Where And How To Cut Food Costs In Order To Maximize Restaurant Profitability
January 14, 2021
Whether restaurants are operating in the midst of a pandemic and related shut down, or life is "normal," there is one issue restaurant owners must always wrestle with: managing food costs.
Food costs are the consequential, perennial thorn in the restaurant business' side. The solutions to keeping food costs down can be elusive even for the most seasoned and creative restaurant manager.
Very good analytics exist to aid in dealing with food costs like ideal usage, ideal food costing, mix analysis and so on. But these methods can be expensive and difficult to implement, often making them unavailable to the small operator.
In an effort to make this blog helpful to the smaller operators, I offer this elementary but important primer on where and how to cut food costs in order to maximize restaurant profitability.
What Are Your Key Ingredients?
You may think you know your key ingredients off the top of your head, but it's worth doing a review for accuracy. Specifically, you will want to do an 80-20 analysis of what you are buying.
An 80-20 analysis is simply determining the roughly 20% of your purchased items that account for close to 80% of your food cost.
Typically, the 20% will include major proteins like meat, chicken and seafood, but can also include other items. For example, if you are an Italian or Mexican restaurant, cheese is assuredly in your 20% category.
You will want to focus your attention on the 20 percenters, particularly as it relates to the next three questions regarding waste, vendor relationships and portion sizes.
How Are You Managing The Waste?
The restaurant business is often called a "game of pennies" and most of the pennies come from waste.
I've got a couple of rules for waste management:
Rule 1: the trash should only contain items discarded by the prep cook and only after those items have been completely used - like spinach stems, tomato cores or inadvertently burnt butter.
Rule 2: weigh and track the waste. Have systems in place that minimize waste based on your waste weighing and tracking. Get your whole staff onboard. Explain to your staff why you are doing it and be sure they are invested in waste management with the understanding that this is what helps to keep the business profitable and pay their salaries.
What Is Your Relationship with Your Vendors?
Vendors can be your best friends or your worst enemies. Work your vendor relationship so that they are closer to the former and never the latter. Here's why…
You want your vendor to be proposing solutions or alternative ingredients when prices go haywire. You want your vendor to be a partner of sorts for your business.
There should be a sense of comradeship between them and you and your chef. In essence, they should be there to help, not hinder.
This requires work on your part too. Don't keep your vendors waiting when they call on you. Be polite and considerate, but also hold them accountable. For example, does your vendor know that your chef does not open cases and inspect the deliveries? This can lead to you receiving inferior goods. Do vendors think they are going to be bounced over the price of some 5x6 tomatoes? Holding your vendors accountable in a respectful way, much like you would your staff, helps to bring out the best in them and their work product.
Are You Keeping an Eye on Portions?
The ingredients that go on the plate are important; how much is critical.
One easy way to keep an eye on portions is to add value with add-on items that cost less. For example, 4 oz. of fried shrimp on a bed of French fries can appear to have more value than a plate with 7 oz of fried shrimp.
Another aspect of portion control to consider is how do your portions size up next to the competition? If you are a burger joint among many in a certain area, maybe a 8 ox burger patty can be replaced with a 3x1 patty with no loss of value perception compared to the competition?
Contrary to widespread belief, bigger is not always better, at least when it comes to restaurant portions.
Are You Aware of Current Events?
Keeping an eye on the news is important. Unforeseen events on the other side of the world can affect your business.
A tsunami in Thailand can submerge shrimp farms underwater sending shrimp costs through the roof worldwide. An El Nino affecting tomato crops in Mexico can have a similar pricing fallout. Drought, storms, strikes, civil unrest - all of it can affect your food supplies and operating costs, whether you are Brinker or Joe's Diner
Are You Pricing Correctly?
Adjusting your pricing upwards is the last resort when controlling food costs, which is why I have mentioned it last.
The restaurant industry is as competitive as any and no owner likes to raise prices, much less often.
Price increases are currently averaging about 3%. Bear in mind that increasing prices by a certain amount does not equate to a revenue increase by the same amount due to customer behavior. For example, many customers trade down to a less expensive item in the wake of a price hike.
This is why price hikes need to be strategic. Consider how you will capture the price increase, taking into account customer behavior, rather than simply increasing prices across the menu or on specific items.
If you are interested in learning more about where and how to cut costs in order to maximize restaurant profitability, reach out to me today. It's my privilege to lend my decades of restaurant operations and finances expertise to clients and help turn their business around.