Eating into profits: How restaurants can use tech to save money and reduce food waste

Can seaweed make or break a sushi restaurant? Probably not. But in the restaurant industry, profit often lives in the margins.

That’s what inspired the name of Bo Davis’ restaurant management and bill payment platform, MarginEdge. A veteran of the restaurant industry who still owns a Washington, D.C.-area sushi restaurant, Davis points to seaweed salad, the ubiquitous, easy-to-prepare appetizer, to show how little things can become big drains. “We’re not growing seaweed,” he says. “You’re giving it a little bit of dressing, you’re putting it in a bowl, you’re sending it out.”

“Go into any given restaurant and weigh it and chances are, it’s not within 10% of its proper weight. For our restaurant it should weigh 80 grams, but it’s easy for a chef to put too much, and if you go too many grams over, you’re losing money on your seaweed salad. Given all the things happening in the restaurant in a given day, how are you supposed to know you’re losing money on seaweed salad?”

The U.S. restaurant industry is on track for its biggest year ever in sales, $1.1 trillion, according to the National Restaurant Association, but high food costs and rising wages are eating into profitability. MarginEdge’s platform helps restaurants find efficiencies and save money via inventory management, invoice processing, performance tracking, supplier bill payment capabilities and even recipe analysis.

Its data-driven insights can track orders and inventory to save money and reduce food waste — the restaurant industry in the U.S. alone wastes a 11.4 million of tons of food a year, according to one widely-cited report. And through a new partnership with Mastercard, MarginEdge customers can get a co-branded Mastercard for greater choice and access to working capital in near real-time, as well as access to suite of commercial tools, including virtual card capabilities that help them more easily pay vendors, track their expenses, manage cash flow, and get a holistic view into their spending.

The Mastercard Newsroom recently spoke with Davis, the CEO and co-founder of MarginEdge, about his own journey, the challenges of running a restaurant and the digital evolution of the industry.

The restaurant industry is a notoriously difficult one, with high closure rates and slim margins. What made you decide to open a sushi restaurant?

While I was in graduate school in London, I made friends with a lawyer and a banker. We were looking at it like a business. In 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 conveyor belt sushi places that were doing essentially fast casual sushi. It was really successful in continental Europe and England, where we were living. So we decided that we were going to do that, we were going to be the fast casual for sushi in the U.S. and we're going to open a bunch of restaurants. The three of us hired the chef of the best place in London, brought him to D.C., 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.

You must enjoy owning it if you’re still in business all these years later.

Restaurants are also a little bit like lottery tickets. They obviously take a lot of work, but when you can get the right concept in the right location, and you run it really well, they can be very profitable. When you get a restaurant that is the right concept in the right location and has strong revenues that can justify spending a fair amount on staffing, you can end up with a really strong team.  And then it's fun!

What’s the secret sauce of MarginEdge?

It's tracking all of your purchasing data down to line-item levels. How many tomatoes are you buying, how many avocados? We’re tied into your point-of-sale software, so we know everything you’ve sold. And then we help you see within 24 hours what you bought, what you sold, how those things are trending against each other to make sure you're using the right amount. We also make sure that if the price of eggs spike, which it did recently, that you know your menu impact. 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. Like, literally they would do better if they weren’t selling them at all, which is a tough lesson, but it means you need to do something.

What impact did the pandemic have on the business?

Pre-COVID, we spent a lot of time explaining to people why they should use technology to understand their problems better. Everyone understands their problems, but we were saying technology can help accelerate you getting to the answers and making things easier for you. When 2020 happened, people were like, ‘New technology, right?’ Ever since, it really hasn't been a question of explaining why what we do is important. It's more just getting around to it and implementing it.

Can small businesses like mom-and-pop restaurants benefit from the platform?

I would say 40% of our clients are coffee shops, pizza places, burger places. We do service chains, but we service the full spectrum. Our average annual client does about $1.5 million in revenue per unit, but there’s definitely $500,000 units in there — and $15 million units. You could take a pizza shop that does $500,000 a year, and then you can take a restaurant that does $40 million a year. And if you walk in as a consumer, they're radically different businesses — the level of staffing, the infrastructure, the architecture, the status element, everything is different. But if you look at the business, the back office, it's the same thing. They’re ingredients. They're putting them together into recipes. They're packaging them up trying to price them appropriately. They're managing purchase orders against deliveries of managing inventory levels, they're managing margins. It’s remarkably similar.