Why Reducing Your Food Cost 2-3 Percent Could be Easier than You Think
If there is one thing that doesn’t change, it’s the fact that your food prices keep going up. Sure, there are some commodities that may drop in price due to seasonality, but if you look at the prices over the entire year, odds are they ALL have gone up, year-over-year. On top of that, you can only raise your prices so much to make up for the price increases before you start to price yourself out of business. But you can’t just keep watching your profit margins slip away with each delivery truck that pulls away from your back door. So, what is a restaurant owner to do?
What if I told you by simply gathering a little bit of information, you could reduce your food cost by 2–3 percent while purchasing the same groceries you purchase right now? Would you be interested to learn more? Better yet, would you take action and do the work? Because I am here to tell you it’s easy to do, only a bit time consuming, and it works. Let me share the process with you now.
It’s all about attacking your descending dollar report.
You will need to gather some information from ALL of your vendors and from ANY business where you purchase food, including the broadline distributors to the specialty meat company to the grocery stores you run to pick up a quick item. In a perfect world, you would gather this information for the same date range.
The information you are asking for from your broadline distributors is called a descending dollar report in the form of a spreadsheet. (Or descending case report. They are the same report, just sorted in a different order.) You will want the information on this report for the past six months of purchases, or since you changed your menu if that is more recent. We only want to look at products you are purchasing today. The descending dollar report will list all of the products you have purchased from that vendor for the time period sorted in the order of what you have spent the most money on down to the least.
You will want to do this for every vendor. That means when the specialty meat driver or local produce driver drops off your order and hands you a hand-written invoice each time, you actually have to create a spreadsheet and manually type in the data.
Once you have all of this data gathered and in spreadsheet form, you will combine ALL of your purchases and sort that spreadsheet from what you’ve spent the most money on to what you have spent the least amount of money on. It will look like this:
In this example, the total food purchases for this report were $64,146.43 for ALL vendors/stores (which is the total of all the rows you don’t see). You will notice that I highlighted the first 12 items in yellow. When you add these highlighted items together, it comes out to be $32,786.78 or 52 percent of the total $64,146.43 in purchasing. What this demonstrates is one simple overlooked fact in the restaurant business: your top 10–12 purchases represent 50 percent of ALL your purchasing!
Now that you know there could be products that are available to you at a lower cost, here’s what you do. You take your top 10–12 products that you purchase as listed in our compiled descending dollar report and ask your food sales people from whom you purchase these products the following question, “If I promise to buy all of this product from you over the next year, can I get a better price?” If you’ve ever been to a food show, you understand that at the show, if you promised to purchase a certain number of cases of a specific product they would lock you into a better price for that product. Well, distributors are able to do that anytime.
If you’re lucky, your sales person will be able to simply give you a better price. If you’ve been luckier, your sales person has already been giving you his or her best price. In this instance, your sales person will reply with, “No. I have already been taking care of you.” Don’t just accept this answer and move on. Next you will ask this new question, “Do you have a like-quality or better-quality product at a cheaper price?”
Notice, I didn’t have you ask if they had a cheaper product. You NEVER want to go with a lower quality product, that would go against your core values and kill your dish. But you should be willing to switch to an equal quality product or better-quality product if you can get it for a better price than you are paying now.
Using an appetizer example, by asking this question, your sales person would open their laptop, do a search and find a company you weren’t purchasing, Great American Appetizer products, and gives you the opportunity to purchase it. The results will be amazing. If you could purchase the same groceries out of your top 10–12 items on your descending dollar report for less, you may see as much as a 2–3 percent savings.
By simply gathering the right data, doing some manual data entry, combining all of your reports and sorting that data, you’ll be able to attack your top 10–12 items you purchase and reduce your food cost by 2–3 percent. My question to you is, not will you do it, but rather what the heck are you waiting for? Take action.
David Scott Peters is a restaurant consultant, event speaker and founder of TheRestaurantExpert.com, a company committed to the success of independent restaurants. TheRestaurantExpert.com offers an exclusive online restaurant management software designed specifically to meet the complete operational needs of independent operators, including holding their managers accountable and running a profitable business. Combined with one-on-one coaching and group workshops, TheRestaurantExpert.com is helping independent restaurants find success in the highly competitive restaurant industry. Download a free report to discover the #1 secret to lowering food and labor costs and running the independent restaurant you’ve always dreamed of. Learn more about how David can help you at www.TheRestaurantExpert.com.