In order for a restaurant to be successful, it has to focus on more than just food and beverages. The industry is known for its tight profit margins, and without savvy owners, it’s really hard for even the best and most beloved restaurants to survive.
Damian Mogavero, a dining-industry consultant, has analyzed the data behind thousands of restaurants—which dishes get ordered, which servers bring in the highest bills, and even what the weather’s like—and found that these metrics can help inform the decisions and practices of restaurateurs. Ultimately, Mogavero believes that the data he collects is really a way to learn how to make customers happy. Mogavero recently wrote a book about analytics called The Underground Culinary Tour—which is also the name of an annual insider retreat he runs, in which he leads restaurateurs from around the nation to what he considers the most innovative restaurants in New York City, with 15 stops in 24 hours.
Mogavero says that it’s not just restaurateurs who should take data analytics in the dining business seriously. He offers one particularly compelling reason that restaurant patrons should be interested too: so their favorite restaurants stick around. I recently spoke with Mogavero about his new book, the role of data in the industry, and how restaurants can survive in an era of extremely well informed consumers.
Bourree Lam: How did you get into the restaurant business?
Damian Mogavero: I fell in love with the restaurant business as a teenager. I was a busboy at the Hyatt in New Jersey, and learned one very important lesson. The general manager said, “If you want to be successful in this business, all you need to do is exceed guests’ expectations.” It still drives me, that saying.
Lam: So 20 years ago, you started a software company, Avero, that allows restaurants to look at their own data. Who were your first clients?
Mogavero: Tom Colicchio and Danny Meyer were among my very first clients. That's when they were partners at Gramercy Tavern, and they've since gone on to build their own culinary empires. Shimon Bokovza of Sushi Samba, he was a very early customer as well. They were very open-minded and progressive, and they really understood the business problem that I understood, as a frustrated restaurateur. There was not accessible information to make really important business decisions.
Lam: Why is it that the restaurant business tends to be more instinct-driven than data-driven?
Mogavero: It is so creative, and it really attracts innovative and creative people who really enjoy the art and the design of the guest experience. When I was a frustrated restaurateur, I would ask my chefs and managers simple questions, such as: Who are your top and bottom servers? Why did your food costs go up? Why did your labor costs go up? And they would give me blank stares, wrong answers, or make up stuff. The thing that really killed me is why so much time gets spent in administrative B.S.
They were frustrated artists in their own way, because all those questions I was posing were buried in a bunch of Excel spreadsheets. What I like to say is, nothing good ever happens at the back office. You can't make customers happy and you can’t cook great food there. That was the business problem that I saw. I assembled a chef, a sommelier, a restaurant manager, and three techies as the founding team of the company. The message was: We’re going to create software, so you can get back to what you love to do with a more profitable operation.
Lam: You say throughout the book that it’s less about data and more about creativity, though.
Mogavero: The data is going to guide you to make the right decision. In the opening of the book, I just love the people at [the restaurant] Navy Beach in Montauk. One of the things they figured out from the data is that that their best days were cloudy days. With that insight, they realized they had to do something different on sunny days. So they got this boat, and it would go out to the bigger boats and bring customers physically to the restaurant.
Lam: I like that story in the book, because it points to the fact that it’s never enough just to collect data and look at it—you have to act on it. What have you learned from the billions of dollars’ worth of balance sheets that your clients have submitted for analysis?
Mogavero: The way to break it down is, you have your average check and you have your number of people coming in—that’s the sales. Understanding the data that drives those two key variables is really important. It’s all about the consistency of the guest experience.
On the cost side of it, you have food costs and understanding how much of a particular dish you’ll sell on a rainy Saturday or a sunny Sunday. Each menu item has its own demand patterns, so if you can isolate that, you’re able to reduce your food costs, which is 30 to 35 percent of sales. And on the labor side, which is also 30 to 35 percent of sales, it's about understanding the demand pattern, so you’re really scheduling the right amount the labor, whether it’s servers, bartenders, or cooks. At Fogo de Chao, for example, they’re really good at understanding the patterns and the way those patterns change with events and weather. What we’re really talking about is understanding what’s behind those metrics that are driving revenue and prime costs. And the last thing that plagues all industries is theft.
Lam: How does the data your software collects translate into more profitable restaurants?
Mogavero: We mine the data out of the point-of-sale system, which is a repository of hundreds of thousands of transactions. We provide a scorecard with things like how often appetizers were sold, how often wine was sold, and table turn time. With that easy information, you're able to pinpoint particular servers for training.
Lam: In the book, you talk about how hard it is to survive in the restaurant business—only 60 percent of restaurants are still open after three years. Yet it seems like there are constantly stories about new restaurants with long lines and impossible reservations.
Mogavero: This is by far the best time to be a foodie. We have so many great options as consumers, because the bigger trend is that we expect great food everywhere. From traffic islands in Manhattan, to airports in Newark, to apps on our phones. On the restaurant side of it, it’s an incredible opportunity because there’s a food awakening, but by the same token it’s never been a more dangerous and challenging time for restaurateurs because competition has never been greater.
We now live in a world where social media, such as Yelp, guides people to check out a new place. And many times, that’s at the expense of returning to your favorite places. There’s a greater transparency in the reactions from the customers. Customers are more savvy than ever before, which is a good thing, but also restaurants are under more scrutiny.
We’re also seeing higher-quality ingredients cost more money, so there’s pressure on food costs. Everyone knows that labor costs are going up. Real-estate costs are also going up. So you’re basically seeing pressure on the top line and the bottom line with all these factors. That’s why technology is a critical ingredient for a successful restaurant.
Lam: That’s an interesting parallel—as customers get more informed, restaurants have to as well.
Mogavero: That’s one of the reasons I give the underground culinary tour. It’s a tour I started with a colleague. My company was sitting on $25 billion of food-and-beverage data, and one of the things I noticed is that there’s a wide disparity between the restaurants that were up double digits in same-store sales and down double digits. And I asked: Why is that?
And so, I started the tour seven years ago to start examining some of the qualitative aspects of what’s happening in the industry. The goal was to give restaurateurs around the country a glimpse of the future, because trends that might have happened in New York would have taken 20 to 30 years to get to mainstream in the past. Because of foodie cable TV, social media, and food blogs, those trends that take place in New York, San Francisco, or L.A. are now taking six to 12 months. The idea is really to help restaurateurs see the foodie generation to come.
Lam: What about the other direction? Are regional trends also getting to big cities at a faster pace?
Mogavero: Because information is flowing so quickly, you’re likely to see trends from a big city go to a secondary city more often. But you’ll see regional trends come to the big city as well. It’s all part of this information flow that’s more transparent and faster. The secondary-market awakening is coupled with the fact that it’s really expensive for chefs to live in big cities, and we’re seeing many chefs leaving the big cities. Evidence of this is the James Beard Awards, where you’re seeing more of those winners in these secondary markets than ever before.
Lam: What kinds of restaurants do you see struggling in this new ecosystem of transparency and foodie-ism?
Mogavero: One group of restaurants that have had some challenges and will continue to are large chains that are not innovating. The expectation has really gone up for the consumer. In the old days, you can just open a restaurant and let it run. But that’s not true anymore.
The book is really about how our dining experience is being transformed by two big things: the use of data and technology, and the adaptation of trends from the foodie generation. I think if you’re not moving towards [this model], you’re more likely to struggle.
How many times have you gone into a restaurant and had an amazing experience and loved it, and then you went back and you thought, “What the heck happened here? Is this the same restaurant?” It’s happened to me. Or you have a reservation, and they’re not able to seat you. Or you’re wondering where your check is. Or you want to just order another drink. All of these things that happen to us is because the restaurateurs don’t have a grasp of the data. For me, this is all about people who are doing it right to inspire everyone. Not only do you want your restaurants to survive—you want them to keep innovating and you get the experience that you want.
This post originally appeared on The Atlantic.