Industry Report. Eat In Food Retailers: Cafes Market intelligence specific to your industry. Provided by V I Partners

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1 Industry Report Market intelligence specific to your industry Eat In Food Retailers: Cafes Provided by V I Partners

2 1 Industry Statistics Sector Overview Industry Statistics Employment Data 2

3 Sector Overview This data is provided by the Australian Bureau of Statistics (ABS) as at November The ABS reports that employment numbers for the Accommodation and Food Services sector as at was 808,800. This employment figure changed by 9.5% over the past 5 years. Forecasted growth for the sector over the next five years is 13.9% or 112,400. The percentage of employees for the sector outside of state capital cities was 36% and 22% of all sector employees were aged 45 years or older. Industry Statistics The number of Cafe Workers nationwide was reported at 24,100 as at November The industry has shown an average growth rate of -2.9% over the past five years. Forecasted growth for the industry is strong (between 8.5% to 13.1% per annum) over the next five years. 3

4 Employment Data - The following employment data is sourced from the Australian Bureau of Statistics (ABS), dated November Weekly income for Cafe Workers (earnings before tax - EBT) is around $884 per week. - Weekly income for Cafe and Restaurant Managers (earnings before tax - EBT) is around $1000 per week. 4

5 - The highest percentage of Cafe Workers employees lies within the age bracket, while the median age is The highest percentage of Cafe and Restaurant Managers employees lies within the age bracket, while the median age is 42. 5

6 2 Key Benchmark Comparison Income Less Overheads as %'s of Total Income: Net Profit (bos*) per... Total Income per... Gross Profit per... Non Personnel-Related Overheads per... Personnel (fte personnel numbers) Other Information 6

7 Turnover: All Firms Net Profit per Average Owner: Less than $40,000 Net Profit per Owner: $80,000 or more Your Business: Income Total Income $907,135 $726,430 $1,172,318 Less Cost of Goods Sold 34.90% 39.13% 29.79% Equals Gross Profit 65.10% 60.87% 70.21% Less Overheads as %'s of Total Income: Advertising, Promotion & incl Franchise/Group 1.08% 0.76% 1.73% Fees Accounting and Legal Fees 0.76% 0.79% 0.87% All Insurance 1.01% 1.29% 0.76% Interest, Bank Charges etc 1.51% 1.10% 1.25% Print, Post and Stationery 0.48% 0.52% 0.38% Rent of Premises 7.36% 8.60% 5.80% Other Occupancy Costs 3.30% 3.61% 2.86% Other Depreciation, Lease and HP 2.28% 2.58% 1.77% Repairs and Maintenance 2.11% 2.81% 1.42% Staff On Costs 3.12% 4.05% 2.55% Telephone and Fax 0.53% 0.59% 0.43% Employees' Wages & Salaries 29.62% 30.84% 26.13% Vehicle Operating Costs 0.66% 0.88% 0.28% All Other Expenses 4.63% 10.20% 2.83% Total Overheads 58.44% 68.62% 49.04% Equals Net Profit (bos*) 6.66% -7.75% 21.17% Net Profit (bos*) per... Working Owner $54,767 $-4,604 $135,761 Owner Workhour $25.67 $-0.80 $60.11 Total Income per... Person $202,049 $183,772 $282,523 Seat $16,609 $13,970 $18,852 $ of Wages # $2.51 $1.89 $2.77 7

8 Turnover: All Firms Net Profit per Average Owner: Less than $40,000 Net Profit per Owner: $80,000 or more Your Business: Gross Profit per... Person $134,040 $112,996 $198,088 Seat $11,088 $8,935 $13,498 $ of Wages # $1.65 $1.20 $1.93 Non Personnel-Related Overheads per... Person $51,346 $48,157 $76,864 Seat $3,975 $3,782 $4,273 $ of Wages # $0.58 $0.51 $0.54 Personnel (fte personnel numbers) Working Owners Waitresses and Serving Staff Any Other Staff Total Personnel Hours Worked per Owner per Year 2,039 2,067 2,082 Other Information Owners' Equity as a % of Total Assets 3.48% 1.04% 26.43% Asset Turnover $7.75 $7.39 $7.67 Stockturn Rate Seats per Serving Person and including Working Owners Growth Capacity 7.82% -5.96% 21.52% Current ratio Acid test Liability turnover $10.33 $14.29 $11.56 Interest cover: business * bos - before owners' salaries and benefits # including owners' notional wage of $35 per hour 8

9 3 KPI Feedback KPI Feedback 9

10 KPI Feedback 10

11 4 ATO Benchmarks ATO Benchmarks 11

12 ATO Benchmarks Below you will find benchmarks for the coffee shops industry as compiled by the Australian Taxation Office (ATO) against which you can compare your business performance. In addition to an alternative point of comparison, the ATO benchmarks may be useful for the following reason. The ATO website states that: 'Benchmarks are key financial ratios developed from information provided by businesses on activity statements and tax returns that can help you compare your business performance against similar businesses in an industry.' (Australian Tax Office, 2015, 'Businesses operating outside the key benchmark may be contacted by us.' (Australian Tax Office, 2015, 'During an audit, if a business does not have records to support their reported income and expenses, we may use benchmarks and other information available to assess the profits of the business.' (Australian Tax Office, 2015, Below you will find key KPIs for cost of goods, turnover, labour, rent and motor vehicle expenses as percentages of total income. Your individual results will flow through from the Data Entry page and have been calculated to match the ATO's benchmark statistics. 12

13 5 Action List Maintain Or Increase Sales Improve Gross Profit Reduce And Control Expenses Improve Stockturn And Reduce Stock Investment 13

14 Maintain Or Increase Sales Strategy - Increase the Number of Customers, to help increase personnel productivity and the 'revenue per seat' ratios: Effective advertising, particularly during 'off-peak' and 'slow' days; An accessible and convenient location; Exterior appearance / identification of the premises; Effective, hard-working staff; Referrals and introductions from existing customers. Strategy - Increase the Average Sales Size: Merchandising / display; Creating 'packages', for example tea and scones, etc; Encouraging an additional purchase. Strategy - Increase Repeat Trade from Customers: Staff attitude and friendliness; Staff sales ability; Business image / appearance / housekeeping; Provide high quality service and snacks; Cost benefit of providing extras for free, for example soy, extra shot etc. Improve Gross Profit Strategy - Prevent Closing Stock Being Less Than It Should Be Through Factors Such As: Staff pilferage of minor items; Stock received not checked against delivery dockets or invoices; Wastage of perishable items. Strategy - Eliminate High Cost Purchases: Too many small orders with high freight costs; Too many suppliers therefore no quantity discounts (no stock rationalisation); Not taking advantage of settlement discounts (where they are worthwhile); Not planning purchases. Strategy - Avoid Depressed Total Sales from the Level of Stock Sold By Correcting: Portion control for food contents; Poor pricing (inaccurate cost prices or excessive and unauthorised discounting); Poor sales mix (not enough sales of higher margin lines). Reduce And Control Expenses Strategy - Improve Cost Control: Budget costs annually; Review costs against budget regularly; Is each expenditure item necessary?; Look for better or less-costly ways of operating the business. 14

15 Improve Stockturn And Reduce Stock Investment Strategy - Improve Stock Control: Set up a stock control system; Stocktake regularly; Ruthlessly eliminate dead stock; Can the stock holdings for individual lines be reduced?; Monitor weekly sales; Monitor weekly purchases; Compare with budgets and adjust for future months to avoid overstocking. 15

16 6 Ratio Definitions Ratio Definitions 16

17 Ratio Definitions Total Income is all sales income plus any other trading income. It is expressed in dollars.. Cost of Goods Sold as % of total income Gross Profit as % of total income Aim for a higher Gross Profit margin - it reflects better overall purchasing and pricing policies. Overheads as %s of Total Income Lower results are generally better here. However, the real issue is to maximise the value from each expense item. Any payments to the owners (eg wages, superannuation, FBT, etc) have been omitted from this list - they have been treated as part of the profit figure below. Net Profit as % of total income Higher Net Profit normally reflects a more efficient or profitable operation. It is also influenced, however, by considerations such as the number of employees (whose salaries are included as part of the overhead structure) as opposed to active owners (whose salaries are included as part of 'Net Profit' rather than 'Salaries'). The owner wages have been excluded from Overheads, to reflect a total Net Profit available to the owners. Net Profit per Working Owner This ratio is calculated by dividing the total Net Profit by the number of owners actively working in the business. Owners are expressed in terms of Full Time Equivalents - see Personnel for the definition of the term. Net Profit per Owner Workhour Higher results are better here. This figure represents your effective 'hourly earning rate' from the business, pre-tax. 17

18 Total Income per Person This is the Total Income divided by the number of working owners and employees, in Full Time Equivalents. See Personnel for the definition of the term. Higher figures are better for this ratio. Total Income per Seat Higher results are better here. Total Income per $ of Wages # the notional owner wage cost is calculated here and elsewhere by multiplying the hours worked by the owners in the year by a notional hourly rate of $35. Higher results are better - they show that services are being delivered with a lower salary cost. Gross Profit per Person, per Seat and per $ of Wages The calculations here are basically the same as for the preceding productivity measures, but rather than using Total Income as the top line of the calculation, Gross Profit is used instead. Higher results are better for all three ratios. Non Personnel-Related Overheads per Person, per Seat and per $ of Wages Again the calculations are similar to those preceding it, but the numerator (the top line of the calculation) is made up by adding together all the non-personnel overheads. Essentially this is all the overheads except wages and staff on-costs. Lower results reflect a lower overall cost structure. Personnel Personnel are calculated in terms of Full Time Equivalents (FTEs). This means that if an employee or owner works in the business, say 2 days per 5-day week, this person has a FTE of 0.4. Similarly if a full time position started half way through the year, the person in it would have an FTE of 0.5. This calculation is particularly important in a coffee lounge, due to the likely use of part-time or casual employees. Hours Worked per Owner per Year This is the total hours worked in the business by all owners within the financial year, divided by the number of working owners (in FTEs). Owners' Equity as % of total assets is the proportion of assets which are funded by the owners. When arriving at Total Assets and Total Liabilities (here and elsewhere in the figures), loans to and from owners and related companies are excluded. We treat them as drawings (reduces equity) or contributed capital (increases equity) respectively. 18

19 Asset Turnover is calculated by dividing Total Income by Total Assets. Aim for higher results here - it indicates that you are earning more revenue from each dollar of assets. Stockturn Rate The Stockturn Rate indicates the number of times stock is replaced in the year. Higher results are generally better. However, too high a result could lead to lost sales due to stock not being available. Seats per Serving Person Too low a result may mean that you are overstaffed, too high a result may mean that customers are not receiving adequate levels of service and sales are affected. Growth Capacity This is a ratio which shows whether the firm can afford to fund its growth. If the result here is a large positive number, then 'growth' should be reasonably easy to fund; if the result is negative, then growing the business will demand more working capital than the additional profit which is generated. A negative (or even a low positive result) is therefore a warning sign. To improve this ratio, either work to increase the 'profit' aspect of the equation, or work to reduce the working capital requirements of the business. Your accountant can help you with advice tailored to your own specific situation, if required. 19

20 7 Eat In Food Retailers: Cafes Benchmark Appendix 20

21 Benchmark Appendix Average Results for businesses grouped as indicated Income All Turnover: Turnover: Turnover: Firms Less than $350,000 to $700,000 Average $350,000 $699,999 or more Total Income $907,135 $229,563 $497,344 $1,571,725 Less Cost of Goods Sold 34.90% 38.36% 35.88% 32.37% Equals Gross Profit 65.10% 61.64% 64.12% 67.63% Less Overheads as %'s of Total Income: Advertising, Promotion & incl Franchise/Group Fees 1.08% 0.46% 0.66% 1.73% Accounting and Legal Fees 0.76% 0.40% 0.79% 0.92% All Insurance 1.01% 1.31% 1.03% 0.85% Interest, Bank Charges etc 1.51% 1.48% 1.69% 1.38% Print, Post and Stationery 0.48% 0.39% 0.55% 0.48% Rent of Premises 7.36% 10.03% 7.17% 6.13% Other Occupancy Costs 3.30% 3.98% 3.22% 3.00% Other Depreciation, Lease and HP 2.28% 1.79% 2.23% 2.56% Repairs and Maintenance 2.11% 1.83% 2.48% 1.96% Staff On Costs 3.12% 3.07% 3.01% 3.24% Telephone and Fax 0.53% 0.58% 0.56% 0.47% Employees' Wages & Salaries 29.62% 24.31% 30.22% 31.88% Vehicle Operating Costs 0.66% 0.57% 0.85% 0.56% All Other Expenses 4.63% 11.77% 1.46% 3.40% Total Overheads 58.44% 61.97% 55.92% 58.57% Equals Net Profit (bos*) 6.66% -0.33% 8.21% 9.06% Net Profit (bos*) per... Working Owner $54,767 $21,474 $39,964 $82,515 Owner Workhour $25.67 $14.37 $20.74 $36.84 Total Income per... Person $202,049 $73,229 $89,528 $355,650 Seat $16,609 $8,912 $13,486 $23,812 $ of Wages # $2.51 $2.23 $2.40 $2.73 Gross Profit per... Person $134,040 $44,706 $57,831 $239,150 Seat $11,088 $5,414 $8,793 $16,390 $ of Wages # $1.65 $1.46 $1.54 $1.85 Non Personnel-Related Overheads per... Person $51,346 $20,233 $19,706 $91,900 Seat $3,975 $2,425 $2,869 $5,860 $ of Wages # $0.58 $0.57 $0.51 $0.65 Personnel (fte personnel numbers) Working Owners Waitresses and Serving Staff Any Other Staff Total Personnel Hours Worked per Owner per Year 2,039 1,960 2,116 2,019 Other Information Owners' Equity as a % of Total Assets 3.48% 20.69% 0.79% 0.22% Asset Turnover $7.75 $7.97 $5.44 $9.17 Stockturn Rate Seats per Serving Person and including Working Owners Growth Capacity 7.82% -1.35% 11.11% 9.99% Current ratio Acid test Liability turnover $10.33 $15.41 $8.20 $10.17 Interest cover: business * bos - before owners' salaries and benefits # including owners' notional wage of $35 per hour 21

22 Average Results for businesses grouped as indicated Income All Net Profit per Net Profit per Net Profit per Firms Owner: Owner: Owner: Average Less than $40,000 to $80,000 $40,000 $79,999 or more Total Income $907,135 $726,430 $809,482 $1,172,318 Less Cost of Goods Sold 34.90% 39.13% 34.24% 29.79% Equals Gross Profit 65.10% 60.87% 65.76% 70.21% Less Overheads as %'s of Total Income: Advertising, Promotion & incl Franchise/Group Fees 1.08% 0.76% 1.08% 1.73% Accounting and Legal Fees 0.76% 0.79% 0.81% 0.87% All Insurance 1.01% 1.29% 0.86% 0.76% Interest, Bank Charges etc 1.51% 1.10% 1.94% 1.25% Print, Post and Stationery 0.48% 0.52% 0.44% 0.38% Rent of Premises 7.36% 8.60% 6.13% 5.80% Other Occupancy Costs 3.30% 3.61% 2.70% 2.86% Other Depreciation, Lease and HP 2.28% 2.58% 1.98% 1.77% Repairs and Maintenance 2.11% 2.81% 1.89% 1.42% Staff On Costs 3.12% 4.05% 2.53% 2.55% Telephone and Fax 0.53% 0.59% 0.55% 0.43% Employees' Wages & Salaries 29.62% 30.84% 26.38% 26.13% Vehicle Operating Costs 0.66% 0.88% 0.68% 0.28% All Other Expenses 4.63% 10.20% 2.55% 2.83% Total Overheads 58.44% 68.62% 50.50% 49.04% Equals Net Profit (bos*) 6.66% -7.75% 15.26% 21.17% Net Profit (bos*) per... Working Owner $54,767 $-4,604 $62,870 $135,761 Owner Workhour $25.67 $-0.80 $31.63 $60.11 Total Income per... Person $202,049 $183,772 $215,525 $282,523 Seat $16,609 $13,970 $19,063 $18,852 $ of Wages # $2.51 $1.89 $2.43 $2.77 Gross Profit per... Person $134,040 $112,996 $143,528 $198,088 Seat $11,088 $8,935 $12,385 $13,498 $ of Wages # $1.65 $1.20 $1.60 $1.93 Non Personnel-Related Overheads per... Person $51,346 $48,157 $46,727 $76,864 Seat $3,975 $3,782 $4,371 $4,273 $ of Wages # $0.58 $0.51 $0.54 $0.54 Personnel (fte personnel numbers) Working Owners Waitresses and Serving Staff Any Other Staff Total Personnel Hours Worked per Owner per Year 2,039 2,067 2,073 2,082 Other Information Owners' Equity as a % of Total Assets 3.48% 1.04% -9.26% 26.43% Asset Turnover $7.75 $7.39 $9.21 $7.67 Stockturn Rate Seats per Serving Person and including Working Owners Growth Capacity 7.82% -5.96% 14.39% 21.52% Current ratio Acid test Liability turnover $10.33 $14.29 $7.58 $11.56 Interest cover: business * bos - before owners' salaries and benefits # including owners' notional wage of $35 per hour 22

23 Average Results for businesses grouped as indicated Income Location: Location: Location: Other: Capital City Non-Metro Non-Metro Rented CBD Population Population Premises > 20,000 < 20,000 Total Income $825,351 $843,059 $791,855 $932,958 Less Cost of Goods Sold 39.49% 35.42% 31.09% 34.74% Equals Gross Profit 60.51% 64.58% 68.91% 65.26% Less Overheads as %'s of Total Income: Advertising, Promotion & incl Franchise/Group Fees 0.86% 0.59% 1.83% 1.13% Accounting and Legal Fees 0.69% 0.63% 1.05% 0.77% All Insurance 1.24% 0.88% 0.75% 1.07% Interest, Bank Charges etc 1.00% 1.44% 2.01% 1.42% Print, Post and Stationery 0.28% 0.52% 0.55% 0.47% Rent of Premises 10.38% 5.57% 4.54% 7.85% Other Occupancy Costs 2.82% 3.06% 4.36% 3.37% Other Depreciation, Lease and HP 1.94% 2.07% 3.37% 2.31% Repairs and Maintenance 3.38% 1.74% 2.50% 2.11% Staff On Costs 3.18% 2.02% 2.89% 3.16% Telephone and Fax 0.39% 0.56% 0.55% 0.52% Employees' Wages & Salaries 32.80% 29.75% 23.24% 30.17% Vehicle Operating Costs 0.45% 0.57% 1.03% 0.62% All Other Expenses 12.17% 2.89% 2.23% 4.84% Total Overheads 71.57% 52.28% 50.90% 59.81% Equals Net Profit (bos*) % 12.29% 18.02% 5.45% Net Profit (bos*) per... Working Owner $10,300 $70,449 $48,321 $49,073 Owner Workhour $5.64 $31.67 $36.59 $22.85 Total Income per... Person $81,528 $240,792 $107,085 $212,112 Seat $15,522 $17,055 $12,398 $17,121 $ of Wages # $2.04 $2.56 $2.25 $2.47 Gross Profit per... Person $49,347 $163,408 $73,388 $140,902 Seat $9,423 $11,377 $8,898 $11,435 $ of Wages # $1.27 $1.66 $1.56 $1.64 Non Personnel-Related Overheads per... Person $24,782 $60,978 $27,128 $54,469 Seat $4,165 $3,682 $3,255 $4,152 $ of Wages # $0.51 $0.50 $0.57 $0.60 Personnel (fte personnel numbers) Working Owners Waitresses and Serving Staff Any Other Staff Total Personnel Hours Worked per Owner per Year 2,153 2,158 1,682 2,037 Other Information Owners' Equity as a % of Total Assets 33.68% -2.92% 17.68% 4.60% Asset Turnover $7.84 $7.87 $7.66 $8.02 Stockturn Rate Seats per Serving Person and including Working Owners Growth Capacity % 14.40% 19.45% 6.71% Current ratio Acid test Liability turnover $13.63 $8.38 $15.49 $10.84 Interest cover: business * bos - before owners' salaries and benefits # including owners' notional wage of $35 per hour 23