Can seaweed make or break a sushi restaurant? Probably not. But in the restaurant business, the profit often lies in the side profits.
That was also the inspiration for the name of Bo Davis’ restaurant management and bill-payment platform MarginEdge. Davis, a restaurant industry veteran who still owns a sushi restaurant in the Washington, D.C., area, points to seaweed salad, the ubiquitous, easy-to-prepare appetizer, to show how little things can add up to big costs. “We don’t grow seaweed,” he says. “You put a little dressing in it, you put it in a bowl, and you send it out.”
“Go to any restaurant and weigh it, and chances are it won’t be within 10% of its actual weight. For our restaurant, it should be 80 grams, but a chef can easily put too much in, and if you go too many grams over, you’re losing money on your seaweed salad. Given all the things that happen in the restaurant on any given day, how are you supposed to know that you’re losing money on your seaweed salad?”
According to the National Restaurant Association, the U.S. restaurant industry is on track for its highest revenue year ever ($1.1 trillion), but high food costs and rising wages are eating into profitability. MarginEdge’s platform helps restaurants increase efficiency and save money through inventory management, invoice processing, performance tracking, vendor invoice payment options, and even recipe analysis.
Its data-driven insights allow it to track orders and inventory levels to save money and reduce food waste—the U.S. restaurant industry alone wastes 11.4 million tons of food annually, according to one widely cited report. And through a new partnership with Mastercard, MarginEdge customers can get a co-branded Mastercard that gives them more choice and access to working capital in near real-time. They also have access to a range of commercial tools, including virtual card capabilities that help them pay suppliers more easily, track their expenses, manage cash flow and get a holistic view of their spending.
The Mastercard Newsroom recently spoke with Davis, CEO and co-founder of MarginEdge, about his own career, the challenges of running a restaurant and the digital evolution of the industry.
The restaurant industry is notoriously a difficult business with high closure rates and low margins. What prompted you to open a sushi restaurant?
While I was studying in London, I became friends with a lawyer and a banker. We looked at it as a business. By 2004, Chipotle had taken off and there was a lot of talk about the fast-casual version of Chipotle for everything. In London, there were a couple of chains of assembly-line sushi restaurants that essentially offered fast-casual sushi. That was very successful in continental Europe and England, where we lived. So we decided to do that: We wanted to become the fast-casual for sushi in the U.S. and open a series of restaurants. The three of us hired the chef of the best restaurant in London, brought him to DC, and opened our first restaurant. The lawyer left, the banker left, and I tell people I was the least intelligent of those three people because 18 years later, I still own a restaurant.
If you’re still in business after all these years, you must enjoy owning it.
Restaurants are also a bit like lottery tickets. Of course, there is a lot of work involved, but if you have the right concept in the right location and run it really well, they can be very profitable. If you have a restaurant with the right concept in the right location and have high sales that justify the staff expenses, you can end up with a really strong team. And then it’s fun!
What is the secret ingredient of MarginEdge?
It tracks all of your purchasing data down to the line item level. How many tomatoes do you buy, how many avocados? We’re connected to your POS software, so we know what all you’ve sold. And then we help you see within 24 hours what you’ve bought, what you’ve sold, and how those things are doing relative to each other to make sure you’re using the right amount. We also make sure that you know what impact that’s having on your menu when the price of eggs skyrockets, which it did recently. The price of chicken wings went up, and one of our chicken wing restaurants realized when they implemented MarginEdge that they were literally losing money on every sale of chicken wings during happy hour. It would literally be better if it didn’t sell them at all, which is a hard lesson, but it means you have to do something.
What impact has the pandemic had on business?
Before COVID, we spent a lot of time explaining to people why they should use technology to better understand their problems. Everyone understands their problems, but we said technology can help get answers faster and make things easier for you. When 2020 came along, people thought, “New technology, right?” Since then, it’s not about explaining why what we do is important. It’s more about engaging with it and implementing it.
Can small businesses like mom-and-pop restaurants benefit from the platform?
I would say 40% of our customers are cafes, pizzerias, burger joints. We serve chains, but we serve the whole spectrum. Our average annual revenue per unit is about $1.5 million, but there are definitely $500,000 units – and $15 million units. Take a pizzeria that does $500,000 a year, and then you take a restaurant that does $40 million a year. And when you come in as a customer, they’re radically different businesses – the staffing levels, the infrastructure, the architecture, the status aspect, everything is different. But when you look at the business, the back office, it’s the same thing. They’re ingredients. They put them together into recipes. They package them and try to price them appropriately. They manage orders versus deliveries, they manage inventory, they manage margins. It’s remarkably similar.
