Beefing up your bottom line can be a matter of making small changes systematically
Running a restaurant is a uniquely challenging endeavor. Managing the costs of a restaurant business are a uniquely difficult undertaking. It remains a focal point within the industry. One of the common questions that restaurateurs should be prepared to answer about their business is “what’s my food cost?”
This is as equally important as knowing the rent amount to be paid or knowing the payroll amount. Surprisingly, many restaurant owners—independents in particular—do not know the current food cost percentage that their restaurant is running (total food cost/total sales).
The typical myth is that every restaurant owner starts out with concrete recipes, and a full knowledge of the then-current costs of the ingredients we are using. The problem is that over time, those costs change. When we speak about produce, seafood, or even dairy and meats, those costs may vary seasonally.
It’s challenging to lock in prices without signing any long-term contracts or joining a group purchasing organization. So most restaurateurs face a lot of volatility in the cost of food and drink that comes into their restaurants. As restaurants add more variety with additional ingredients, that problem becomes compounded. Food cost becomes a moving target as seasonality is always in play. Vendors can also make mistakes and charge prices that are higher than anticipated or negotiated. It happens all the time.
Another key issue is having the right set of controls for food tracking and reporting. It is not uncommon in the industry to realize dishes get sent back to the kitchen; or a sandwich at a delishop gets dropped now and then; or some food even spoils before it gets used. Food waste is a real issue. Moreover, dishonest employees who take food or supplies without approval can unknowingly really cost you a fortune.
Unfortunately, it is the reality that has to be dealt with.T herefore, pilferage is another real-word problem in controlling food cost. There are experts that can help restaurateurs calculate food cost and automated inventory systems are available, that when used correctly,can provide what we call a solid ‘theoretical food cost’. What is the food cost you should be running based on what you are purchasing and in stock? What seemingly is the easiest question in the industry is more often than not the toughest, particularly without consulting experts nor having the necessary budget to implement inventory software.
Calculate your food cost, even if it’s on a napkin, and then recalculate it again every quarter. Developing a true theoretical food cost is not so easy without experts or tools, so it’s not one of my easy solutions offered below. Here are the easy ones:
How restaurants benefit from manufacturer rebates: Rebate awareness
Every manufacturer provides rebates and incentives on products to build loyalty. Here’s the problem: Everyone in the supply chain is looking to capture those rebates, when they actually belong to the end user, a.k.a. the restaurant owner. It’s particularly common when you work with group purchasing organizations that you know how rebates are being used. In general, your rebates may be used to offset costs, paid back to you on a periodic basis, or used to incent you on the front-end of a deal with a broadline distributor.
Not knowing how to claim rebates for your business will impact your bottom line. Historically, there have been companies and websites that help you claim your rebates directly from manufacturers. The larger your restaurant, the larger the dollar amount of rebates. It is fundamentally crucial to ask, “Where are my rebates?”
Calculating the real cost of a purchase. Buying food that isn’t sent directly to a restaurant is something that needs to be done all the time. Now, there are entrepreneurial individuals, who can dash over to the Costco or Restaurant Depot for you, for a fee, and then there’s your shift supervisor, who you dispatch for such tedious matters. What’s the cost of going to Restaurant Depot when it is 35 minutes away?
How much are you paying that person to do so and how much are you spending on gas or mileage? Take that into account when you calculate how much you are saving on that uber-sized bottle of cooking oil, and then compare that cost to the invoice cost of getting it from US Foods, FoodPro, or any other broadline or regional distributor.
Rotation (of people)
Here’s another issue. You play favorites in the restaurant. We’ll call him Tim. Tim always does the inventory with seemingly steady outcomes. The business has seemingly been going well and healthy under Tim’s “consistent” groundwork.Unfortunately, your inventory may not be what you think it is. In reality, Tim has actually been taking home a rack of ribs on a weekly basis. Just because Tim managed to submit good, flawless financial reports for you does not necessarily reflect how your restaurant loses revenue behind the scene.
If you’re focused on the inventory number and not aware of your actual food cost, than Tim is in for a long and prosperous gig at your restaurant. Rotating individuals that do inventory or process invoices is a wise decision for your business. Making different people accountable on a schedule can safeguard the risks of losing your hard-earned food inventory.
This goes for reporting, as well. For those who take a profit share in a restaurant, one of the oldest tricks is to underreport expenses. It’s important to recognize the ones who bypass reporting invoices for payment. Make sure to let those who process invoices, or do some of the internal reporting, share responsibilities with other managers. That way, there would be several different eyes on your process of vendor payments.
If a restaurant uses an outside accountant or service, it is advisable not to take the econo-quarterly plan. Rather, they should take the monthly plan so any benefits of having a second set of eyes has quick benefits to you and can save you from losses resulting from unsavory managers.
Don’t accept hand-written invoices or expenses reports without proper documentation from vendors. Make sure to have a price list or contract from each vendor you deal with, even if your manager or partner has negotiated the terms or may have some type of bartering arrangement. You restaurant should never pay the cost of special “behind-the-scenes” deals between those who represent your company and outside vendors. In doubt? Pick up the phone or do the fact-checking that is needed yourself.
Knowledge and awareness of what goes on in your restaurant
Having surveillance cameras in the restaurant and letting employees be aware of them is another important strategy to protect a restaurant against food waste and pilferage. There are also cameras that are triggered by transactions and are focused on the handling of cash. Learn about these important tools to monitor your restaurant, even when you aren’t there. As an owner, don’t be obsessive about watching the restaurant all the time or losing sleep over it (particularly when you are running multiple stores), but make good use of these tools, even if it’s just reviewing the tape from the night before.
Missing food isn’t the only thing that can inflate food cost. Missing sales or cash can also spike your food cost. If you’re tracking food cost regularly and reviewing your profit and loss statements, than you would become aware of such spikes, and could always dig for answers. In addition to knowing your numbers, technology and people are there to help keep safeguards in your restaurant. Sometimes, others will see things that are amiss.
Always invite friends, partners, and colleagues into your restaurant. Buy them lunch or dinner. In fact, give them a gift card so they can check it out themselves. You’ll be surprised at the feedback you get—not just hospitality-related, but things that “don’t feel right”—and how they can see something going astray before you do. Vendors and delivery people that you’ve known for a long time can also be good sources of feedback. Knowing what questions to ask pertaining to the daily in-and-out routines can be key to improving your restaurant business.
Author credit: Rick Zambrano
Photo credit: Arils Photography (top, featured), Lluis Domingo (inline photo)