Keep a Lid on Costs

One of the best ways to find cost reductions is by partnering with reliable distributors that are attuned to your supply needs.

By Michael Wilson

For the most part, the U.S. restaurant industry is in pretty good shape. The April 2016 update from the National Restaurant Association’s Hudson Riehle, senior vice president of the association, reports that nearly 60% of restaurants in the U.S. have made capital investments in equipment or remodeling of their properties in the past 3 months. Around the same percentage indicates they plan to make such investments during 2016. Typically, statistics like this indicate confidence in the foreseeable future of an industry.

Riehle also reports that U.S. restaurants continue to add jobs. From March 2015 to March 2016, nearly 1,000 new restaurant jobs were created per day, with 25,000 new restaurant jobs being created in the month of March alone. These statistics point to an industry that is strong and continuing to grow.

However, that is not the entire story. Restaurant owners/managers must contend with growing price pressures. While certain food commodity groups have decreased in price this year, others have increased significantly. For instance, the cost for fresh produce is nearly 30% higher now than at the start of the year; the same goes for the price of butter. Overall, while food prices at grocery stores have actually declined by about 0.4% since the first of the year, “menu price inflation” has actually increased almost 3% during the same period.1

This results in restaurant owners and managers — of both independently owned properties as well as chains — adjusting prices to reflect their cost increases or fervently looking for ways to keep costs under control. Finding procurement savings is difficult, and significant menu price increases can start turning patrons away.

Should restaurant owners/managers consider selecting less costly food and other items — even if they are of poorer quality — to help mitigate costs? While switching out some things for less expensive items can have little impact on patron satisfaction, it can have unfortunate consequences. Restaurant owners/managers may begin getting feedback from former patrons indicating their restaurant “used to be good but has gone downhill.”

So, it sounds like we are between a rock and a hard place.

However, owners/managers should not despair. Often one of the best ways to find cost reductions is by partnering with reliable distributors that are attuned to the supply needs of restaurants, the general foodservice business, and your property in particular. Be sure to choose a distributor that has access to new web-based technologies that allow both the distributor and the restaurant customer to compare products and make “thought-based” decisions that can result in costs savings.2

Tips for Keeping the Lid on Procurement Costs

The first step in this process is to conduct a supply audit. The goal is to create a complete inventory of what types of supplies are currently being purchased for the restaurant. Because restaurants purchase so many items, for our purposes here, let’s focus on cleaning products, with the understanding this process can apply to many other non-food consumable products as well.

Often, when a supply audit is conducted, we find there are items being purchased that are no longer necessary, not being used, or that can be swapped out for products that can multi-task. Using cleaning products as our example, many cleaning products in a restaurant are designed for specific tasks: to clean the stainless, clean/degrease the floor, clean shelving, etc. Selecting one cleaning solution that can effectively clean multiple surfaces invariably results in a cost savings. Further, by selecting in large, highly concentrated quantities, more savings are possible.

The following are other cost saving tips:

Know What You’re Buying

Again referencing cleaning supplies, the sticker price of a product may be misleading. What may be more accurate is to check a cleaning solution’s dilution ratios. For instance, a less expensive cleaning solution containing more water may need to be diluted at one part chemical and two parts water. If a slightly more costly but concentrated cleaning solution can be diluted at one part chemical and five parts water, then in the long run this will be the less costly product to select, even if the initial cost is a bit more because you are not paying for filler. The best measure for comparison is the end use dilution price.

Pay on Delivery

Many distributors will offer savings if payment is made within 10 days or automatically deducted from a business checking account as soon as the products are delivered. Along with the savings, this eliminates clerical time processing invoices.

Reduce Deliveries

We know there are costs to transfer products from the manufacturer to the distributor. But the distributor must grapple with costs to deliver goods from their warehouse to you. If storage space allows, restaurant owners/managers should make large purchases to reduce deliveries. This will help reduce costs for the distributor and the distributor may be able to pass savings to you. This also helps reduce fuel consumption and greenhouse gases, making it environmentally friendly.

Lock in Prices

Astute distributors typically will know if costs for certain supplies are expected to increase. By partnering with your supplier, you may be able to purchase these products in larger volumes to secure the lower price or make arrangements to lock in the current rate in exchange for future purchases.

Access New Procurement Technologies

As referenced earlier, some distributors now have access to new web-based dashboard systems that allow the restaurant owner/manager and the distributor to compare similar products and find the best price, performance, sustainability, etc. This is how owners/managers can make “thought-based” purchasing decisions to keep costs in line.

Be Careful With E-Commerce

Many people of all ages now purchase just about everything online. The lure of conveniently purchasing supplies with one click can lead to a lot of purchasing mistakes and/or trial-and-error purchasing. Resist the temptation of point-and-click purchasing; instead, take advantage of the new web-based technologies mentioned earlier. With the hundreds of products used in a restaurant, these systems can eliminate trial-and-error purchasing, which can have some very negative consequences, most of which impact the pocketbook.

Restaurant owners/managers wear many hats and have a difficult job. Having people they can count on to help them operate their properties and reduce costs is invaluable. View your distributor as one of these people.

 

 

1 Menu price inflation refers to the costs restaurants must pay to reprint menus. If prices go up for food items, wages, supplies, etc., the menu must be reprinted to reflect these increased charges.

2 A thought-based decision refers to a decision that is not based on trial-and-error but has been thoroughly analyzed and determined to be the most appropriate decision regarding the issues involved.

 

 

— Michael Wilson is vice president of marketing for AFFLINK, a global leader in supply chain optimization, providing clients with innovative process and procurement solutions to drive efficiencies in today’s leading businesses. Email through his company website at www.AFFLINK.com.

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