We just dropped the final installment of our three-part series with special guest and co-host Kristen Hawley on our podcast So You Want to Run a Restaurant. We’re capping off the miniseries with a chat with Bo Davis about how technology can help restaurants run a more efficient, cost-effective operation. Davis is the founder and CEO of MarginEdge, a restaurant management app that integrates with POS systems to streamline inventory, track costs, capture receipts, schedule payments, and provide real-time insights, without the paperwork.
Davis shares the ins and outs of how MarginEdge works, along with why he sees technology as becoming an increasingly important part of the restaurant industry.
Restaurants run on inherently tight profit margins, which makes it challenging to succeed without strategically evaluating every single area where costs can be cut and profits can be boosted.
“Revenue changes very much day by day, and your food and your labor are variable – so to try to hit a 10% profit margin day by day is really difficult,” says Davis. “A good restaurant’s doing a couple million in revenue, and spending one and a half million dollars, and it's all variable. It's hard.”
Data has always played a valuable role in helping operators assess all aspects of their business. But when the pandemic hit, it became crucial for many operators to start paying even closer attention to their numbers.
“The pandemic just threw everything completely out of whack because everything was changing even faster than previously,” says Davis. “We work with about 3,000 restaurants – small businesses, one to 10 restaurants generally. When COVID first hit, what we saw was 85% of the revenue of these businesses disappear in 14 days.”
As profits were dipping, revenue streams were changing, too. Davis notes that pre-pandemic, delivery made up about just 5% of his clients’ business. But the summer after COVID hit, delivery revenues peaked to 40% of business.
“So you think of a business that has run for X number of years as a dine in business that had a little bit of delivery on the side, [and] having to switch to takeout and delivery – everything from packaging to menu items to pricing to how to take your orders, all of it changed dramatically,” says Davis. “Naturally that forces you to rethink your operations pretty dramatically and your menus and purchasing.”
Having a platform like MarginEdge, where data becomes accessible in real time, makes it easier to quickly adapt and adjust when needed, says Davis. Numerous studies show operators are increasingly seeing the value in this kind of technology, too, which is allowing companies like MarginEdge to grow and expand their features. Davis reports that last year, MarginEdge grew by 130-percent.
One of the main benefits of having data laid out in accessible, digital reports is that it makes it easier to monitor and analyze ongoing operations. Take, for example, basic inventory. Between the food, the napkins, the forks, and everything else required to run operations, the typical restaurant will buy between 500 and 1,000 items that operators need to keep track of, says Davis.
“To really know what's going on with all of these things, you're dealing with 50 invoices, from 20 vendors, [filled] with 800 items,” he says.
Analyzing that data is generally very expensive and time-consuming. But technology platforms have sought to make it easier. With MarginEdge, for example, operators simply have to submit a photo of their invoices to the platform, and the data gets automatically processed by a combination of machine learning and actual MarginEdge staff. This eliminates all data entry steps for the operator, and keeps inventory and recipe prices continuously up-to-date. MarginEdge also maps out price movements on visual charts, enabling operators to quickly spot items with shrinking margins.
“The traditional, old-school method for restaurants is, you design a recipe based on the current price, on [a] spreadsheet. You say, ‘Okay, it's going to cost me two bucks to make my burger’. And then you just start making it, and time goes on, and you don't really go back and check [prices],” says Davis. “But a system like ours allows all of the prices to be updated automatically so you know what those prices are in real time, [and] you can make adjustments before you realize you're losing money.”
In the years ahead, we can expect reporting tools to start expanding into projection tools that help map out the future.
“Right now, 100-percent of what MarginEdge is doing is analyzing the data and providing reporting, so we can tell you your menu costs and how much you sell of something, and when you're wasting something,” says Davis. “But over the last 18 months, we've built up a pretty substantial data science team who are working on the algorithms to do all of the predictive work, so looking forward instead of backwards.”
The goal for MarginEdge is to be able to predict how many, say, salmon nigiris an operator will sell in a given day, enabling the chef to know upfront how much salmon they need to buy, how much rice needs to be cooked, and so on. Davis sees data science and machine learning as the future of software, especially for creating projection tools. The aim is for these tools to free up chefs to engage in more creative sides of the business.
“All software is going to move from reporting to predicting, but certainly in the restaurant business – predicting what people will sell down to the item level, and then from that, doing dynamic inventory and dynamic ordering so that when you walk into a restaurant as a kitchen manager, as a chef, you can focus on the quality control aspects and the preparation of food rather than the ordering and management,” says Davis.