pareto Principle, or the 80/20 Rule, is one of those little gold nuggets that, if applied, could help your restaurant maximize its potential.

It all started in 1906 when Italian economist Vilfredo Pareto discovered that 80% of the land in Italy was owned by 20% of the population. This got him to thinking and the more he explored, the more he found that the principle could be applied to a great variety of situations.

Here's a basic one: 20% of your time produces 80% of your results. It’s true. Want real-world proof this principle applies to you? Go look in your closet. 80% of what you wear comes from 20% of your wardrobe. 

If restaurant owners and operators would embrace this principle and apply it, they would see the performance of their restaurant soar. Most restaurants unfortunately have the ratio backwards. Instead, they focus on tasks that have very little impact on the bottom line. They chase pennies and overlook dollars.

Food Costs

Here’s a great example. An owner spends hours spreadsheeting the lowest price quotes from five vendors (don’t get me wrong, I believe in buying at the best prices). However, when you are so focused on the price that it becomes this all-consuming obsession, then we have a problem. Especially when you say you do not know the food cost of every plate on your menu. If you do not know the theoretical costs of your menu, how can you know what your food cost potential is?

How about the owner who spends hours driving around town buying at places like Costco or Sam’s Club to save a few bucks? Meanwhile, the manager is giving away drinks at the bar and having a few themselves. 

Majoring in minor things is the sure way to run your business into the ground. 

So why do so many operators and owners do this? Because it gives them a false sense of control. Let’s set the record straight… control is an illusion. The restaurant business is a chaotic symphony of people and product. Now you can plan and train for situations. You can have systems in place to track sales, margins and expenses. In the end, every service is different. 

Use the 80/20 Rule to your advantage! Know the plate cost of every menu item. Run a menu analysis often! Did you know that 80% of your profits come from 20% of your menu? Look at the product mix reports. Find out what those items are and give the customers more things like that! You have a 42-ounce ribeye that is on the menu for $52 and you only sold two last month? Take it off the menu — now. 

Here’s another one to look at: 80% of your sales come from 20% of your servers. Find out what they are doing differently and train the others to do those same things. Consistent training produces consistent results. 

Some of your staff’s time should be on improving their skills. There are restaurants that allow cooks time for R&D. They come up with an idea and make a “pitch” to the chef. The chef looks at the menu idea and allows the cook a little time either before or after the shift to work on his project. 

Staffing

This is an area where too many owners and operators focus on tasks that do not comply with the 80/20 Rule. They put “help wanted” ads on the Internet to replace the staff that is constantly turning over. They complain that there is “no good help” out there. They are so focused on the symptoms, when the real problem is the turnover. 

Easier to put the blame on others than to reexamine their management style or the restaurant’s culture. If they used the 80/20 Rule and focused on retention, they could add hundreds of thousands of dollars to their bottom line. If they created a culture where learning, personal development and excellence was the standard, they would stop the internal bleeding that is happening with high turnover. 

Marketing

One more example of how some like to major in minor things is the topic of restaurant marketing. Discounts and coupons might drive some traffic their way, but is it good traffic? Many focus on getting “butts in seats” when the real focus should be getting their loyal fans back in more often. Discount and coupon promotions attract those looking for a bargain. Those customers are only loyal to “the deal” they can get. When a better deal comes along, that is where their butt is headed to.

Loyalty programs reward customers who like what your brand has to offer. They offer an incentive to keep spending their money… with you! Using the 80/20 Rule, we would look at the top 20% of your customers that are generating sales. Those are the customer relationships restaurants need to nurture.

There are many principles and tools out there that smart operators use every day to increase sales and profits. Just like any tool, they have no effect until you pick them up and use them.