Key data to monitor franchise profitability in 2024

Opening a franchise in 2024 could be the opportunity you've been waiting for, but success lies in the details. 

Behind every dish served, every product sold, lies a decisive element : food cost. At a time of fluctuating household consumption and exploding food prices, it's essential to monitor and control these costs. But that's not all: initial costs, entry fees and start-up expenses can turn a promising business into a money pit. As a franchisee, how can you optimize these expenses to achieve a profitable operating margin?

If a franchisee's results don't match the expectations set out in the projected business plan, they are less likely to renew their contract, leading to high turnover. What's more, with a 21% increase in restaurant failures in Q3 2023, franchisors are placing greater emphasis on improving the monitoring of key performance indicators to effectively guide their franchised restaurants.  

Against a backdrop of falling volumes, cost inflation and reduced customer spending in the fast-food sector, relying solely on sales is misleading. So how can we improve the collection of data that impacts restaurant margins, and provide franchisees with profitability KPIs? 

Let's take a look at the data that counts when it comes to steering the margins of your restaurant or bakery network.

How to calculate and monitor food cost for a reliable margin?

In foodservice franchising, controlling the cost of raw materials is a key element in guaranteeing a solid profit margin. This concept is particularly crucial for franchisees seeking to make their business sustainable and profitable in a sometimes uncertain economic climate. Both themed and general catering establishments need to pay particular attention to this parameter, as it accounts for a significant proportion of their expenses.

Even if the sharp price rises caused by inflation seem to be behind us, raw material prices will remain sensitive to market fluctuations, which could complicate the management of franchised restaurants' budgets. The promise of a profitable franchise rests on the franchisor's ability to offer franchisees all the tools they need to make their establishment more successful than an independent restaurant. This includes defining a food cost target and collecting data to compare material costs between different franchisees in the network.

When margins are tight, precise management of food cost is essential. This means carefully calculating the actual food cost , monitoring it continuously and comparing it with the theoretical food cost . This requires an investment in time, or the use of a high-performance tool such as Inpulse, which provides rapid access to the necessary data.

‍Whatis food cost theory?

The theoretical food cost represents the optimal cost for producing a restaurant's dishes, in strict compliance with the recipe sheets, without losses or theft. It is essential to calculate this cost as soon as a dish is created, generally on the basis of one portion. This figure can also be used during market research for a start-up project.

What is food cost real?

A restaurant's actual food cost over a given period includes total expenditure on raw materials as well as the change in initial stock over this period. An increase in stock indicates lower consumption than expenditure, while a decrease reflects higher consumption. This variation is crucial for assessing actual raw materials consumption and adjusting practices accordingly.

How do you calculate food cost ?

Precise monitoring of raw material costs is the first step in identifying any malfunctions affecting margins, and initiating continuous improvement of operational processes.

So how do you measure your network's food cost ? 

The actual food cost evolves every day according to stock issues, supplier price fluctuations, the actual consumption of preparers, food waste and breakage. Waiting for a balance sheet with a time lag of a month or more to assess a store's margin is no longer a viable option. Many franchisors have understood the importance of accessing reliable data in real time.

‍Inpulse offers a dedicated dashboard at food cost, bringing together all the key data to quickly identify malfunctions in the field. Comparing the evolution of food cost with sales, pinpointing the most profitable dishes or those whose food cost has increased are essential features of this tool. These anomalies can be identified thanks to a dashboard that aggregates data from all stores, enabling franchisors to deepen their analysis via Inpulse's complementary modules.

With this data, network heads can detect margin discrepancies, understand them and better support their franchisees. Making informed decisions thanks to reliable data centralized by Inpulse becomes a major asset.

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What other profitability indicators should you measure for your network?

It is essential to collect this data in the field so that decision-makers can focus on analysis and effectively manage the profitability of their branches or franchise network: Yield gaps to identify known and unknown markdowns:

• Yield gaps to identify known and unknown markdowns
• Loss rate to identify breakage and food waste
• Staffing ratio
• The operating expense ratio
• Purchasing data: amount of purchases, price trends, etc.

Quality and easy access to this data make all the difference in making the right decisions.

What KPIs should franchisees be provided with?

There are many other indicators you can track to measure your network's performance, and we've compiled a checklist of "20 key indicators to provide to your franchisees", which you can download here.

Based on this list of indicators, the network head must set targets and enable franchisees to track their progress and compare their KPIs with those of others.

In conclusion, effective monitoring requires the implementation of standards and the encouragement of greater rigor on the part of operational staff in the field. Here you'll find our best practices for inventory feedback or sales sales forecasting.

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