THE ROLE OF COST MANAGEMENT AND COST OPTIMIZATION IN RESTAURANT INDUSTRY

Korneva Mariia Aleksandrovna
Saint-Petersburg State University of Economics
2st-year-student (Master Degree), Management – Quality and competitiveness management

Abstract
There is management in the restaurant sphere considered in this article. Moreover, previous researches of this theme in different countries with various economic conditions are analyzed and summed up to define the specific characteristics of this sphere of economy and appropriate methods of management and cost optimization, which can be effective in the segment of restaurant business.

Keywords: cost management, cost optimization, cost optimization methods, Management, restaurant business, restaurant business management, restaurant business particularity


Category: 08.00.00 Economics

Article reference:
The Role of Cost Management and Cost Optimization in Restaurant Industry // Modern scientific researches and innovations. 2015. № 9. P. 1 [Electronic journal]. URL: https://web.snauka.ru/en/issues/2015/09/57585

View this article in Russian

Nowadays restaurant business is existed in unfavorable conditions. The main reason is the global insecure situation in economy. Because the restaurant business bears on the service sphere, it has a strong reaction on different processes in worldwide economic tendencies. Moreover, the restaurant business has a lot of specific characteristics and factors. I this article are considered researches of restaurant business in different countries and conditions and methods of management and cost optimization, which are suitable for restaurant sphere. Nonetheless, it is really significant aspect to develop restaurant business for each country’s economy, because the sphere of service is the indicator of success of state economic policy and the standard of living of citizens.

The research question is which cost optimization methods are the most appropriate for restaurant industry. There are a variety of methods of cost management and cost optimization but all of them have limits of the sphere of application. Likewise, every industry has different futures which can be incompatible with one method of cost optimization or another. Thence, it is necessary to determine the most suitable methods of cost optimization for restaurant industry. Thus, the main aim of this study is the detection of the set of measures of cost optimization, which lead to the increasing of profit, reduction of cost and the successful result of the business activity of the enterprises.

Zheng Gu estimated a multiple discriminant model for analyzing restaurant business bankruptcy in the USA in the research. The model suggests that restaurant companies are more likely to be bankruptcy candidates if they have low earnings before interests and taxes and high total liabilities. The estimated model suggests that in the restaurant industry of the USA, debt-burdened companies with poor EBIT are more likely to be candidates of bankruptcy. The analysis of the in-model variables, along with a cross-group comparison of financial ratios, suggests that bankrupt restaurant companies may have heavily relied on debt to finance sales growth without proper control of their operating and financing costs. Containing costs, both operating expenses and financing costs, may be more important than pursuing a market share and faster sales growth. A prudential growth strategy accompanied by less debt-oriented financing policy and tighter cost control may be the solution to the high bankruptcy rate in the restaurant industry of the USA.

Carola Raab and Karl Mayer achieved as a result of their research the suggestion that using of an Activity-Based Costing method and Menu Engineering approach can bring significant benefits for restaurant management. The main idea of the study Carola Raab and Karl Mayer is the combination of traditional Menu Engineering and Activity-Based Costing approach for a restaurant business, and moving beyond what is characteristically done in a Menu Engineering analysis for offering new ideas about the relative impact of various menu items that were classified by Menu Engineering methods. However, it was applied to a buffet style restaurant, its inferences can be widely expanded to practically all kinds of restaurants. In particular, it can be especially helpful for those restaurants where the existing problem is the lack of profits.

In addition, Carola Raab and Karl Mayer determine a row of limitations of their study, which are significant. First of all, their research was of an exploratory nature and used a convenience sample of only a single restaurant in Hong Kong. Secondly, it only conducted an Activity-Based Costing examination only on the section of the organization that concentrated on the dinner shift. It is essential for management to add the calculation of Activity-Based Costing costs for the other meal periods, in order to determine all the variety of reasons for the overall negative profit margins. Moreover, management must use a price sensitivity analysis in order to learn about price elasticity patterns for the dinner buffet. Nevertheless, in spite of specified limitations, the study demonstrated that the combination of Activity-Based Costing and Menu Engineering can be a potential and insightful tool for cost optimization and examining a restaurant’s profitability.

The work, which has been done in this paper, has a significant practical sense. It is explained by the fact that, using this method, it is possible to detect deficiencies in the system of cost management and the cost optimization in the company. Furthermore, received information can help to enhance the profits of companies of restaurant industry in the country. Therefore, it will be a good benefit to services sector of the economy. Because the services sector is the most perspective sphere of economy of a majority of developed countries this fact increases the country’s competitiveness.


References
  1. Cheong S. N., Chiew W. W., Yap W. J. Design and development of Multi-touchable E-restaurant Management System //Science and Social Research (CSSR), 2010 International Conference on. – IEEE, 2010. – С. 680-685.
  2. Gu, Z. (2002). Analyzing bankruptcy in the restaurant industry: a multiple discriminant model. International Journal of Hospitality Management, 21(1), 25-42.
  3. Raab, C., & Mayer, K. (2007). Menu engineering and activity-based costing–can they work together in a restaurant?. International Journal of Contemporary Hospitality Management, 19(1), 43-52.
  4. Schmidgall R. S., Hayes D. K., Ninemeier J. D. Restaurant financial basics. – John Wiley & Sons, 2003.
  5. Wade D. Successful restaurant management: From vision to execution. – Recording for the Blind & Dyslexic, 2008.


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