SHA510: Managing Revenue with Service Cycle - Amazon S3€¦ · SHA510: Managing Revenue with Service Cycle School of Hotel Administration, ... revenue-management strategy had been

SHA510: Managing Revenue with Service Cycle School of Hotel Administration, Cornell University

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In this course, we're gonna be talking about the time aspect of restaurants. When you look at revenue management, there's basically two strategic levers: there is the time portion of it, so the length of stay, and there’s also the pricing. And one of the problems we have in restaurants is that we usually can't ask people how long they're going to stay. And if you think about the way people make restaurant reservations, the first question is, “well when would you like to come?” “Well Friday night.” Second question is, “well, what time?” “Well 7 o'clock.” And we don't ask that third question of how long do you plan on using the table because it's considered to be rude. So that kind of causes a problem for us because we need to know how long people are going to stay so we can plan our reservations out, all these different sorts of things, but we can't ask people. And so in this class we're going to be talking about how do you manage the meal duration? And so we're going to be doing a variety of things with this. One is we're going to be looking at how do you measure it? You know, looking at time studies for the various parts of the meal so you can figure out, perhaps, where there are some areas where you might be able to be a little bit more efficient. We're also going to be breaking the meal into five different components: kind of the, you know, the pre-arrival, the pre-process. So the pre-process is going to be from when people have been seated at their table until they order. The in-process, when they're eating. The post-process, that's from when they asked for the check until when they leave. And then the fifth part of it is not so much the customer experience as our part of it, which is getting that table turned over and reset. And so we're not only going to be looking at, “how do you manage that duration?” But we're also going to be looking at the customer reaction to changes in meal duration, because as you might expect, people don't want to be pushed - so which parts of the meal are you better off speeding up? Which parts should you leave alone? The other thing we're gonna be talking about in this class is, how do you kind of try to figure out what's causing a problem? And so for example, you know, why is it that it's taking 15 minutes to reset the table and to, you know, get it, you know, get the next party there, all that sorta thing? Well, maybe you don't have enough people; maybe it's some inefficient communication. But we're gonna go through some different techniques: a fishbone diagram, bottlenecks, and blueprint analysis to try to help with, give you some ideas on how you can try to figure this out at your restaurant.



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And the other thing we're gonna be talking about is, how do you go about calculating RevPASH? So RevPASH: you've got occupancy and average check, but when you also start to look at this revenue per available seat hour, as long as I know how much revenue I made, I know how many seats I have, and how many hours I was open, I could also calculate my RevPASH. So again, what we're gonna be talking about in this class is, how do you manage the time element of restaurants - restaurant experience - so the meal duration? Not only how do you measure it, but also how you, how your customers are gonna react to it. How do you figure out what the potential causes of, or different problems you might be having with your meal duration? And then the last thing is about how do you go about calculating RevPASH?

Welcome to Cactus Café, an independent, mid-scale restaurant that specializes in Southwestern U.S. cuisine. Located in the suburbs of a large city, Cactus Café prides itself on the freshness of its food, its informal atmosphere, and its signature margaritas. It has been in business since 1998, and has grown in popularity each year that it's been open.

Cactus Café features a spacious 100-seat main dining room decorated in an understated Mexican-American style that makes business customers as well as casual diners feel equally at home. There is a full bar, where patrons gather to socialize during the restaurant's daily happy hour or to pass the time while waiting for a table. There's also a 30-seat outdoor patio that is popular during warm-weather months.

Cactus Café's menu features a mix of traditional Mexican fare—including fajitas, enchiladas, and tamales—and Southwestern U.S. cuisine such as barbequed ribs, chicken in a seasoned buttermilk coating, and shrimp sautéed in pasilla chilies. All of the food is cooked fresh to order and served with the customer's choice of warm nachos or steaming tortillas.

Over the past two and a half years, Cactus Café has grown from a specialty restaurant catering to a narrow clientele to a regional destination attracting a broad cross-section of the population. There are signs, in fact, that Cactus Café may have achieved more success than it's prepared to handle.

There is frequently a line of customers waiting for a table on weekday as well as weekend evenings, and the line on Friday and Saturday nights has begun to spill over into the parking lot. It's becoming more difficult to accommodate last-minute reservation requests, especially during peak weekend dining hours, and walk-up patrons have begun to complain about the long wait, which now averages 45 minutes during peak dining hours and sometimes exceeds



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one hour. Yet even while people are waiting, there invariably are empty tables in the dining room, and many of the tables that are occupied have empty seats.

In some cases, customers are also complaining that they're waiting too long after they've been seated for a server to appear; and they're waiting too long for their main courses to arrive.

Imagine you're the general manager of Cactus Café and it's your job to figure out how to reduce wait times and serve more customers more efficiently without jeopardizing the overall quality of the experience. How will you do it? The answer is by instituting a program of restaurant revenue management. Let's get started.

Summary

About the Restaurant Cactus Café is an independent, mid-scale restaurant located in the suburbs of a large city and specializing in Southwestern U.S. cuisine. It has a dining room capacity of 100 tables, a full bar, and an outdoor patio with an additional 30 tables. It prides itself in the freshness of its food, its informal atmosphere, and its signature margaritas.

Success Indicators Over the past two and a half years, Cactus Café has grown from a specialty restaurant catering to a narrow clientele to a regional destination attracting a broad cross-section of the population. There is usually a line of customers waiting for tables on Friday and Saturday nights, and frequently during the week. It's becoming increasingly difficult to accommodate last-minute reservation requests, especially for peak weekend dining hours.

The Challenge Despite the lines of waiting customers, Cactus Café doesn't seem to be operating at full capacity. Even while people are waiting, there are frequently empty tables, and many of the occupied tables have empty seats. Customers have begun to complain about the length of time they're waiting before being seated and about how long it takes after they're seated before a server appears. They're also complaining about how long they're waiting between courses, and, after finishing their meal, the length of time they're waiting before the check appears.



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Revenue Management at Chevys Arrowhead

Chevys Arrowhead is part of the Chevys chain of casual Mexican restaurants, comprising over 200 outlets throughout the U.S. Chevys specializes in freshly prepared Mexican food and prides itself on its Mexican-American cuisine, friendly service, and family atmosphere. Chevys Arrowhead is located in a shopping mall in Phoenix, Arizona, and began its revenue management effort in the fall of 2001.

Before and After Results

The first step in Chevys' revenue management process involved establishing baseline data for certain factors at the restaurant. A team of consultants measured the seat occupancy (the percentage of seats that are occupied at designated time intervals), and the meal duration (how long it took customers to complete their meal). In addition, the consultants gathered data relating to the financial performance of the restaurant. Similar data was gathered after the revenue-management strategy had been implemented and used as a basis of comparison to gauge the overall success of the initiative.

Seat Occupancy Prior to Strategy Implementation

Prior to implementing its revenue management program, Chevys Arrowhead measured seat occupancy for each business hour (in military time) and each business day. The results are captured on this chart. The red sections indicate periods of high seat occupancy (any time the restaurant had customers waiting); blue sections indicate periods of low seat occupancy (whenever less than 15% of the seats in the restaurant were occupied); everything in between is white. Periods of high seat occupancy are commonly referred to as "hot" periods. Chevys Arrowhead had 11 hot hours per week, during which the average seat occupancy was only 50%. Part of the reason for such low occupancy was the restaurant's table mix. Although most of its customers arrived in parties of 1 or 2, almost all of the tables in the restaurant were 4-tops. This meant that even during hot periods when all the tables in the restaurant were occupied, most of those tables had at least two empty seats.

Seat Occupancy After Strategy Implementation

This chart illustrates the improvement in overall seat occupancy after implementing the restaurant's revenue management program. The restaurant altered its table mix and made a number of other changes that reduced the overall dining time. The results were dramatic: the



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number of hot hours per week increased from 11 to 14, and the average seat occupancy during the hot periods increased from 50% to 59%.

Meal Duration

Chevys also conducted before and after time studies of the dining experience, the results of which are captured in this chart. The studies divided the dining experience into ten phases and measured the interval between each phase—in other words, the amount of time between when customers are seated and when the server greets them; the time between when the server greets them and their drinks are served; the amount of time between when their drinks are served and their order is taken, and so on. The studies also measured the average amount of variation in those intervals. (These figures, also known as standard deviation, are indicated in parentheses. They are especially important because they indicate how predictable the length of each phase of the meal is, and how predictable the overall meal duration is.)

The first column of numbers in the chart displays time intervals between each phase before Chevys implemented its revenue management program; the second column displays the same intervals after Chevys implemented its program. Note the revenue management program resulted in a drop in average meal duration from just over 53 minutes to just under 50 minutes. Even more significant was the reduction in standard deviation: from nearly 23 minutes to just over 15 minutes—an improvement of over 33%.

Financial Impact

To measure the financial impact of its revenue management program, Chevys Arrowhead gathered financial data for the six-week period prior to implementation and the six-week period following implementation for both 2001 and 2002, then compared these numbers to similar data for other Chevys restaurants over the same time period. The results are captured in this chart.

Before implementing its revenue management program, Chevys Arrowhead store had experienced a 5.7% drop in revenue from 2001 to 2002, while its sister restaurants in the same market had experienced a 10.6% decline over the same time period. After implementing its revenue management program, Chevys Arrowhead showed a 2% increase in revenue from 2001 to 2002, or a net increase in revenue of 7.7%. Meanwhile, over the same six-week period following the implementation of revenue management at Chevys Arrowhead, its sister restaurants in the same market showed an 8% decrease in revenue from 2001 to 2002, or a net increase of only 2.6%.

One can conclude, therefore, that about 5.1% of Chevys Arrowhead's total revenue increase of 7.7% is directly attributable to its revenue management program.



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Return on Investment

Chevys Arrowhead used the estimated 5.1% increase in revenue directly attributable to its revenue management program to calculate the overall return on investment—the amount of time required to recoup the expense of implementing the program.

Revenue for fiscal 2001 totaled approximately $2.4 million. Given a projected increase of 5.1% as a result of the revenue management program, revenue for fiscal 2002 could be expected to increase by approximately $120,000.

Project costs totaled just over $50,000: a little over $49,000 in capital expenses and about $1,400 in smallware expenses. Given an annual revenue increase of approximately $120,000, the restaurant can expect to recoup its investment in about five months.

Analyze POS & Time-Study Data

To establish baseline data regarding average meal duration, Cactus Café has turned to two sources of information: data gathered from its POS system and the results of a time study that tracked the duration of 100 meals over a period of one month. Following are the results of the two studies.

POS Data

Cactus Café analyzed data from its POS system to determine the average dining time and how much that dining time tended to vary. The analysis indicated the average dining time for dinner was 53 minutes with a standard deviation of about 24 minutes. (Meal time is considered to encompass the time from when customers are seated until they depart).

POS data can be problematic, as checks aren't entered at the exact moment customers enter the restaurant, and checks aren't closed at the exact moment customers leave the restaurant. Still, the results can be useful.

Time Study

During Cactus Café's time study, observers armed with watches sat in unobtrusive places in the restaurant and recorded the meal duration of 100 different parties over a period of one month, timing the intervals listed in this activity.



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Seat to Greet: The interval between when customers are seated and their server greets them.

Greet to Drinks: The interval between when the customers are greeted and their drinks are served.

Drinks to Order: The interval between when customers' drinks are delivered and the server takes their meal order.

Order to Entrée: The interval between when the server takes the meal order and the entrée is delivered.

Entrée to Change returned: The interval between when the entrée is delivered and the change is returned.

Change returned to Departure: The interval between when the change is returned and the guests leave.

Departure to Table bussed: The interval between when the guests leave and the table is bussed.

Table bussed to Reseated: The interval between when the table is bussed and the next party is seated.

Results of Time Study

Results were then analyzed to calculate the average duration of each interval as well as its standard deviation (the amount of variation within each interval).

The following chart summarizes the results of the time study. (The figures in parentheses represent standard deviation.)



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This is to be expected: the check isn't entered into the POS system until after the customer has been seated and greeted, and the check is closed in the POS system at the point the change is returned. So the POS system doesn't capture the interval between seating and greeting, nor does it capture the interval between when the change is returned and the customers depart.)The time study at Cactus Café indicated that the average meal took almost 62 minutes, with a standard deviation of about 25.5 minutes. (Meal time is considered to encompass the elapsed time from when customers are seated until they depart.) About 70% of the customers took between 37 and 87 minutes to complete their meal—a very large amount of variation. (Note that time-study figures for overall duration and standard deviation are slightly longer than in the corresponding figures in the POS data.

Managing Duration

On the basis of your analysis of the preceding data, on which of the following aspects of duration should Cactus Café focus its restaurant revenue management strategy? (Choose all that apply.)

1. Beginning of the meal (the time between when patrons are seated and their order is taken)

This is a good area in which to attempt to reduce duration. Patrons generally don't like delays at the beginning of the meal, so any improvements here are likely to improve customer satisfaction.

Moreover, components that have a standard deviation larger or close to as large as the average duration are in serious need of help. At Cactus Café, this is the case for the interval between Seat and Greet (avg. duration, 1:58; standard deviation, 1:54); the interval between Greet and Drinks (avg. duration, 5:21; standard deviation, 4:00); and the interval between Drinks and Order (avg. duration, 5:09; standard deviation, 4:02). These figures indicate these processes are highly variable, which means there's lots of room for improvement.

2. Meal preparation (the time between when patrons' orders are taken and the main course is delivered)

Meal preparation can be an effective area in which to reduce duration, but your ability to do so is limited by the capacity of the kitchen.

Moreover, if patrons get their food too quickly, they may wonder about its quality and freshness.

Finally, in this particular case, standard deviation (7:34) was only slightly more than 50% of average duration (12:06). This means that the kitchen was doing a consistent job of getting food out to the guests.



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3. Meal consumption (the time between when the main course is delivered and the change from the check is returned)

This is a tricky area in which to attempt to reduce duration. On the one hand, you don't want to give patrons so much attention during the meal that they feel rushed. But at the same time, you don't want to ignore them to the point that they feel abandoned.

Here again, however, the standard deviation (13:48) as a percentage of average duration (29:16) indicated an acceptable level of variation.

4. End of meal (the time between when the change from the check is returned and the next party is seated at the table)

This is another good area in which to attempt to reduce average duration. Customers usually don't like delays at the end of the meal, so improvements here generally translate directly to improved customer satisfaction.

Moreover, figures for standard deviation in the components comprising the end of the meal actually exceeded the figures for average duration for those same components. This indicates a high degree of variability in these components, which means there's lots of room for improvement.

The length of time that guests use a table is usually measured either by the number of minutes or hours that they actually occupy that table or by the events relating to a meal (e.g., by the course or by the full meal). In either case, the restaurateur must know how long a typical guest will stay at a table for a given day part or meal. When duration is defined as a meal rather than as the time to complete a meal, the operator must be able to forecast meal length so that selling a meal essentially becomes selling a certain length of time in the restaurant.

Here you can learn more about the components of meal duration.

Meal time

When duration is defined as a meal rather than as the time to complete a meal, the operator must be able to forecast meal length so that selling a meal essentially becomes selling a certain length of time in the restaurant.



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It’s important to know not only the average meal duration, but also how much meal duration varies around that average, and any patterns you can discern about how meal duration varies between meals, days, or seasons. If there is considerable variation in meal duration, the first step in managing duration is to minimize that variation.

Course timing

In certain circumstances (especially mid- to upscale casual dining establishments) it may be more valuable to measure the duration of each course—for example, appetizer, main course, and dessert—to construct a more detailed picture of overall duration. This enables restaurateurs to identify more precisely those areas where average duration and/or variation can be reduced.

Here you can learn more about the tools you can use to gather the data necessary to analyze the components of meal duration.

POS system

POS (point of sale) systems generally collect myriad transaction data, such as arrival time, meal time, and customer spending. But converting that POS data to a useable form is often difficult and time-consuming.

You must also be aware of operational factors that may make POS data inaccurate or misleading. The time a check was opened may not be when the guests actually arrived or were seated, and the closing time may not be when they actually left. Restaurants that use cashiers may find that all checks are closed at the end of the cashier’s shift, thus rendering the POS data useless for timing guest activities.

Guest checks

Guest checks should be used as a source of data only in the absence of a POS system, as the data they produce has an even greater potential to be inaccurate or misleading. In addition to the problems associated with the accuracy of POS data, guest checks rely on the diligence of the servers to note the arrival and departure times of the parties they serve.

Time study

A time-study approach to collecting data can yield accurate arrival and departure times, and can generate a useful level of detail on meal timing, but the study itself is time-consuming and requires multiple observers to track several parties accurately.



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Since a time study is necessarily a sample, rather than an exhaustive record, you must also take care to ensure that the study is based on a representative sample of meal periods and days of the week.

What should restaurateurs look for when analyzing duration?

Well, one of the key things is looking just to see how long people are taking to eat. Is it an issue that they're taking a long time to eat because they feel like sitting there—which if they want to sit there, that's fine—or are they sitting there for a long time because we just can't happen to get them out the door? And so what we want to do is we want to go through and analyze the duration experience and find out how long it's taking, how much variation is there, and are there parts of the meal where we are having some problems with getting them out the door—where it's our fault, not their fault. The other issue, too, is that when you're in a very slow period, it doesn't really matter how long people stay, but when you're in a rush and you've got a lot of people waiting to come in, you really don't want to have people taking up the table for a long time and keeping other people from being seated.

Is the goal always to reduce duration? Why or why not?

Well, not always. A lot of times in fine-dining restaurants, customers are going out to have the long dining duration. The key issue is really, are they taking a long time because they want to be, or because, back to what I said before, is it because we can't get them out the door? One of the other things you might want to look at is not so much as reducing the dining duration, but reducing the variability in duration. So, for example, if sometimes it takes us a long time to get the check out, and sometimes we're very fast at it, that adds a lot of variation to the dining experience. And from the customer's perspective, they don't know if when they come to our restaurant, they're going to be really fast or if they're going to be really slow. And if we can make it more consistent, it's going to be good for our operations, and also good from a customer-satisfaction standpoint.

What are some of the elements of duration that restaurateurs can look to reduce?

Well, you can break the meal into probably three or four parts. What I like to kind of look at is the beginning of the meal and the end of the meal and then, let's just say, kind of the middle of the meal when customers are eating. And when I go into a restaurant, where I probably would start off with looking at is at the beginning and end of the meal. So, when customers are being seated, when they're being greeted, when their order is being taken, when we're getting their drinks to them—those are areas where the customer truly probably doesn't want to be sitting



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there for a real long time, and if we can be more efficient there, they're going to be a whole lot happier.

Same thing at the end of the meal. Once customers ask for the check, they're pretty much ready to go, and a lot of times, we're kind of slow in getting that to them. And so if we can make that process more efficient, it would be better for us, and also the customers will be happy. Where you've got to be kind of careful is during the meal consumption itself: if the customers perceive that you're kind of rushing them, they're not going to be too happy with this. So, for example, if you're doing a lot of pre-bussing, and they're starting to feel a lot of pressure to leave, that's going to have an impact on their experience. So what we want to do is we want to make sure that we reduce their idle time. So if they're sitting there, they have nothing going on, we want to make sure that's not happening, but if they want to be sitting there, and having a conversation with their friends, and having a great meal, that's fine, too.

What are some of the issues restaurateurs must consider with regard to duration strategies?

I think one of the key things is customer satisfaction. If the customers perceive that you're trying to rush them, they're not going to be too happy, and they might not want to come back to your restaurant again. So the key thing is identifying when do the customers want to be sitting there and when do they not want to be sitting there? If they want to sit there, we'll let them, that's fine, we don't want to push them out the door. But if the problem is that we're not being very efficient in doing different parts of the meal, then we want to take care of that. But customer satisfaction is a real key issue.

The other thing that you might have to look at is that if you are looking to, perhaps, reduce your dining time by a few minutes or five minutes or ten minutes, there might be some staffing issues associated with that. So perhaps you might need to have another busser, you might need to have another food runner, perhaps even another server, and that can cost you something; but at the same time, if you can serve more customers, you're going to be able to make more money.

And then the other side, too—especially if you're in a very competitive market—is that if customers know that they can come to your restaurant and have a good, consistent experience, and they can get out quickly, if they want to, but they pretty much know how long it's going to take. That's going to be a competitive advantage for you because when customers have a choice in which place they want to go, they're going to go to the place where they know what they're going to get: they're going to be getting good food and good service, and it's going to be consistent.



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This presentation displays hourly RevPASH data compiled by Chevys Arrowhead in Phoenix, Arizona, for its hours of operation over the course of a week, and illustrates how the restaurant categorized the data into periods of hot, warm, and cold business activity.

As part of its effort to establish baseline business performance data (step #1 in its overall revenue management initiative), Chevys Arrowhead in Phoenix, Arizona, compiled hourly RevPASH data for its hours of operation over the course of a single week.

Each hour was coded as red, yellow, white, or blue. Red indicates "hot" hours—those having a relatively high RevPASH—and is associated with times when the restaurant has customers waiting for a table. (In this case, hot hours are defined as those with a RevPASH of over $5.) Notice that the hot periods occur primarily during Friday and Saturday night dinner hours and Saturday and Sunday lunch hours.

Yellow indicates warm hours—those having a moderately high RevPASH—and is associated with times when the restaurant is busy, but no one is waiting for a table. (In this case, warm hours were defined as those with a RevPASH between $3.50 and $5.) Notice how most of the warm hours occur primarily during the periods before and after hot periods. One of the goals of revenue management strategy is to convert warm hours to hot hours.

Blue indicates "cold" hours—those having a relatively low RevPASH—and is associated with times when the restaurant is operating significantly below capacity. (In this case cold hours were defined as those with a RevPASH of less than $2.) Notice that the cold hours occur primarily during the mid-afternoon and late-evening hours.



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White indicates "cool" hours—those having a moderately low RevPASH. While not as bad as cold hours, these are times when the restaurant is not generating much money. (In this case, cool hours were defined as those with a RevPASH between $2 and $3.50. Notice that the cool periods occurred primarily during weekday lunch hours.

RevPASH indicates the rate at which revenue is generated. The easiest way to calculate RevPASH is to divide revenue for the desired time period by the number of seat-hours available during that time period. In this calculation, the desired time period could be a day part, a day, or even a month. The greater the time period, however, the greater the number of seat hours available during that period.

For example, assume a 100-seat restaurant makes $1,500 on Fridays between 6 and 7 PM. Its RevPASH would be $1,500 divided by 100 seats-hours (100 seats x 1 hour), or $15.

If that same 100-seat restaurant made $5,000 over a four-hour meal period, its RevPASH would be $5,000 divided by 400 seat-hours (100 seats x 4 hours), or $12.50.



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RevPASH is also the product of seat occupancy times average check. If one of these variables changes, RevPASH changes. However, if both variables (seat occupancy and average check) change, RevPASH could remain the same.

For instance, if the average check decreases but seat occupancy increases, RevPASH could remain the same. Conversely, if the average check increases, RevPASH could go unchanged if seat occupancy decreases.

To illustrate this, consider restaurants A, B, C, and D. All four have the same RevPASH ($7.20), but each achieves it in a different manner, according to a different ratio of average check to seat occupancy.

RevPASH is closely related to dining time or, more accurately, the length of the service cycle (the time that elapses between one seating and the next). As the service cycle decreases, the



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RevPASH increases. Even a one-minute reduction in the service cycle during a high-demand period can lead to an increase in RevPASH of 1.5 to 2.0 percent. How is that possible?

To find out how this works, return to our hypothetical 100-seat restaurant with its four-hour dinner shift. The average service cycle is 60 minutes, meaning the dinner shift allows for four complete seatings. With 100 seats, the restaurant can potentially handle 400 customers per night (four "turns" per night).

If the average check is $15, you can calculate the maximum nightly revenue by multiplying $15 by 400 customers. That's $6,000.

The restaurant's potential RevPASH (for 100% seat occupancy) is $15.

Consider how these numbers change if the service cycle can be reduced to 59 minutes. In this case, turns increase to a value you can calculate this way:

240 total minutes divided by 59, or about 4.07 turns.

The number of turns multiplied by the number of seats is 4.07 x 100 seats, or 406.8 customers. That's 6.8 more customers than were possible with a 60-minute service cycle.

If the average check remains at $15, the potential nightly revenue increases to $6,102 and its potential RevPASH increases to $15.25—an increase of 1.69 percent.

Note that with the increased volume, the check average could even drop by $0.20, and revenue would still increase.

RevPASH indicates the rate at which revenue is generated. It can be calculated as the relationship either between revenue per time period and number of seats available during that time period, or between seat occupancy and average check.



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Managerial Uses of RevPASH

RevPASH embraces capacity use and cost margins, making it an excellent indicator of the revenue-generating performance of a restaurant. Managers can use RevPASH in a variety of ways to measure restaurant performance over time and in comparison to other operations.

Compare performance of one restaurant over time

At the individual restaurant level, managers may choose to develop hourly or quarter-hourly RevPASH figures to help develop a revenue-management strategy best suited to their restaurant. RevPASH can also be used to evaluate the effectiveness of an operation's servers and managers.

Compare performance of one outlet over time

Say that the manager of a 100-seat restaurant wanted to understand her hourly RevPASH patterns for September. Obtaining data from the restaurant's POS system, the manager found that her highest RevPASH periods were on Fridays and Saturdays from 6 to 10 PM and on Sundays from 6 to 9 PM. The manager can use this information to help develop revenue-management tactics specific to high and low RevPASH periods. For example, during high



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RevPASH periods, she may focus on reducing the meal time by having table servers skip suggestions of desserts or after-dinner drinks. On the other hand, at low RevPASH times, she may decide to increase the use of suggestive selling or even reduce menu prices to boost traffic.

Compare performance of different restaurant outlets in a chain

Regional or national managers could use RevPASH to compare the relative performance of different restaurant units of a chain in an area, region, or nation.



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Compare performance of different food and beverage outlets

Consider a city with six restaurants franchised by a particular chain. Restaurant 4 enjoyed the highest average check ($12.10) of the six units, but it also has the lowest RevPASH ($4.25). On the other hand, restaurant 5 has the lowest average check ($9.45), but the second-highest RevPASH ($6.25).

Compare performance of different food and beverage outlets

Relative performance measurements can be calculated by dividing one restaurant's performance by the average performance of all the units. Thus, the check performance of restaurant 4 is above average (1.14), but its RevPASH performance is only 0.83 ($4.25 /$5.20). By using relative performance measurements like these, regional managers can better evaluate the revenue generation of the restaurants they oversee.

Compare performance to competition

You can also calculate and compare your RevPASH to a competitor's to get a sense of how well a restaurant, a region, or a chain is performing.



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Note: The two ratios compare the subject restaurant's performance to its competitive set.

Here you see that the competition is achieving a higher average check, but your restaurant is achieving a somewhat higher RevPASH. Remember, average check is not the whole story!

Conclusion

RevPASH is a powerful managerial tool for calculating the revenue-generating performance of a restaurant. You've seen how it can be used to monitor the performance of a single restaurant over time, of multiple restaurants within a chain, and of one or more restaurants to its competitors.

Pinpoint customer contact points

Service blueprints can help you identify where in the service process your staff is currently interacting with customers, how they're interacting with customers, and where you might want to increase, decrease, or modify such interaction. For example, in a buffet setting, do you want servers at each station, or do you want customers to serve themselves?

Isolate potential failure points

The service blueprint helps you identify the weak points in the service process and develop strategies to address them.

Establish time frames for delivery

Isolating each phase of the service process can help you establish a time frame for accomplishing each phase. You can then compare your target time frame to the actual time frame to identify where you need to speed things up and what changes you might need to make to do so.



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Identify possible areas for re-design

Using the service blueprint to analyze customer contact points, isolate potential failure points, and establish time frames helps you identify elements of the service process that may need to be re-designed to improve overall performance.

Sit-Down Restaurant

The dining experience at most sit-down restaurants—from casual to formal—conforms closely to this model.

Patrons arrive at the restaurant, they're greeted by either a host, hostess, maitre d', or server, they sit at a table, they order their meal, they eat the meal, they pay for the meal, and they leave. Within this general framework, there are a number of possible variations:

In certain very casual establishments—such as American diners—customers may not be formally greeted prior to sitting down. They may simply be invited to seat themselves either at an available table or at a counter.



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If the restaurant is very busy, customers may need to wait for a period of time for a table to become available. Many restaurants encourage their patrons to make reservations both to reduce their wait time and enable the restaurant to forecast demand more accurately.

Certain restaurants may subdivide the ordering process, taking drink orders shortly after customers are seated, then taking orders for appetizers and main courses, and, after customers have finished their main courses, taking dessert orders.

Finally, the number of courses involved in the dining experience can vary greatly, from one or two (a main course and an appetizer or dessert) to four, five, or more. Despite these variations, however, the basic contours of the sit-down dining experience remain the same.



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Fast-Food Restaurant

Fast-food restaurants are willing to sacrifice a certain amount of service for the sake of speed and convenience. As such, it makes sense for their service blueprint to leave out some of the elements characteristic of a sit-down experience, and to reorder others. For example, most fast-food establishments lack a formal greeting component: customers arrive, walk up to the counter, and order their food. Usually, customers pay for their food immediately, then wait for a short period of time before it's delivered. At that point, they take their food to an available table, eat, and then depart.

Take-Out Restaurant

Certain restaurants are designed exclusively as take-out venues. Others offer take-out as an option. (This is especially true for fast-food establishments, where the question, Is this for here or to go? is a part of every customer interaction.) In such situations, the service blueprint is even more streamlined. Typically (though not always), the order process occurs over the telephone, before patrons have even arrived. Customers pay for their order immediately upon arrival, pick it up, then leave the restaurant, taking their food with them.



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Buffet Restaurant

The buffet experience combines elements of the fast-food and sit-down models. Typically, customers arrive at the restaurant (they may or may not be greeted), pick up a tray, and move through the food line, where they pick and choose the items they wish to consume. At the end of the line, they pay for their selections, then find an available seat, eat, and depart.

All-you-can-eat buffets vary this process slightly by asking patrons to pay immediately upon arrival, before they've chosen their food. In those situations, patrons may cycle through the process of choosing food and sitting down multiple times, as they enjoy second and third (and even more) helpings.

Hybrid Experience

Certain establishments—especially those featuring a salad bar and/or dessert bar—combine elements of sit-down and buffet models to create a hybrid dining experience. Patrons arrive, often they're greeted, they're guided to a table, and they order a main course. They may then go to the salad bar or buffet, choose an appetizer and/or salad, and return to their seat to consume what they've chosen. They may or may not return to the buffet for additional helpings before the server delivers their main course. If the restaurant features a dessert bar, they may visit it one or more times after finishing their main course, before paying and departing.



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Chevys Arrowhead restaurant, located in suburban Phoenix, Arizona, developed a fishbone diagram to address the problem of high standard deviation in the duration of meals. Problem categories were identified as Personnel, Information, Equipment, Methods, and Products. Then the restaurant brainstormed the possible causes related to each category. Although there were some equipment and product issues in the kitchen, analysis of the diagram revealed that the main issues influencing the standard deviation of meal duration at Chevys Arrowhead were related to personnel and methods. Personnel problems at the restaurant stemmed principally from inconsistent training and variable skill levels on the part of employees. These created an inconsistent level of service that contributed to the high standard deviation in meal duration. Another problem related to the job responsibilities of the host. In addition to controlling the flow of guests into the dining room, the host at Chevys Arrowhead was also responsible for take-out orders, seating, and other nonessential jobs. This frequently resulted in a bottleneck at the host station, especially during peak hours of operation. Next, Chevys Arrowhead turned its attention to procedural problems related to methods. One of those involved a wide variation in greet time, which is the time between when guests are seated and when they are greeted by their server. The problem resulted from a lack of communication between the host and the servers, the servers' general lack of attentiveness, and the fact that servers were often occupied by other activities.



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Another problem related to the procedure for bussing tables. Even when customers were waiting for a table, empty tables often sat for several minutes before being cleared. The reason was because servers often didn't take the time to pre-buss a table after customers left. This resulted in bussers having more work to do, which meant they weren't able to move quickly enough from one table to the next. The fishbone diagram helped Chevys Arrowhead identify other problems related to methods, involving table management, communication with food runners, and suggestive selling, all of which created inconsistencies in the average meal duration and contributed to the high standard deviation. We needn't detail these problems here. The point is that the fishbone diagram provided a structured way to brainstorm and capture the component elements of the service process and identify those that were problematic. You may find a fishbone diagram to be a useful tool in analyzing your own service process. If so, the example illustrated here can be a valuable job aid.



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A popular coffee shop has two baristas (the employees who staff the coffee machines) and three cashiers. Customers order their coffee from the baristas, then proceed to the cashier to pay for it. The baristas require 45 seconds to process each customer. The cashiers require an average of 50 seconds to process each customer. Currently, customers can either pay cash (which requires about 45 seconds for cashiers to process), use a credit card (which requires about 75 seconds), or use a smart card (which requires only 25 seconds). The owner is considering investing in new technology to encourage the use of smart cards, in the belief that this will enable him to process a greater number of customers. Is he correct? In order for the owner of the coffee shop to know for sure whether encouraging customers to use smart cards is really going to increase the number of customers he can serve, he must calculate his current capacity and compare that to his projected capacity as a result of using smart cards. This involves some basic math, the results of which can be captured in a simple table. Each barista can serve one customer every 45 seconds, or approximately 1.3 customers per minute. That means each barista can serve approximately 80 customers per hour. Together, the two baristas can serve 160 customers per hour. Each cashier can serve one customer every 50 seconds, or 1.2 customers per minute, which translates to 72 customers per hour. Because there are three cashiers, their total capacity is 72 x 3, or 216 customers per hour. Another way to compare the relative capacities of the baristas and cashiers is to think of each process as a pipe. The larger the pipe's diameter, the greater its capacity—in other words, the greater the number of customers who can flow through it. On the basis of their ability to process 216 customers per hour compared to the baristas' 160 per hour, the cashiers currently represent a larger pipe than the baristas. So the real bottleneck in the coffee shop is not where the owner thinks it is—it's with the baristas, not with the cashiers. Nevertheless, let's continue our analysis and see if encouraging customers to use smart cards is really going to increase the coffee shop's capacity.



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Encouraging customers to use smart cards would cut in half the time cashiers require to service each customer (from 50 seconds per customer to 25), thereby doubling their capacity from 216 customers per hour to 432. However, smart cards would have no impact on the capacity of the baristas. Overall capacity of a multi-process operation is only as great as the smallest capacity of any component operation. So despite increasing the capacity of the cashiers, smart cards would leave the overall capacity of the coffee shop unchanged. In conducting a bottleneck analysis, it's important to establish whether your ideas for relieving the bottleneck will be effective. To do so, you must first calculate the current capacity of the process you're analyzing, then compare that to the projected capacity of your proposed solutions. Had the owner of the coffee shop done so, he would've realized that encouraging his customers to use smart cards might get them out the door more quickly, but it wouldn't enable his shop to increase the number of customers it's currently serving.

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