This originally appeared on Foodable TV, March 18, 2015
By Donald Burns, Foodable Industry Expert
If restaurants had water coolers to hang around and talk all day about the gossip of the moment, it would be about food cost. This topic is the thorn in the side of many a restaurant owner, operator and chef, each trying to walk that fine line between creativity and profitability.
In the classic 1972 book, “Cooking for Profit” by Robert Petrie, the author outlined the original “40 Thieves of Food Costs.” This concept of food cost thieves has been circulating around ever since. There are many variables as to why your food cost may have gone astray. The number one concern most restaurants struggle with today is controlling those costs. Let’s take a look at the four big ones and help you dial in the food cost monster.
Not costing out your menu
You would think this is a no-brainer but you would be totally shocked and appalled at how many operators do not know what it costs to put out each plate in the restaurant. Do you think for one second that Apple does not know how much it costs to make an iPhone? Of course they do!
Excuses are just that, excuses. In restaurants that are failing to perform to their maximum potential, there is always one culprit: the restaurant owner, operator, manager or chef with a list of excuses as to why they just have not costed out their menu. Truth is, there are quite a few amazing food costing programs on the market. Most broad line food distributors offer a free food costing spreadsheet or program in exchange for buying from that company.
You come up with the excuse that you don’t have the time? No sympathy here! You’re busy, I’m busy, were all busy. With the fast paced life we live and the even faster paced restaurant industry that we work in, you are going to be busy. The excuse of not having time is really just a cover that you don’t have the skills or expertise to use a software program or spreadsheet. That’s an easy one to fix, get someone else. If you’re not good at software, excel programs or even computers for that matter, then outsource that task to someone on your team. If no one on your team can do it, then hire someone from outside.
Not making adjustments to the market
Markets change. Sometimes they change very quickly. One of the key advantages that independent restaurant operators have is that they can adjust to change much quicker than the larger chains can. One thing you can bet on is that the cost of things do go up. If you have not increased your menu prices in the last year to adjust for inflation, then that’s a mistake that could have serious repercussions.
Not making adjustments to your menu at least twice a year has the same effect of being in a rowboat heading for the edge of Niagara Falls. By the time you realize how close you are to danger, you paddle as hard you can but by then, it’s pretty much too late. Many restaurant operators get themselves in the same predicament by not adjusting to the market for years. To the point where they have to make such a dramatic increase in menu prices that it alienates their customer base. It’s a very sad conundrum. Dramatically raise your prices to save the business or don’t raise your prices and go out of business.
Not training your team
The biggest impact you can have on your food costs is by training and working with your team every day. They are the ones handling the product you pay for. In the kitchen is where the rubber meets the road. There are a lot of great cooks and chefs who make amazing dishes yet cannot run a good food cost analysis to save their lives. Be very careful when you’re hiring not to get a culinary prima donna who can’t make you money.
- If they don’t know how to cost out a menu…pass.
- If they can’t read a P&L…pass.
- If they don’t have a system for running an efficient kitchen (all good chefs do), then pass.
The service team is responsible for making sure that food and beverages are rung up properly. Not charging for items, comps and giveaways will surely destroy profits in a restaurant and elevate your food cost faster than a speeding bullet.
- Have a POS system. A point of sale system can help you understand your menu mix. When you know your menu mix and the cost of each plate. you can get into the real art of profitability.
- Make a policy of, “No ticket, no product, no exception!”
Not developing a good vendor relationship
The restaurant industry is all about relationships – relationships with your customers, your team, your community and especially the vendors you buy from. Engaging in competitive bidding practices to get the lowest price actually leads to higher food cost, not lower.
Contrary to what most of us growing up in the business have been taught, having an ongoing purchasing process that revolves around using lots of vendors, comparing bids, price shopping, and buying from local grocery stores is not going to save you any money but actually will cost you more. To prove this point, think of how many professionally managed large chain operations use an ongoing competitive bidding practice? The answer, none. Every large chain uses one primary vendor to supply 80 to 100% of its food products. The fact that a chain restaurant is two to three times more profitable than an independent operation might have something to do with how they purchase.
Using a primary vendor helps eliminate wasteful management activity like calling around and checking prices. Now you and your team can focus on more high return activities like managing the customer experience. When you build a great relationship with your primary vendor, you also develop a level of trust. Trust is a two-way street. Food distributors make more money when they have a bigger order. In return, they can give you better pricing. When you build a relationship with your supplier, you give them the opportunity to make more money from your account which actually does keep your prices lower in the long run.
The bottom line- if you find a way to lower the vendors cost of servicing your account, you give them an opportunity to make more gross profit. As a result, they are willing to work on lowering margins for you.
Food costs can become your greatest nemesis or your greatest ally, it really depends on how you approach it. Many restaurant operators live in a state of denial. Nothing ever gets better until you take personal accountability, embrace change, and take action. Make friends with these food cost thieves and get to understand them. As Sun Tzu stated in The Art of War, “If you know the enemy and know yourself, you need not fear the result of a hundred battles.”
Getting a grip on your food cost is the first step to a more profitable restaurant.