Have you noticed your distributor invoices lately? Prices are higher than Lindsay Lohan’s blood-alcohol content on a holiday weekend. Are you scared? Nervous? Worried? Maybe you’d better be.
A quick review:
Cheese and dairy prices are up 15 percent or more. Protein prices are nearly 40 percent higher than they were just two years ago. Corn and frozen potato inventories are scarce and costly. Gasoline is approaching $4 a gallon, adding fuel surcharges to all goods. Labor costs are up 3 percent.
And wait until you get a load of 2008 prices!
So what can we do in a season filled with soaring costs, sagging labor pools, and waves of stress and strain? You have three choices:
Ignorance. You can stick your head in the sand, whistle past the graveyard and take comfort in the familiar fairy tale that things will get better, prices will fall and calm will return if you simply don’t do anything. But this approach will backfire more often than a ’73 Camaro.
Blame. This one’s easy. Blame and berate your distributors for the high price of gasoline, for corn shortages, for dairy and protein prices. How many exasperated conversations have you or your kitchen managers had with your distributors about costs lately? The reality is that suppliers’ margins are lower than a cobra’s belly and they are subject to the same market forces as operators are, including supply, demand, droughts, floods and fuel prices. Still, it’s easier to point a finger than to take responsibility.
Do something. Get real. Discover what customers care about most and give them more of it. Assess every system in place and every process you have relative to purchasing, preparation, people and profit building. Make it better, leaner, smarter, faster. And do it now. Squeeze the last oink out of the pig; cut costs where possible; and raise prices if necessary. It’s not business-as-usual anymore, and the sooner you realize it, the greater the impact you’ll have on your future.
Here are seven tactics to help stem the rising tide of cresting costs:
1. Become more efficient in physical plant layout and design. Study—really study—and then eliminate the throughput, ergonomic and scheduling inefficiencies that impede guest traffic and spike labor costs. For instance, analyze your table configuration. Determine if you’re maximizing customer flow at peak periods. Recent studies indicate that most full-service restaurants could increase sales by as much as 30 percent simply by adding more two-tops and fewer four-tops to their dining room.
Re-examine kitchen space, equipment layout, proximity and design. How much of your back-of-the-house labor dollars are being spent on people walking too far versus working more efficiently?
2. Increase incremental sales. You achieve this two ways: by building guest traffic via better local-store marketing outside of your restaurant to the customers you want and also by building repeat business inside the restaurant via better service for the customers you already have. I’d also suggest that you teach your guest-facing crew how to soft-sell more beverages, sides and desserts.
3. Maximize distributor partnerships. Since nearly 40 percent of your operating costs are related to goods and services provided by suppliers, it stands to reason that an equitable amount of your time should be allocated to managing and improving those relationships. Remember that distributors face the same low margins and cash flow constraints that operators do. To keep your costs in line, pay on time, take advantage of bulk purchasing and choose a maximum of two prime distributors to work with to negotiate better prices.
“Ask your distributor sales reps what tools, resources, or insight they have to help you improve productivity, merchandising or training,” said Pat O’Byrne, a distributor sales representative with Shamrock Foods in Denver. “When you succeed as an operator, we succeed as a supplier.”
4. Learn to say no when you have to. “I’ve made more money by choosing the right things to say no to than by choosing things to say yes to,” said Danny Meyer, owner of the Union Square Hospitality Group in New York. “I measure it by the money I haven’t lost and the quality I haven’t sacrificed.”
5. Maximize retention of the right people. A critical strategy for off-setting soaring costs is to make people your point of difference. Save money by hiring the right people. Choosing the wrong person can cost you three times their annual salary. Hire above the middle and then keep your best people both engaged and challenged.
Make retention of high performers part of your daily routine via self-awareness and introspection. Ask yourself: “How am I keeping my best performers?” Assess your “A” players and then assign each one a color code, such as red, yellow and green, with red meaning high performers most likely to leave. Watch for performance indicators like increased tardiness, sloppy appearance or declining performance. Although routinely overlooked, return on retention, or ROR, is as important a financial measurement as return on investment, or ROI, for any foodservice operator.
6. Tell the crew what to do. And tell them why it must be done. Show the hourly crew specific examples of what has happened cost-wise in the past 12 months, and then brainstorm together the specific areas that they can impact relative to reducing costs and increasing sales. Reinforce the need and the necessary behaviors daily. If you don’t have the whole choir singing from the same page, your efforts are doomed to fail.
7. Raise prices. This cringe-worthy option is a legitimate tactic as long as you are quite certain that you are not overcharging guests because of your own operational inefficiencies or laziness.
Have you been through tough times like this before? Probably. Did you survive? Hopefully. But there’s a sea change of challenges going on now in our industry that’s unlike anything we’ve experienced before. It’s not just higher prices—it’s segment-shifting customer tastes, an uncertain and unsettling global stage, and a potentially crippling human resources churn that just won’t go away.
In my opinion, our industry is facing its greatest financial challenge of the past 15 years, and it’s time to look hard, get focused and take a big swig of reality.
I’ve said it before: Change with the times or the times will change you.