In early November, the National Restaurant Association sent a letter to President Biden regarding the dire situation the COVID-19 pandemic has created for the restaurant industry. In the letter, the Association addressed how increasing costs and limited supplies are restricting the industry’s ability to function.
Their research uncovered these unsettling statistics:
- 95 percent of restaurants have experienced significant supply delays or shortages of key food items in recent months, according to a recent national survey we conducted.
- 75 percent of restaurants have made menu changes because of supply chain challenges.
- Wholesale food prices increased sharply in September, posting the highest 12-month increase since 1980.
- Restaurant commodity prices are soaring with beef up nearly 60 percent, fats and oils up 50 percent and eggs up nearly 40 percent.
- Menu prices have risen 4.7 percent in last 12 months alone.
While the Association provided sound solutions to the White House that would have a positive long-term impact if implemented, most operators are simply not in a financial situation in which they can wait for the supply chain issues to be sorted out at a national level.
Fortunately, there are actions that can be taken at the store-level starting to help reduce the impact this national crisis is causing to your bottom-line. Below are five areas in which improved practice will directly – and almost immediately – increase your profitability.
Improved Forecasting. Restaurant forecasting leverages historical revenue data, information about current conditions, and knowledge of external events to help project future sales levels. Proper forecasting can help you optimize your variable costs, like inventory, staff, and prep, ensuring you are not contributing to food waste or running out of key items from your menu.
When forecasting for the upcoming holiday season, you will want to make comparisons based on data that is relevant and comparable, so consider using your 2019 performance metrics since the 2020 data will be skewed due to the pandemic. In addition, be sure to also consider other factors, such as the current economy, local events, weather conditions, and local competition to name a few.
Pay attention to your Actual vs. Theoretical (AvT) food cost variance to find outliers and uncover hidden issues. Your theoretical food cost is what you should have spent on food in a given period if there were no waste. Your actual food cost is what you spent for the same time period but factoring in inconsistent portions, waste, improper invoicing, and theft. Finding those gaps and closing them redirects that spend back to your bottom line.
Consistent Inventory Counts. With food costs running at approximately 30 percent or higher, learning to accurately manage inventory is critical in successfully driving down costs and maximizing profits. Best practice is to schedule your counts consistently, being on the same day of the week, same time, before/after service in order to gain comparable data. Keeping that cadence will allow you to spot any inventory anomalies much quicker.
Once you have a baseline set you can set goals and objectives to measure against. Inefficient management practices, improper storage, gaps in inventory logs, theft, and waste are among the top reasons that cause even the most successful kitchens to fail. Proper training on how to avoid these issues is a sure-fire way to contain them.
Recipe Costing & Menu Engineering. A Menu Item Analysis Report give you the data to clearly identify your most popular dishes, most profitable dishes, and those that are eating away at your revenue. By understanding which of your dishes are the most profitable, you’ll know where to place your energy, what dishes to push, and what dishes you may need to remove from your menu altogether.
It’s common knowledge that complex menus increase costs, so the supply chain disruptions we are currently facing might be the opportune time to test a simplified menu. A menu item analysis report can show what items are used the most in your popular dishes. Most restaurants find that their product usage follows the Pareto Principle (AKA the 80/20 rule), which translates to the restaurant industry translates as 80 percent of your sales come from 20 percent of your menu items. Now may be a great time to simplify your menu to focus on this core base of adaptable, high-quality ingredients you’ll be able to hold less inventory and reduce your SKUs, better control waste, and ease the burden on your wallet.
Streamlined Ordering and Receiving. When it comes to ordering and receiving, organization is key to success. If you can get through to your next ordering day with no leftover product, no spoilage, and not having to 86 any menu items, then you are winning at ordering. However, this is hardly the case for most of us.
The best way to evaluate your needs is to review your last order, do an inventory to see what you have on hand, then consider your sales forecast to determine what product you will need until the next order. Inventory is expensive. Having too much inventory on hand decreases your cash on hand, promotes overuse, leads to spoilage, and can encourage theft. The key to lowering your food costs is to keep your inventory as low as possible without running out of product.
The way in which an order is received is just as important as placing the ordering. Don’t make the mistake of just sending whoever is free to check in an order. Do what you can to schedule deliveries at a time that competent personnel who are trained on quality control, paperwork, specs, and proper storage are available to receive it.
Also, train them on what actions to take when something out of the ordinary arises. Each case needs to be opened and checked and pre-portioned items need to be spot checked for weight. It is perfectly acceptable to send subpar items back with the driver, and much easier than trying to return it after the invoice has been signed.
Elimination of Unnecessary Food Waste. Food waste is one of the largest areas of potential cost savings in a restaurant. Once the order is received, reduce the amount of spoilage in your restaurant by using the first-in/first-out (FIFO) method. It may take a little longer to unload shipments but moving the older stock to the front of the shelves and putting the new stock behind it will ensure that you are not wasting product. Mandating date labels on all perishable products to help with storage and rotation will help ensure that FIFO is being practiced properly.
Don’t forget that all the data you need to reduce spoilage can be found in your POS system and Business Intelligence reports. It’s just waiting to be turned into something actionable. Study your PMix report for items that are not big sellers but quick to spoil and use them in other recipes. If you only use cherry tomatoes in the house salad recipe, consider changing the recipe to take them out or finding new ways to use them before they go bad such as adding a pasta special. Days on Hand (DOH) reports can also let you quickly identify items that have been in inventory too long and need to move quickly.
Conclusion. Supply chain disruptions is just one new issue added to the world of uncertainty the restaurant industry faces on a daily basis. Each day we awake to so many variables that will affect our sales and profits, but we can take steps to protect our margins by tightly managing costs. While we have no idea when the supply chain disruptions will end, we do know that managing costs has always been and will always be key to success in the restaurant industry.
John Moody is the Co-Founder and Chief Strategist of Restaurant365, an enterprise accounting, back-office, and reporting solution specific to the restaurant industry. He has more than 20 years’ experience in helping companies leverage technology to streamline operations, improve financial management, and use actionable reporting. In 2003, John’s company won the prestigious Best Mobile Enterprise Solution at the Microsoft Developer’s Conference. Since then, he has continued to be a leader in helping companies with end-to-end solutions by combining the latest technologies in mobile, business systems, and reporting. John has a passion for technology and productivity, and using those elements to make time for the things that matter. He has an MBA from Pepperdine University and enjoys surfing and travelling with his family.