A lot of things keep restaurateurs up at night, but high on the list for quick-service operators in 2009 is the rising cost of food. Eighteen percent expect it will be the top challenge they face this year, according to the National Restaurant Association (NRA). After skyrocketing to near 30-year highs in 2007 and 2008, food-cost increases are expected to slow this year, but experts still expect prices will rise nearly 3 percent.
With food cost already biting off about one third of sales, operators have no choice but to take action. From swapping specs and tweaking recipes to shrinking portions and raising prices, many are experimenting with ways to cut costs. But there’s a thin line between trimming the fat and ruining the meat.
“The flight away from quality is a slippery slope,” says Eric Arthur, owner and president of Marketplace Management Group, a Tennessee-based purchasing and distribution management firm. In an industry that specializes in offering more for less, any perceived drop in quality will send customers down the street. Here, experts offer suggestions for getting more from your food dollar without alienating guests.
Fight Fuel Costs
One of the main factors contributing to the 8-percent increase in food costs felt in 2008 was the price of oil, which reached record highs last year. Distributors were paying more to ship product, so they passed the increase on to restaurants.
Though oil prices relaxed, delivery charges can still tack as much as $150 to $200 onto the bill. To mitigate the cost, opt for fewer but larger drops.
“Making fewer deliveries helps [distributors’] cost, and they will pass that on to you,” says Joe Dunbar, president of Fairfax, Virginia, food-cost consulting firm Dunbar Associates.
Charlotte, North Carolina–based chicken chain Bojangles’ Famous Chicken ‘n’ Biscuits is also taking advantage of backhauling, scheduling drops so trucks can return to the distribution center with another full load.
“We’ve decreased our shipping costs by improving how product gets to our suppliers,” says Bojangles’ CEO and President Randy Kibler. “Now they don’t have to pay for someone else to do that.”
At Lake Forest, California–based burger chain Johnny Rockets, the purchasing team negotiated with suppliers to fix fuel-surcharge increases according to a schedule, making it easier to plan.
Villa Enterprises, whose holdings include Villa Fresh Italian Kitchen, Green Leaf’s, Bananas Smoothies & Frozen Yogurt, and South Philly Steaks & Fries, has decentralized its supply chain so product doesn’t have to travel so far. By using straw manufacturers on both coasts, the company cut costs by about $20,000 per year. Next year, it hopes to do the same with pizza sauce, potentially saving as much as $100,000, says Senior Vice President of Operations Andrew Steinberg.
Work with Suppliers
Some of a restaurant’s greatest partners in the fight to cut food costs are its suppliers, but like any partnership, it has to go both ways.
“You’ve got to be a good customer,” Dunbar says.
Part of that means paying promptly. Those who pony up in a week or less could get a discount, whereas customers who take more than a month and a half are likely to be billed more.
It also pays to leverage buying power. In the past, Bojangles’ allowed franchisees to buy some items from different vendors. By consolidating and reducing SKUs by a quarter, the company was able to buy more cases from each vendor at a better price, Kibler says.
The key to working out a deal, experts say, can sometimes be as simple as asking for it.
“You only get what you ask for,” says Marketplace Management’s Arthur. “No operator is going to get a decrease in cost if they don’t ask for it.”
One of the best places for operators to look when trying to cut costs is in the trash.
“You’re looking for overproduction and waste,” Dunbar says.
If the evidence is there, encourage the crew to cook only as much product as is needed at any given time and avoid over-ordering inventory that will spoil before it gets used.
“The No. 1 thing you can do is forecast better,” Dunbar says.
At Florida-based fast-casual Lime Fresh Mexican Grill, fresh produce is delivered daily, so restaurants purposefully run out of food at the end of the day to minimize waste.
Focusing on portion control in the back of the house can help, too. At Johnny Rockets, the crew used to use knives to spread sauce on sandwiches. Switching to pre-portioned ladles helped make product last longer and curbed customer complaints about excess sauce. By reducing the amount of mayonnaise used on each sandwich by just one-eighth of an ounce, the company saved $60,000 on a national basis, says Marilyn Biscotti, vice president of purchasing and product development.
The chain also reduced waste by updating its recipe specs. Although the company changed to a new clean lettuce product, crewmembers were still removing two layers of leaves because instructions hadn’t been updated.
“It was just a waste,” Biscotti says. “There was no longer any need to be doing that.”
“One of the things I encourage people not to get caught up in is labels,” Arthur says. “Just because you use brand X doesn’t mean you have to use brand X forever.”
One of his clients, a six-unit deli operator, was able to save about $140,000 last year just by changing the turkey he served. “He didn’t buy the same brand of turkey, but he bought the same quality of turkey,” Arthur says.
Items such as beverages or cheeses, which can be matched by moisture and fat content, are relatively easy to swap; others should be substituted with caution.
“If it’s a signature item, you don’t want to monkey around with it if you can’t come close to that profile,” says Arizona-based restaurant coach David Scott Peters, of TheRestaurantExpert.com.
To ensure a smooth transition, adequate testing should be performed in advance, says Arthur Rumpf, technical manager of food programs at global quality assurance company Specialized Technology Resources. Characteristics such as shelf stability, food-safety risk, and consumer perception should all be evaluated before any change is made.
While switching specs can certainly save money, experts agree that it’s important not to confuse a cheaper product with one of lower quality. Doing so can actually cost your business more in the end.
Dunbar relates a story of a client he worked with at a regional burger concept who switched to buying beef patties with a higher fat content than the company’s 80/20 spec. As a result, consistency became an issue, and the new product required more work to clean the grills.
“He would have been far better off staying with the spec and not going to the lesser quality—especially when he wasn’t getting that much of a price break anyway,” Dunbar says. “He ended up costing himself.”
In some cases, it can actually pay to choose a more expensive product. Villa Enterprises used to shred five-pound blocks of mozzarella in house. When cheese prices reached an all-time high in 2008, the company did a cost analysis to see where it could save. By paying more for a pre-shredded cheese, they found they could get a higher yield.
“Although we’re paying more for the product, we’re saving money in the long run,” Steinberg says.
The U.S. Chamber of Commerce estimates that employee theft costs businesses $40 billion each year.
“Every product that doesn’t get sold is a lost opportunity,” Peters says.
To ensure your restaurant doesn’t miss another chance to make a profit, vigilance is a must. Peters suggests using key items reports and waste sheets to ensure all product is accounted for at the end of the day or week.
“You’ve got to inspect what you expect to keep people honest,” Peters says. “The dishonest guy is going to get you.”
It’s not just employees, either. Theft by delivery personnel is also common, and it’s important to inspect inventory to ensure suppliers are delivering on their promise.
In one year alone, ArrowStream, a provider of technology solutions for supply-chain management, was able to recover more than $1 million in supplier overcharges for the casual-dining chain Applebee’s, says Roger Mullen, ArrowStream’s president and COO.
Watch the customers, too.
“If someone is getting a cup to drink water, you need to make sure they’re not drinking soda with that water cup,” Dunbar says. “Employees need to be trained to be on the lookout for that.”
To ensure crew buy-in, emphasize the cost of stolen products during training and offer incentives for employees who catch offenders.
Manage the Menu
As food costs increase, quick-serves might have to rethink what they put on their menus. First and foremost, that means getting rid of any low-sellers.
“You should definitely eliminate any unpopular items,” Dunbar says. “Quick-service menus should be very highly focused—the more highly focused the better.”
Ditching items that don’t sell makes the operation more efficient and cuts down on inventory that goes to waste.
Dunbar also suggests allowing for some flexibility in offerings. That way, if an ingredient in one item is hit with a price spike, a substitute dish can be brought in to keep costs down. During the winter months, when out-of-season produce is expensive, it might be wise to substitute soup for a salad offering, for example.
Buffet concept Souplantation and Sweet Tomatoes features eight soups daily. Only three are permanent fixtures on the menu. With about 100 soups in the company’s repertoire, it can alter the mix depending on which ones have a reasonable food cost at any given time, says Joan Scharff, the company’s brand and menu strategist. The same goes for salad fixings: If the price of roma tomatoes spikes, the brand can switch to a different variety, such as grape tomatoes, until the price comes down.
Smaller portions are something health-conscious consumers have been asking for, and with food costs going up, granting their wish is just good business for quick-serves.
According to the NRA’s 2009 Restaurant Industry Forecast, 61 percent of consumers say they would patronize quick-serves more frequently if a restaurant offered smaller portions at a lower price. But restaurants can also reduce portions and charge the same or more by reducing size while increasing quality.
“If you’re serving a 4-ounce regular burger, you could try going to a 3-ounce Angus patty and charge more for it,” Dunbar says.
Trouble can arise, though, if customers feel they’re not getting the same or better value for their money.
“Look what happened to Ruby Tuesday,” Dunbar cautions, citing the sluggish sales that plagued that casual-dining chain after it reduced portion sizes in 2004. The key, he says, is to understand what your customers want before making the change.
It might seem self-defeating to raise prices in a down economy, but experts say it’s a viable option to consider.
Hit hard by increased commodity costs over the past two years, Bojangles’ decided that at least some of the rise in prices had to be passed on to consumers. Between late 2007 and mid-2008, the chain raised prices across the board between 4 and 5 percent.
“We monitored our competitors, and we didn’t do one increase; we had several different increases over the course of the year,” Kibler says.
Customers, for the most part, took it in stride.
“There’s always a little bit of a sales mix shift that you can’t fully predict, but in general we had very little consumer reaction,” Kibler says. “I think our consumers today are very well-informed. They know everything is going up.”
The chain certainly wasn’t alone in its decision to raises prices. Last year, menu prices climbed 4.4 percent on average. This year, they’re expected to increase 3.6 percent.