Modesto Alcala has been named President of Don Pablo’s Mexican Kitchen restaurants and Senior Vice President of Avado Brands.

A restaurant executive for 23 years, Alcala is the former COO of Buca di Beppo. He’s also served as President and COO for Copeland’s Famous New Orleans Restaurant and Bar and VP of Caf� Operations at Barnes & Noble Inc. Alcala also has held leadership positions at Carlson Restaurants Worldwide Inc., operator of such concepts as Timpano Italian Chophouse, Samba Room and Mignon Steak House, and was in management for Romano’s Macaroni Grill, a Brinker International Inc. company. He earned a B.A. from the University of Florida in 1984.

March/April 2007

Debby Cannon, Ph.D., CHE

All projections are that 2007 will be a good economic year in Georgia and likewise for the restaurant and foodservice industry. Dr. Jeffrey Humphreys, Director of the Selig Center for Economic Growth at the University of Georgia, has called his projections for Georgia’s economy “relatively upbeat.” Although nationwide there is drop in gross domestic product (GDP), the decline in Georgia is slight (a drop of 0.3 percent). It is also forecasted that Georgia’s GDP will grow at least a full percentage point faster than the nation’s, and this is for the third straight year.

Regarding restaurant expenditures, Humphreys expects that people will spend more money dining away from home, though the increase is expected to be moderate. A number of factors will impact this gain, including population growth, employment growth, a rise in disposable income and more travelers, both business and leisure tourists, visiting Georgia.

Along with the growth in Georgia’s restaurants, there are likely to be several dichotomies for operators and owners to manage. Those who proactively deal with these changes will, no doubt, have a distinct competitive advantage versus those in the industry who are caught blind-sighted and flat-footed.

These dichotomies include:

• Increased revenues – Greater need to control operating expenses
• High tech - High touch
• Greater number of customers/guests - Heightened need to retain customers, and
• A workforce that is more diversified than at any time in history - The need for employees to be a part of “one” workplace family

Let’s look at each one.

Revenues / Expenses
There’s an old adage that high revenues can hide a lot of sins, meaning that it is easier to absorb more expenses, even mistakes, and still turn a profit. That philosophy doesn’t reflect good management, however, and can create a culture of wastefulness and carelessness. Severe winter weather in many parts of the nation will result in more expensive goods and supplies. Other areas that require constant attention are utilities and insurance, both which can be controlled to a certain degree, with assertive “grass roots” activities involving employee awareness and responsible actions. Employee incentives to help prevent accidents for workers and guests, to acknowledge conservation in the operating of appliances and to avoid wasteful breakage and discarding of usable or recyclable items can have a marked return on investment.

High Tech / High Touch
The phrase “high tech – high touch” was coined over 20 years ago which was truly visionary considering that we could not have even imagined in the early 1980s the impact technology would have on our lives today. The phrase indicates that there is a direct positive correlation between technology consuming our lives and the need for meaningful human contact. In our industry (and most others as well), that meaningful human contact is service. Not just service or good service but memorable, great service�whether at a QSR drive-through or at a fine dining restaurant. The general population is starving for warm smiles and welcomes, attention to personal preferences and fond farewells�again, whether at a QSR or at a fine dining establishment.

Customers
In a recent survey, CEOs from a variety of industries identified customer loyalty and retention as their top concern. If we could retain a high percentage of our customers, our marketing and advertising efforts would not cease but would bring in the true growth factor for a business. In 2007, we are expecting an increase in our customer base. This presents an invaluable business opportunity that must be strategically planned, from hiring needs to operating practices. Employees must be engaged in finding the solutions and enhancing each “touch point” of the customer experience. Telling a customer that there is a 45-minute wait can engage and excite the guest that there is something really special to wait for (and, by the way, you can be comfortable while waiting whether by ordering a drink or having a chance to peruse the menu) if done in the right way. As we have unfortunately seen, it can also be done in a way that yells (without saying these exact words): ” Go away. We are too busy and you are not wanted here right now!”

We have the technology to connect with our customers and create additional and meaningful “touch points” in building their loyalty. For example:

• Know your guests – from their favorite menu items to special occasions, best ways to communicate with them and more. For large operations, this may necessitate a database that is created from information provided by employees (most likely servers) on the regulars or those who could become regulars. For smaller operations, this information can be manually kept in an alphabetized logbook.
• Let guests know that you have missed seeing them when they have not been around. Do something nice and unexpected for returning guests, such as a free appetizer or dessert.
• Get to know guests’ names and have employees call guests by name. There is no greater ego builder than to have someone remember your name. People, by nature, like to do business with places that make them feel good.

These are just a few ideas. Do a brainstorming session with your employees and get their suggestions. A customer typically will connect to one particular employee (showing the importance of the front-line employee) and this is the foundation from which loyalty grows. The loyal customer cannot be ignored because we are a fickle society and, in time, allegiance fades.

Workforce
Along with customer retention is the need to retain employees, a long-time challenge for the restaurant industry as a whole. Most industries struggle with employee retention. The restaurant industry faces the employee issue on a very big scale, as the number two employer next to the government.

Our industry is enriched with the many cultures and backgrounds of the 12.8 million employees nationwide. There are several pieces to the employee retention puzzle but an essential piece is that people want to be included and engaged as an important part of the business. They want to feel that they are contributing to a greater mission through their day-to-day efforts. They also want to belong and feel part of the team. These needs present tremendous opportunities for today’s restaurant manager and owner in forming a team with the team members understanding and focusing on the goals and mission of the operation regardless of individual differences.

Debby Cannon, Ph.D., CHE is Director of the Cecil B. Day School of Hospitality, Robinson College of Business, Georgia State University.

May/June 2007

By Martin L. Tanenbaum, CPA, MTX

Many factors come into play when attempting to operate a restaurant profitably. Most important are initial factors like knowing your market, understanding menu pricing and discerning food and beverage costs. These issues need to be addressed at the outset of your venture, and then need to be constantly adjusted to prevailing market conditions.

As veterans already know, the restaurant business is very unforgiving when it comes to achieving bottom line profits. Average pre-tax profit margins range from four to seven percent (four percent for full-service and seven percent for limited-service restaurants). With margins so tight, there is little room for financial management missteps.

“With margins so tight, there is little room for financial management missteps.“

Unlike many other small businesses that employ full- or part-time financial personnel, most restaurant owners cannot afford that luxury. Their days are often spent jumping from one operational task (or crisis) to another and, as a result, the financial management of the restaurant may not receive the attention that it requires.

No amount of improved financial skills and procedures can solve a restaurant’s financial problems if the cause is inadequate sales. Fixed expenses cannot be brought into line (as a reasonable percentage of sales, that is) if gross revenues are too low. Efforts to maintain an accurate accounting system with well-prepared financial reports that permit proactive day-to-day management will be for naught if revenues are not sufficient for the business to be profitable. That said, here are a few areas that can be corrected by improved procedures or management of your existing revenues, or at worst, by helping to quantify the additional revenues that will be required:

1. Key operating expenses too high relative to gross sales

Food and beverage purchases plus labor costs account for between 65 to 70 cents of every dollar in restaurant sales. These costs are commonly referred to as “prime costs.” A restaurant’s profitability most likely rests with the ability to control prime costs. Unlike utility and insurance expenses that are relatively fixed, food costs can be impacted by more effective purchasing, product handling and menu pricing. Scheduling, hiring practices and the kitchen layout can favorably impact labor costs. It is very difficult for a restaurant to be profitable when prime costs exceed 70 percent. Exceptions do occur, though, such as compensating for these higher costs with favorable rent expense.

2. Food and beverage inventory levels not counted and costed at the end of each accounting period

Many restaurant operators make the mistake of confusing their monthly food and beverage purchases with their monthly usage. A common assumption is that the food purchased during the month divided by the food sales for the period equals the cost of goods sold for food. This is just not so. Without knowing the beginning and ending inventory values, an accurate food cost cannot be calculated. For a restaurant with food sales of $100,000 per month, an inventory difference of $2,000 between the beginning and end of a month, can result in a variance of two percent. This can represent a significant amount of the annual profit of a typical full service restaurant.

3. Inaccurate posting of financial information to accounting system

One of the most common errors in a restaurant’s accounting procedures is posting financial entries to the wrong accounts. This can include daily cash and credit receipts being recorded as income with no recognition of discounts or complimentary meals, inaccurate posting of sales tax collected, gift certificates sold recorded as revenue and not as a liability, and recording capital expenses as ordinary expenses.

4. Daily and weekly financial operating data not collected, reviewed or acted upon

Every restaurant should generate some type of daily and weekly report that summarizes, in a simple and easy-to-read format, all the key daily and weekly operating data such as sales by category, labor by department, food and beverage purchases, beginning and ending inventories, and other fixed expenses allocated on a daily basis to produce a weekly estimate of the restaurant’s net profit. It is very difficult to make corrections that are needed in employee scheduling and product purchasing when all there is to go on is a monthly profit (loss) statement that is not available until the middle of the following month. Making more immediate corrections and adjustments can improve profitability.

5. Current liabilities sufficiently greater than current assets as to impair future ability to pay bills

After recording all your weekly sales and vendor bills go to your Balance Sheet and divide your current assets (cash, credit card receipts in transit, accounts receivable, food and beverage inventory) by your current liabilities (vendor bills, sales tax, lease payments and short term loans due). For example, if current assets equal $32,000 and current liabilities equal $28,000, then the resulting current ratio would be 1.14 ($32,000/$28,000). This is a rough measure of your ability to pay your outstanding bills. In most industries, a ratio of 1:1 is considered to be reasonable. Restaurants typically have lower ratios because they maintain relatively small inventory levels combined with a quick cash turnover (meals are paid for the same day as they are served). Well-established restaurants will typically have ratios over 1:1. Younger, less established restaurants will almost always be below 1:1. If your current ratio is below .7:1, then you should be concerned. While restaurants can survive for long periods with lower ratios than this, it does typically indicate that without an increase in either sales or working capital, you and your business are looking at rocky times ahead.

Martin L. Tanenbaum, CPA, MTX, is a Tax Principal at Tauber & Balser, P.C. He helps clients with estate planning needs and has specific expertise in the retail and restaurant industries. He can be reached at (404) 814.4920 or mtanenbaum@tbcpa.com.

By Hope S. Philbrick

A man of uncommon honesty, when asked what got him into winemaking Marco Caprai responds, “Twenty years ago my family said to me, “OK Marco, it’s time that you made something of good. What do you want to do? Textile? Fashion?’” In other words, it was deemed time for Marco to join the very successful family business. But Caprai followed his passion and suggested that he head up the family wine estate instead. In 1989 at age 21 he took charge of Arnaldo Caprai. Since then he’s done more than transform the family hobby into a successful business: He is the undisputed leader in the production of Sagrantino di Montefalco wines.

In the world marketplace, Italy’s Umbria region has long been overshadowed by Tuscany. Sagrantino, Caprai believes, could change that. The grape is genetically unique and indigenous to the Montefalco district of Umbria; the first written mention of it is dated 1598. From the outset, Caprai chose to focus on his home’s native grape because “this is my story,” he says, revealing that he respects tradition even while striving for innovation.

Since 1990 Caprai has conducted extensive research and experimentation in his vineyard and cellar with help from the University of Milan. He’s tried different trellis systems, vine protection processes like the reduced use of nitrogen fertilizers, and clone varietals�three of which he has patented. His goal isn’t to find one ideal clone; when making wine he prefers to blend several: “Each one gives the wine a different characteristic. If we use only one genotype, we have a one-dimensional wine. A group [of clones] gives bouquet, a different characteristic.” He’s also producing plants from seeds instead of relying on grafts, a strategy to improve the overall genetic diversity of crops. Testing vine growing location and density, he’s squeezing in 120 more vines per acre than his neighboring vintners.

Caprai is also revolutionizing the marketplace. In 2000 he was the first to bottle a wine exclusively for Internet sales. And in 2006 his became the first winery in the world to use a smart cork, which features a microchip embedded into a synthetic cork that allows access via a handheld reader to information about the wine, including recipes. The chip uses Radio Frequency Identification (RFID) technology. While he used it on a limited edition wine, Caprai predicts the application will soon become mainstream.

A college degree in political science may not come in handy for all winemakers, but for Caprai it has proven invaluable. To protect the integrity of the grapes, its wines and the appellation, Caprai petitioned for a DOCG (Denominazione di Origine Controllata e Garantita) designation, a level reserved for a small group of high quality wine regions�currently 35 in all of Italy, two of which happen to be in Umbria�that are held to the strictest government standards to produce the highest quality level of Italian wines. “Now the Italian government gave us exclusivity for Italy,” he says of the successful bid to reserve the Sagrantino name for use on labels solely by wine producers in Montefalco. Caprai considers the Italian law that he spearheaded a victory to preserve his region’s historic legacy: Producers in other appellations “can plant, but they can’t use the name. For us the problem is [if others use] the name because it is our brand.”

Of course, such a move is justified now that producers�with Caprai at the forefront�are producing elegant wines from Sagrantino. The thick-skinned grape is high in sugar and acidity and has “the highest levels of polyphenol of any grape in existence,” Caprai says. In skilled hands, the resulting strong-structured, food-friendly and complex wines can range from powerful dry to intense sweet reds.

Caprai’s current production is 750,000 bottles a year from vines that are planted on 336 of the estate’s total 388 acres�figures that reflect significant growth. In 1988, when Marco took over, the 145-acre estate produced 300,000 bottles. The first land purchased in 1971 was just 7.5 acres.

Among Caprai’s numerous awards are Slow Food’s Winery of the Year 2006, Oscar of Wine as Best Producer by the Italian Sommelier Association, and International Award Vinitaly. “We are very proud of Caprai,” says Maria Rita Lorenzetti, President of the Umbria Region. “Wine is very connected with the region of Umbria.” With Marco Caprai as its champion, Sagrantino di Montefalco is fast becoming the world’s next cult wine.

Behind the Bottle reveals the human spirit driving production of the world’s finest alcoholic beverages. Send comments to hopesp95@yahoo.com.

� 2007 Hope S. Philbrick

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