Food Costs and How to Shrink Them

Food cost is a key ratio to the profitability of any restaurant as it impacts your bottom line as much if not more than labor costs.  Most profitable costs generate typically between 30%-40% in food costs.  Put that together with rising labor costs, these expenses take out a huge portion of your overall sales.  Because of its impact, food cost is one of the first things that should be examined when improving the ultimate profitability of your restaurant.

However, many restaurant operators do not calculate food costs correctly.  A big reason for this is it’s difficult to keep up with prices that are constantly changing.  The mahi mahi you special ordered at $6.00 a pound comes in at $6.50--did anyone catch it? Foam cups are a petroleum-based product, so they mirror gas prices.  The chef spends all morning getting the lunch specials prepared, punched into the POS and prepping the wait staff, yet makes up a price off the top of his head. In order for the sales and cost data to be valuable, obviously the numbers must be accurate.

This is why we recommend taking this calculation process away from chefs and restaurant managers and implementing a system proven to accurately calculate food costs.  After all, when Ray Kroc started McDonald's, his goal was not to have the best hamburger in town, just the best system, which is why McDonald’s runs e*Restaurant today.

E*Restaurant works in every food service operation: fine dining, fast food, quick service, college/university, and even healthcare. Contact us to find out how we can help your restaurant improve profitability and put you ahead of the competition.

Restaurant Forecasting: The Why and How

Restaurant Forecasting allows restaurant owners to prepare for sales increases and slumps.

Just as weather forecasting can let you know if you need an umbrella when you leave the house, sales forecasting can help you better determine whether your business outlook is a sunny or dreary one. While sales forecasts are merely predictions of likely sales and offer no guarantees, many business owners, including restaurant owners, use sales forecasts to better anticipate needs and order products as well as identifying potential problems they may need to remedy.

Existing Business Calculations

• Some restaurant patrons return to the same establishments week after week, unable to get enough of the tasty treats on the menus. Restaurants that have these repeat customers can use retention statistics to determine the likelihood that these die-hard patrons will continue to frequent the restaurant. To engage in this type of forecasting, restaurants must identify and monitor repeat customers and chart their visits, identifying patterns. If they discover patterns, for example, if the restaurant notices that some frequent customers visit more often during cold-weather months, they can use this information for forecasting purposes.

Growth Indications

• Up-and-coming restaurants often use growth statistics to better forecast their future sales. To determine growth statistics, restaurant owners must monitor their sales and complete calculations, determining how much their sales increase each month. If they notice a relatively consistent pattern of increase, for example, if the sales appear to grow 5 percent each month, the restaurant owner can use this growth as a standard, assuming the same growth for subsequent months and projecting several months into the future with this figure.

Seasonal History

• Because the weather has an impact on consumers' appetites, restaurants often experience changes in sales as the seasons shifts. A restaurant that offers belly-busting comfort food may, for instance, lose some customers come warmer weather as many consumers shift their focus to dieting and fitting into their skin-baring summer clothes. By reviewing sales data from the same season of the year prior, restaurants can better anticipate weather-related sales shifts.

All of this information may seem common sense, but it can be overwhelming for a manager or owner to be able to not only collect  data, but be able to analyze it and make the most profitable decisions.  There are however software solutions that have proven to be extremely accurate in forecasting sales data, and provide the most profitable labor and food prep recommendations for your restaurant.

Restaurant Scheduler Software –Is it Worth it?

Should you pay for restaurant scheduler software even though Excel is getting the job done?  If you are one of the thousands of restaurants that have been using Excel for years, you know it does exactly what you need it to.  So why fork out all the extra dough to implement and train your staff on restaurant scheduler software?  Is it worth it?

1. Savings through Faster Scheduling

Let’s do the math. Some managers with 50 employees may spend 6 hours making and maintaining an employee schedule. At say, a modest $10/hour, this is 60 bucks a week, times 52 weeks is $3,120/year. A restaurant scheduler's cost at $10/hour making a schedule in 1.2 hours/week (1.2 hours is based on current customer feedback) is $12/week times 52 weeks, totaling $624/year.  What if your scheduler is salaried? By using a restaurant scheduling software and communications package, they now have almost 250 more hours a year to focus on running the restaurant, ensuring customer satisfaction, and planning for the future.

2. Lowering Overtime Costs

With 50 employees, it can be hard enough to figure out a schedule that satisfies employee availabilities, requests for time off, and the restaurant’s needs. So unfortunately reducing overtime costs becomes more difficult. When using the right restaurant shirt scheduling software, customers have seen up to a 30% reduction in overtime costs. Say you average 20 hours of overtime a week and you pay an extra $4.75/hour for this. Over a year, overtime would cost $4,940. Using this example, a restaurant scheduling software saves $1,482/year.

3. Enhancing Communication and Retention

When schedules or important information is sent to employees by email, text messaging, and is available over the Internet, time is saved and communication is greatly enhanced. Better yet, employees do not have to call in or wait until their next shift to see their schedule. Your working employees are not disrupted to go check someone’s schedule.

The benefits don’t stop here. Employees can communicate their availability and find replacements swiftly and easily. Through the approval process, the shift manager controls the schedule so that a balance is maintained between employee and business needs. Tentative approval gives managers flexibility without risk. Additionally, by accommodating employee preferences, your employees feel they are being treated fairly, which results in employee satisfaction and retention.

4. Streamlining Customer Service

When employees receive emails and text messages with their section and shift, they are less likely to forget or get confused about when they are working. They come to work confident, ready to concentrate on customer service. The shift manager can concentrate on customer service instead of making scheduling and section assignments on the floor. Customers receive a smoother and consistent service because there is less scrambling.

5. Maintaining Management Coverage

If your scheduling manager becomes unavailable and schedules need to be made or maintained, using a restaurant scheduling software makes it easy for another manager to step in without missing a beat.

At the end of the day you have to do what is right for your restaurant. If the cost savings and intangible benefits sound like they will help your current situation, than it seems a restaurant scheduler is the way to go.

Restaurant Supply Chain Management

Managing a restaurant supply chain using spreadsheets, paper invoices, and/or multiple electronic systems can cause staggering monetary losses that may remain almost invisible. How? Restaurant supply chain management is a complex process, individual losses are small and can occur at many different points, and without an integrated system the timely tracking of these inefficiencies is almost impossible. It’s like a miles-long oil pipeline which can only be serviced on foot, that’s leaking from many tiny holes. Non-integrated systems also make it hard to be responsive to food quality and safety issues, both critical to ongoing success.  An integrated approach that ties the back office system to the supply chain solution has wide ranging benefits, and enforces order and accountability across the enterprise.

It Pays to Integrate

In a company that does $50 million in annual sales, a supply chain automated with the proper software can mean savings of $500k - $2 million or more… every year.

The Problem

To illustrate the complexity of managing a supply chain without an integrated solution, let’s see how that approach affects a simple hot dog stand. The stand owner has a supply chain process to deal with, and must answer important questions every day:

• Plan for Purchases

What should I offer my customers?

How much am I likely to sell?

What will I need to buy?

Who will I get it from?

• Buy Goods and Services

Which vendors offer what I need?

What is the pricing for each of the vendors?

Which vendors are most reliable?

• Take Delivery

Is this what I ordered?

Is the quality acceptable?

Is this what I agreed to pay?

Is the service acceptable?

• Troubleshoot Problems

Why am I running short of these items?

Why am I wasting so much of this item?

Why is this order late or missing?

The process is complicated, but the hot dog stand owner has three critical advantages:

1.  A simple menu.

2.  One person makes all the business decisions.

3.  One person has visibility into all aspects of the operation.

But take this approach and apply it to a restaurant chain managing hundreds of products across dozens of markets, and it becomes substantially more difficult to execute efficiently, due to 2 main factors:

1.  Multiple people are involved in the process, but none have visibility to every part of the system, making truly informed decisions a challenge.

2.  Tracking inventory from the negotiation stage to procurement, delivery, and on through use, in real time, is almost impossible. Proper cost control is daunting.

The Specific Problems for a Restaurant Supply Chain

Following are typical problems in a restaurant supply chain managed without an integrated software solution:

1.  Accurate sales forecasts based on historical data and current trends are difficult and time-consuming to generate, which leads to under-ordering (and unhappy customers) or over-ordering (and increased waste).

2.  Prices paid for goods may be too high, due to:

Problems “normalizing” prices during vendor price comparison (i.e. one vendor sells by the pound, the next by the case). Spreadsheets offer a poor vehicle for comparing the cost of various items from multiple vendors, creating a time-sink of data entry and manual formatting.

A lack of centralized control of order guides and approved vendors, allowing restaurants to engage in unauthorized spending at non-negotiated pricing.

Ordering outside of business rules (e.g. below minimum quantities) may trigger premium pricing.

Orders may include unapproved vendor substitutions at higher costs.

3.  Menus may be unprofitable due to inaccurate or non-existent cost-modeling, whether for LTOs or everyday items. Any item with poor margins that’s sold 500 times a day will crush a bottom line; poor margins should never come as a surprise.

4.  Manual ordering and receiving generates reams of paper and mistakes.

It makes comparing orders and invoices to their underlying negotiated contracts so difficult that many companies skip the process altogether. Contract non-compliance is a major source of lost cash.

It wastes an enormous amount of managers’ time, virtually every day.

Data should never be entered twice, as it dramatically increases errors; for example, orders shouldn’t be placed via a vendor phone, FAX or website, and also entered into a back office system.

5.  Without an easy, centralized way to give feedback on the quality of food delivered, and the service during the delivery, there’s no way to correct poor vendor performance.

6.  Manual maintenance of allergen and nutritional information is tedious at best.

Historically the problems above were so pervasive, and so expensive, that ultimately they led to the creation of the integrated supply chain software industry! In our work with some of the world’s  great brands, the implementation of integrated supply chain solutions has resulted in savings of 1% to 5% of sales. In a company that does $50 million in annual sales, a supply chain automated with the proper software can mean savings of $500k - $2 million or more… every year.

10 Requirements of an Integrated Restaurant Supply Chain Solution

The following features and functions can generate substantial savings and solve the problems outlined above; they are requirements on a truly integrated supply chain solution:

1.  Menu engineering functions for recipe modeling, where the effects of ingredient cost changes, substitutions, and usage amounts can be predicted. A recipe’s profitability must be determined before rollout, eliminating costly trial and error.

2.  Powerful forecasting tools should enable the delivery of just enough inventory, just in time, and should make it easy to incorporate adjustments for LTOs, weather, holidays and events. Forecasting should also link to labor scheduling, and the best tools will allow forecasts to be specified by sales dollars, guest counts, dine-in vs. takeout, and more; flexibility means accuracy, and accuracy means profits.

3.  Vendor bid analysis that enables easy comparison of “normalized” prices (all prices are converted to a single unit, e.g. per pound, or per case) for a given item, across multiple vendors in multiple markets, ensuring a competitive price in every location. For maximum savings, comparisons must be generated easily for every item- virtually impossible for manual systems.

4.  Ordering should be fully optimized. The system should generate accurate suggested-orders based on sophisticated forecasts, to save time and reduce costs. It should also generate automated alerts when an order quantity outside normal limits is entered, avoiding potentially expensive mistakes. A best practice is to enter the order in only one system, and not in both the back office system and a vendor’s web site; the system must provide for data entry at a single point.

5.  Receiving must be possible “by exception” (where only inaccurate quantities must be noted), saving managers substantial amounts of time on every delivery.  The ability to do three-way-match between the order, an electronic invoice, and the physical receipt of goods has benefits across the enterprise.

6.  Built-in and updatable nutrition and allergen databases are needed to safeguard customers and help meet regulatory requirements, a process that is unwieldy at best in a manual system.

7.  Centralized order guides for vendors must be controllable at the corporate level, and limit what (and from whom) restaurants can order, preventing rogue spending at non-negotiated pricing.

8.  Manufacturer Lots should be tracked in the system from purchase through use, enabling rapid response to recalls and other food safety issues, and protecting both the customer and the company.

9.  Vendor score-carding should be possible through a centralized database for recording and sharing information quickly among restaurants and the corporate office. Fill ratios, damaged goods reports, and the service quality of delivery people should be visible to all, helping to eliminate problem vendors, increasing accountability across the enterprise, and reducing wasted time and money.

10. The system should generate automated credit alerts when invoice price exceeds contracted price, so loss recovery is automatic. Not only are costs recovered that would otherwise be lost, but inventory costs at the restaurants will be far more accurate, making better food cost control possible.