Running head: POS Benefit for Mom’s Restaurant

The Benefit of Point of Sale Technology for Mom’s Restaurant
Philip Crocco
Keller Graduate School of Management

Abstract
This paper explores the current situation at Mom’s Restaurant and the practical application of implementing a Point-of-Sale system. The background and vision of Mom’s restaurant will be addressed as a point of reference, so as not to change the direction of the establishment, rather to enhance its potential. Current business issues facing Mom’s restaurant as they compare to the industry in general will be discussed to paint a clear picture of the true cost and potential benefits of such a decision. Certain research and opinions from industry professionals will be included to support the proposal for implementation. Different benefits will be examined as they relate to the budget and income statement for Mom’s restaurant.

Purpose of the Report Mom’s Restaurant has served the people in and around South Pasadena for nearly two decades. It has established itself as a neighborhood staple and has reaped the benefits for many years. Though a reputation for quality food and service has kept it going, the times will inevitably catch up with it as the small suburb slowly expands and competitors multiply and become more efficient in managing their costs. It is the purpose of this report to convince the owners and operators of Mom’s Restaurant to invest in a Point-of-Sale system in order to manage costs and improve efficiency of service. Though many options exist for technological improvements, a standard Point-of-Sale system would be a sound investment with many benefits and an impressively significant return on investment ratio. Though a system such as this may not be necessary for survival in the immediate future, this report shows how much of a positive impact it will have on net income and many of the reasons for that impact. Though, like any investment, this proposal is not without risk, this report contends that, if implemented correctly and with care and training, a Point-of-Sale system will provide an immediate and lasting increase in net income.
Background of the Company
Mom’s Restaurant is a full service, casual, family style restaurant. It was founded in 1992 by Jane and Robert Montgomery in South Pasadena, California. The Montgomery’s vision for the restaurant was to provide quality comfort food at an affordable price and in a family-oriented neighborhood. They stress friendly, quality service and make it a point to get to know their customers. Mom’s serves breakfast, lunch and dinner, seven days a week. The menu items are listed at very affordable and competitive price points with the intent to draw in families and regular diners. The seated capacity of the restaurant is 50 people.
Mom’s Restaurant has developed into a very popular local restaurant over the years. There is often a wait on the weekends and it has a steady flow during the week. Mom’s is very popular among locals and many people drive in from surrounding towns to enjoy the restaurant as well. There is a large percentage of regulars that dine at the restaurant and these regulars know and are well-known by the staff. The Montgomery’s have achieved their vision and cemented their place in the neighborhood as the best family restaurant around.
Over the years, Mom’s business has grown without much internal change. The Montgomery’s have invested a little in advertising and general upkeep of the restaurant, but in their opinion, Mom’s Restaurant is a winning formula that is not to be tampered with. Sales have stayed consistent and even in this downturn of the economy, as a very affordable restaurant, it has only felt a bit of the pinch. All in all, business is steady and things are good, but there is always room for improvement.
Discussion of Current Business Issues Mom’s Restaurant has been successful over the years at providing quality food and service at a reasonable price. Sales have been stable, but profits are averaging only seven and a half percent of gross sales. While this is a livable percentage, there is definitely room for growth. With the recent increases in minimum wage in California, labor cost continues to rise. Rising fuel costs have also prompted vendors to add delivery charges to orders as well as raise their prices across the board which has led to increased food costs. These prime costs are what can make or break a restaurant, and though Mom’s is managing to stay ahead, the restaurant could be providing a much better return on investment. Though Mom’s prides itself on the quality of service it provides, its labor cost is a little too high. The industry average for full service restaurants is between 30% and 34% [ (Friddle, Mangaraj, & Kinsey, 2001) ] yet Mom’s restaurant runs just over 36%. Bringing this down to 32% would result in an increase of $3,000 per month to the bottom line which would be more than a 50% increase. Clearly, labor cannot be cut indiscriminately, however, given these statistics, the Montgomery’s should take a hard look at their options for labor reductions. Currently, servers are responsible for everything that goes on at their tables. They greet guests, take orders, deliver food and help to clear tables. While this reduces the number of overall staff required to run the restaurant, it means that each server can only wait on a limited number of guests, and thus, more servers are required. The servers are constantly running around the entire restaurant dropping orders in the kitchen, picking up food to be delivered, checking with the front desk about available tables and customers already seated, as well as clearing things to the dishwasher area. This cycle of service makes it difficult for servers to interact with the guests in a relaxed manner or handle more than a few tables at a time. The other issue at hand is that of food cost. Currently, Mom’s runs about 36% in food costs and 35% on food and beverages combined. The industry average for food and beverage cost runs between 33% and 37% [ (Friddle, Mangaraj, & Kinsey, 2001) ]. Mom’s Restaurant prides itself on using quality ingredients and simply using cheaper ingredients to cut costs would be contrary to that vision. As a result, the Montgomery’s must look at alternatives to reduce their food and beverage costs. In the kitchen, Mom’s Restaurant has perfected the art of controlled chaos. Tickets are dropped off by the servers and the cooks work among themselves to determine who will make what and what the timing of the dishes should be. The different stations are divided, such as salad, grill and sauté, however, the tickets come in with everything lumped together. This system requires a lot of clear communication and one of the staff is always limited in how much he or she can produce because he or she is responsible for expediting the tickets and making sure everyone knows what they should be working on and what is coming up next. In both of these situations, the key to lowering costs is through efficiency. Labor costs can be reduced through server efficiency as well as kitchen efficiency. Further, all employees use a manual punch clock to clock in and out of their shifts. There are no controls in place to ensure that employees are not clocking in early or staying late. Food costs can be reduced by proper ordering and inventories. The Montgomery’s are aware that there is a significant amount of waste in the kitchen, some from over-ordering and some from miscommunication on the line. Though there will always be waste in the restaurant industry, some controls could make a significant difference.
Research Findings on the Topic When attempting to deal with these issues, one major tool for attacking them is technology. The development of Point-of-Sale (POS) systems over the past two decades has been extraordinary. They are much more than cash drawers and calculators now. POS systems can be used for all sorts of things, from operations to analysis, and accounting to labor management. Finding the right system at the right cost can be a challenge, but there are many resources out there to help and many vendors who are willing to compete. There are many developers of POS systems, and choosing one can be time consuming and overwhelming. Each package offers different bells and whistles, though most systems will offer most of the same basic features. One such feature is for inventory control [ (Peters, 2007) ] and with it every item on every invoice can be tracked. Using this feature in combination with an ideal food cost calculator can give a good idea of how well a restaurant is utilizing its inventory. If the numbers are very different, management knows either there is a lot of waste or portion sizes are off and more training is required or that inventory is disappearing and there must be more accountability. This is not only a big issue in the kitchen, but also when it comes to beer and wine. This system can also be used to help with ordering. With perpetual inventories based on sales, managers can keep a much better eye on what is needed without the need to do manual counts. Sales trends can be tracked as well to determine which items require the most inventory on hand. This can lead to less spoilage and waste. Another feature is the labor management function available in most systems. These functions allow management to track labor in real time [ (Peters, 2007) ] as well as limit clock-in and clock-out times for employees. It keeps employees from picking up an extra 15 minutes here and there that seem harmless, but add up after a month and many different employees. These features also allow management to track sales as they relate to specific day parts and determine more efficient scheduling based on the actual needs of the restaurant. Perhaps the most significant benefit in terms of efficiency when considering a POS system is the benefit to the server and the kitchen staff. Even a simple POS system that allows servers to punch orders into a touch screen instead of handwriting tickets can save valuable minutes that those servers could be using to sell. The tickets are compiled and added so servers are not responsible for totaling customers’ bills and there is no room for missed calculations that cost owners money. Furthermore, printed tickets can be routed in the kitchen to the specific areas that need them. This helps to keep things organized and takes a heavy burden off of the expediter. One particular advancement in this area is that of handheld POS terminals that servers can enter orders into while standing tableside. Use of these devices can speed up table turn times [ (Liddle, Operators: Decentralized POS Tools Help Build Sales, 2008) ] which allows for more guests and drives up the top line sales. This is a benefit to kitchen efficiency because orders come in as they are taken and no longer can servers compile their orders and enter several at once when they finally get to a terminal. Furthermore, these mobile units can come equipped with credit card scanners so payment can take place at the table saving the server one more trip. This can be a benefit to customers as well [ (Krummert, Time for a POS Upgrade?, 2005) ] who are apprehensive about identity theft and their cards leaving their sight. From a back-of-house perspective, the POS system also offers many benefits when it comes to paperwork. With data consolidated in one system and everything stored on a database, reports can be printed easily and customized to each manager’s personal interests. Reporting is a key feature of POS systems and will save owners money very quickly [ (RetailSystems.com) ].
POS systems give managers the tools they need to make good business decisions. Utilizing payroll and accounting features can also be a huge timesaver for managers and should be a major consideration when choosing a POS system. When it comes to cost, different systems can vary substantially and owners should really take some time to determine which features and hardware are the most relevant and important to their particular business needs. According to a survey of over a thousand owners conducted by RestaurantOwner.com, the cost of purchasing and implementing a new or used POS system ranged from less than $2,500 to over $50,000 with the bulk of those falling between $15,000 and $30,000 [ (RestaurantOwner.com, 2008) ]. Most of those surveyed were utilizing between 2 and 5 terminals and had between 75 and 200 seats. When deciding which system to go with and what specifics and peripherals to choose, it is important to remember the service plan when putting together the total cost of ownership [ (Lubynsky, 1998) ]. Such things as training costs, maintenance charges and installation costs must also be considered.
Recommendations for the Executive Management Team Given all this information, the Montgomery’s should research and decide on the POS system that best fits their needs. This investment will pay dividends and create a realizable difference almost immediately. By improving efficiency and decreasing the time it takes to turn tables, Mom’s Restaurant could increase top line sales on Friday and Saturday nights with no added investment in advertising. Assuming that the wait time on weekends deters some patrons from staying or coming in the first place, Mom’s could easily fit an extra half of a turn, or 25 people in on both of those nights by cutting even 10 to 15 minutes off of the average table turn. Furthermore, by implementing the inventory tracking and ideal food costing functions of a new POS system, Mom’s could very conceivably lower food and beverage cost to industry standard levels of 33% from 35%. This combination would make a difference of over $3,000 in gross margin. In addition, by increasing server and back-of-house efficiency, labor costs could be reduced by a significant margin. One or even two fewer servers on the floor during some of the shifts can add up quickly and by scheduling cooks based on sales volume, some cost could be cut there as well. All in all, by implementing a POS system, Mom’s could realize another $3,000 benefit per month due to lower labor costs. This could be done without sacrificing the quality of service Mom’s is known for. In fact, by improving efficiency, servers will have more time available to take more tables and interact with their guests. One of the biggest dangers in implementing a new system with so many features is the customer’s lack of using them. Inventory tracking is a very useful tool, but according to survey only 58% of restaurants actually use those tools [ (RestaurantOwner.com, 2008) ]. Once purchased, the tools must be utilized to gain the full benefit of the investment. Another concern is the employees fear and resistance to change. This can be overcome by training, support and understanding more than anything, and according to the same survey, about 60% of restaurants rated their training and support good or excellent. The Montgomery’s should begin by investing in a base system with all the standard features before worrying about all the newest advancements. At approximately $2,000 per handheld unit [ (Liddle, Operators: Decentralized POS Tools Help Build Sales, 2008) ], this part of the investment can wait for a little while. Adapting to the new system will be challenge enough and the staff should be given some time before taking this next step. Furthermore, it will give the Montgomery’s the chance to recoup some of the initial investment before spending more capital. The Micros and Aloha POS systems combined for over 30% of the restaurants surveyed by RestaurantOwner.com and both have very good reputations in the industry. Choosing a company with strong customer support and a firm base in the industry is highly recommended for a restaurant owner who is just beginning to venture into new technology. When compiling all the numbers, it must be considered that there will be added annual costs for maintenance and service contracts under non-controllable expenses and computer supplies under controllable expenses. Assuming that the Montgomery’s decide on a POS system that costs $25,000 inclusive of installation, training and set-up, which is on the higher end of the average range, and assuming the previously stated figures for sales and costs, Mom’s restaurant will earn an additional $37,400 in net income in the first year alone by investing in a POS system. For years two and three that number will rise to $62,400, which is a 95% increase. Given these numbers, even if the results predicted are not fully realized, the Montgomery’s stand to increase their incomes by a substantial amount. As a result, the Montgomery’s should begin the process of choosing a system that suits them immediately.

References
Friddle, C. G., Mangaraj, S., & Kinsey, J. D. (2001, March). The Food Service Industry: Trends and Changing Structure in the New Milllenium. Retrieved from http://ageconsearch.umn.edu/bitstream/14340/1/tr01-02.pdf
Krummert, B. (2005). Time for a POS Upgrade? Restaurant Hospitality , 89 (6), 28.
Liddle, A. J. (2008). Operators: Decentralized POS Tools Help Build Sales. Nation's Restaurant News , 42 (2), 4-26.
Lubynsky, R. M. (1998). Understanding POS Costs. Restaurant Hospitality , 82 (2), 100.
Peters, D. S. (2007). Utilize the Power of your POS System. Restaurant Hospitality , 91 (1), 24.
RestaurantOwner.com. (2008). POS Survey. Retrieved from http://www.restaurantowner.com/members/SurveySummary.html
RetailSystems.com. (n.d.). Frequently Asked Questions about Retail POS Systems. Retrieved from http://www.retailsystems.com/faq.cfm

Appendices Sales Budgets ( Avg. Month) | | | | | | | | | | | | MOM'S REST | | MOM'S REST | | | | | | | Current Average (MO) | | Projected (MO) | | | | | | | | | | | | | | | | | SALES | | | | | | | | | | | Food | 50,000 | 69.4% | | 52,000 | 69.3% | | | | | | Non-Alcoholic Bev | 14,000 | 19.4% | | 14,400 | 19.2% | | | | | | Beer | 4,000 | 5.6% | | 4,300 | 5.7% | | | | | | Wine | 4,000 | 5.6% | | 4,300 | 5.7% | | | | | | TOTAL SALES | 72,000 | 100.0% | | 75,000 | 100.0% | | | | | | | | | | | | | | | | | COST OF SALES | | | | | | | | | | | Food | 18,000 | 36.0% | | 18,000 | 34.6% | | | | | | Non-Alcoholic Bev | 4,000 | 28.6% | | 4,000 | 27.8% | | | | | | Beer | 1,500 | 37.5% | | 1,300 | 30.2% | | | | | | Wine | 1,500 | 37.5% | | 1,300 | 30.2% | | | | | | TOTAL COST OF SALES | 25,000 | 34.7% | | 24,600 | 32.8% | | | | | | | | | | | | | | | | | GROSS MARGIN | 47,000 | 65.3% | | 50,400 | 67.2% | | | | | | | | | | | | | | | | | LABOR | | | | | | | | | | | Kitchen | 10,000 | 13.9% | | 9,000 | 12.0% | | | | | | Dining Room | 9,000 | 12.5% | | 7,000 | 9.3% | | | | | | GROSS HOURLY | 19,000 | 26.4% | | 16,000 | 21.3% | | | | | | Burden | 3,500 | 4.9% | | 3,500 | 4.7% | | | | | | HOURLY PAYROLL & BURDEN | 22,500 | 31.3% | | 19,500 | 26.0% | | | | | | Management | 3,500 | 4.9% | | 3,500 | 4.7% | | | | | | TOTAL REST. P/R & BURDEN | 26,000 | 36.1% | | 23,000 | 30.7% | | | | | | | | | | | | | | | | | REST. & BAR CONTRIBUTION | 21,000 | 29.2% | | 27,400 | 36.5% | | | | | | | | | | | | | | | | | Controllable Exp | 5,500 | 7.6% | | 5,700 | 7.6% | | | | | | Non-Controllable Exp | 10,000 | 13.9% | | 11,000 | 14.7% | | | | | | | | | | | | | | | | | INC FROM OPS. - REST. | 5,500 | 7.6% | | 10,700 | 14.3% | | | | | | | | | | | | | | | | | | | | | | | | | | | | $25,000 | Investment in POS | | | | | | | | | $5,200 | Increase in bottom line (per month) | | | | | | | 4.81 | Payback period (in months) | | | | | | | | $37,400 | Annual increase in Net Income (after POS purchase) yr 1 | | | | | | $62,400 | Annual increase in Net Income year 2 and 3 | | | | | | | 57% | Percentage increase in Net Income year 1 | | | | | | | 95% | Percentage increase in Net Income year 2 and 3 | | | | | |
Current Monthly Average DATE | DAY | GUEST BREAKFAST LUNCH | GUEST DINNER | BUDGET LUN SALES | BUDGET DIN SALES | ACCUM BUDGET TOT SALES | BREAK & LUNCH SERVERS | DINNER SERVERS | | 12/1 | Fri | 50 | 175 | $450 | $2,625 | $3,075 | 3 | 5 | | 12/2 | Sat | 100 | 175 | $900 | $2,625 | $6,600 | 4 | 5 | | 12/3 | Sun | 150 | 100 | $1,350 | $1,500 | $9,450 | 5 | 4 | | 12/4 | Mon | 40 | 60 | $360 | $900 | $10,710 | 2 | 2 | | 12/5 | Tue | 40 | 60 | $360 | $900 | $11,970 | 2 | 2 | | 12/6 | Wed | 50 | 80 | $450 | $1,200 | $13,620 | 3 | 3 | | 12/7 | Thu | 50 | 100 | $450 | $1,500 | $15,570 | 3 | 4 | | 12/8 | Fri | 50 | 175 | $450 | $2,625 | $18,645 | 3 | 5 | | 12/9 | Sat | 100 | 175 | $900 | $2,625 | $22,170 | 4 | 5 | | 12/10 | Sun | 150 | 100 | $1,350 | $1,500 | $25,020 | 5 | 4 | | 12/11 | Mon | 40 | 60 | $360 | $900 | $26,280 | 2 | 2 | | 12/12 | Tue | 40 | 60 | $360 | $900 | $27,540 | 2 | 2 | | 12/13 | Wed | 50 | 80 | $450 | $1,200 | $29,190 | 3 | 3 | | 12/14 | Thu | 50 | 100 | $450 | $1,500 | $31,140 | 3 | 4 | | 12/15 | Fri | 50 | 175 | $450 | $2,625 | $34,215 | 3 | 5 | | 12/16 | Sat | 100 | 175 | $900 | $2,625 | $37,740 | 4 | 5 | | 12/17 | Sun | 150 | 100 | $1,350 | $1,500 | $40,590 | 5 | 4 | | 12/18 | Mon | 40 | 60 | $360 | $900 | $41,850 | 2 | 2 | | 12/19 | Tue | 40 | 60 | $360 | $900 | $43,110 | 2 | 2 | | 12/20 | Wed | 50 | 80 | $450 | $1,200 | $44,760 | 3 | 3 | | 12/21 | Thu | 50 | 100 | $450 | $1,500 | $46,710 | 3 | 4 | | 12/22 | Fri | 50 | 175 | $450 | $2,625 | $49,785 | 3 | 5 | | 12/23 | Sat | 100 | 175 | $900 | $2,625 | $53,310 | 4 | 5 | | 12/24 | Sun | 150 | 100 | $1,350 | $1,500 | $56,160 | 5 | 4 | | 12/25 | Mon | 40 | 60 | $360 | $900 | $57,420 | 2 | 2 | | 12/26 | Tue | 40 | 60 | $360 | $900 | $58,680 | 2 | 2 | | 12/27 | Wed | 50 | 80 | $450 | $1,200 | $60,330 | 3 | 3 | | 12/28 | Thu | 50 | 100 | $450 | $1,500 | $62,280 | 3 | 4 | | 12/29 | Fri | 50 | 175 | $450 | $2,625 | $65,355 | 3 | 5 | | 12/30 | Sat | 100 | 175 | $900 | $2,625 | $68,880 | 4 | 5 | | 12/31 | Sun | 150 | 100 | $1,350 | $1,500 | $71,730 | 5 | 4 | | | | | | | | | | | | | TOTAL | 2220 | 3450 | | | | 100 | 114 | TOTAL | | | | | GUEST CHECK AVERAGE | | 4 | 6.5 | HRS / SHIFT | | | | | | LUNCH | $9.00 | 400 | 741 | TTL HRS | | | | | | DINNER | $15.00 | $8 | $8 | RATE | | | | | | | | $3,200 | $5,928 | LABOR |

Projected Monthly Average DATE | DAY | GUEST BREAKFAST LUNCH | GUEST DINNER | BUDGET LUN SALES | BUDGET DIN SALES | ACCUM BUDGET TOT SALES | BREAK & LUNCH SERVERS | DINNER SERVERS | | 12/1 | Fri | 50 | 200 | $450 | $3,000 | $3,450 | 2 | 4 | | 12/2 | Sat | 100 | 200 | $900 | $3,000 | $7,350 | 3 | 4 | | 12/3 | Sun | 150 | 100 | $1,350 | $1,500 | $10,200 | 3 | 3 | | 12/4 | Mon | 40 | 60 | $360 | $900 | $11,460 | 2 | 2 | | 12/5 | Tue | 40 | 60 | $360 | $900 | $12,720 | 2 | 2 | | 12/6 | Wed | 50 | 80 | $450 | $1,200 | $14,370 | 2 | 2 | | 12/7 | Thu | 50 | 100 | $450 | $1,500 | $16,320 | 2 | 3 | | 12/8 | Fri | 50 | 200 | $450 | $3,000 | $19,770 | 2 | 4 | | 12/9 | Sat | 100 | 200 | $900 | $3,000 | $23,670 | 3 | 4 | | 12/10 | Sun | 150 | 100 | $1,350 | $1,500 | $26,520 | 3 | 3 | | 12/11 | Mon | 40 | 60 | $360 | $900 | $27,780 | 2 | 2 | | 12/12 | Tue | 40 | 60 | $360 | $900 | $29,040 | 2 | 2 | | 12/13 | Wed | 50 | 80 | $450 | $1,200 | $30,690 | 2 | 2 | | 12/14 | Thu | 50 | 100 | $450 | $1,500 | $32,640 | 2 | 3 | | 12/15 | Fri | 50 | 200 | $450 | $3,000 | $36,090 | 2 | 4 | | 12/16 | Sat | 100 | 200 | $900 | $3,000 | $39,990 | 3 | 4 | | 12/17 | Sun | 150 | 100 | $1,350 | $1,500 | $42,840 | 3 | 3 | | 12/18 | Mon | 40 | 60 | $360 | $900 | $44,100 | 2 | 2 | | 12/19 | Tue | 40 | 60 | $360 | $900 | $45,360 | 2 | 2 | | 12/20 | Wed | 50 | 80 | $450 | $1,200 | $47,010 | 2 | 2 | | 12/21 | Thu | 50 | 100 | $450 | $1,500 | $48,960 | 2 | 3 | | 12/22 | Fri | 50 | 200 | $450 | $3,000 | $52,410 | 2 | 4 | | 12/23 | Sat | 100 | 200 | $900 | $3,000 | $56,310 | 3 | 4 | | 12/24 | Sun | 150 | 100 | $1,350 | $1,500 | $59,160 | 3 | 3 | | 12/25 | Mon | 40 | 60 | $360 | $900 | $60,420 | 2 | 2 | | 12/26 | Tue | 40 | 60 | $360 | $900 | $61,680 | 2 | 2 | | 12/27 | Wed | 50 | 80 | $450 | $1,200 | $63,330 | 2 | 2 | | 12/28 | Thu | 50 | 100 | $450 | $1,500 | $65,280 | 2 | 3 | | 12/29 | Fri | 50 | 200 | $450 | $3,000 | $68,730 | 2 | 4 | | 12/30 | Sat | 100 | 200 | $900 | $3,000 | $72,630 | 3 | 4 | | 12/31 | Sun | 150 | 100 | $1,350 | $1,500 | $75,480 | 3 | 3 | | | | | | | | | | | | | TOTAL | 2220 | 3700 | | | | 72 | 91 | TOTAL | | | | | GUEST CHECK AVERAGE | | 4 | 6.5 | HRS / SHIFT | | | | | | LUNCH | $9.00 | 288 | 591.5 | TTL HRS | | | | | | DINNER | $15.00 | $8 | $8 | RATE | | | | | | | | $2,304 | $4,732 | LABOR |