Price controls pay dividends

Price controls pay dividends

The good news is that the price of many foods has come down over the past year. The bad news is that some restaurants are seeing their customer counts come down, too. Others are seeing check averages fall, and many are seeing both.

As sales drop, already-thin margins are becoming thinner and watching every penny is growing more crucial. One area of intense scrutiny with a direct impact on the bottom line is food costs.

Restaurateurs are reducing food costs both by getting back to basics—including clamping down on waste, repurposing trim and costing their items carefully—and employing some creativity. Along with taking advantage of the economic environment to renegotiate prices with suppliers, operators also are using more sophisticated menu-engineering techniques and making use of the latest inventory technologies.

Even relatively small food cost savings can have a notable effect, says Clement Ojugo, West Coast financial controller for the Delaware North Cos. [3] and author of the book “Practical Food & Beverage Cost Control.”

Assuming a 5-percent profit margin at a restaurant—roughly the industry average—Ojugo points out: “If you save $2,000 in purchasing, that goes right to your bottom line. But you would have to generate $40,000 in sales to make that in profit.”

The challenge of growing profit is exacerbated further at the moment by heightened price sensitivity on the part of customers, says Jahn Kirchoff, who owns the three-unit Deli Lane Cafe & Tavern in South Florida as well as Sunset Tavern in South Miami, Fla.

“I haven’t had a menu [price] increase in four years, and I just can’t do it now with the economy the way it is,” Kirchoff says.

But specials represent a different opportunity, he notes. Kirchoff makes money through the four to five specials he offers at lunch and dinner.

Although his customers would react negatively to hikes in the menu items they have been ordering for years, they have no preconceived notions of what specials should cost, “and those I can place anywhere I want [pricewise],” he says.

Most of his lunch sandwiches are in the $7.95 to $9.95 price range, but if he offers beef or seafood specials, he can charge closer to $12 for them, at a food cost of around 25 percent, instead of his normal 30 percent cost.

“If we do 800 covers in a day and we can do 100 specials, that takes care of a lot,” he says.

To encourage servers to sell specials, he holds weekly contests. Whoever sells the most specials wins something like a gift certificate, a bottle of wine or tickets to a football game.

Joel Bolden, manager of Delicatessen, a restaurant in New York City’s SoHo neighborhood, also uses sales contests to encourage front-of-the-house staff to sell select items, but he also explains to the staff how much waste can cost.

“We try to educate the staff on a daily basis [about] what goes to the bottom line,” he says. “I have no problem showing them a P&L.”

Delicatessen’s chef, Michael Ferraro, agrees and keeps his cooks informed.

“They understand the dollar amount of getting an extra portion out of a fish,” Ferraro says.

He has also cut deals with his purveyors to include him in rebate programs if he pays his bills early.

“If I guarantee a check within 10 days [of delivery], I get a 3-percent rebate,” he says. “That saves me two points right there, and I didn’t even have to do anything.

“Purveyors are definitely willing to work with you, and if they’re not, I’m not even giving them the time of day,” he says. “Everyone’s bending a little bit now and helping one another out, and I’m really loyal to the guys who have been loyal to me.”

Linda Addy, general manager of Salty’s on the Columbia [4] in Portland, Ore., agrees.

“We have had some vendors say, ‘Name your price,’” she says.

Barring that, she says, she lets her suppliers know they are competing with one another, and that whoever gives them the lowest bid with the best quality gets their business.

In addition, she and the management at the other two Salty’s restaurants, in the Seattle area, now work harder to consolidate their purchases.

“We are joining efforts to see how we can group-buy on some bulk items to drive down costs,” she says.

Many operators say the key to managing food cost is to measure it accurately.

Ojugo of Delaware North stresses the importance of measuring everything, making sure whoever is receiving product has a properly calibrated scale, making sure storage temperatures are accurate so food doesn’t spoil, making sure menu items are being made according to specifications and monitoring front-of-the-house staff.

“Anything that’s cooked must be rung up and not put in servers’ pockets,” he says. “This is common in this type of economy.”

Ojugo also revisits his menus every three months to re-evaluate costs and move menu items around as their food cost gets worse—de-emphasizing strawberries during the winter, for example.

He reviews financial statements weekly to check for anything that might be out of order.

“We don’t wait until the end of the month to see what happened,” he says.

Will Regan takes monitoring several steps further. The founder and chief executive of 3Sixty Hospitality [5], which operates Lotus, The Double Seven and Los Dados [6] in New York City, uses an inventory system plugged into the restaurants’ point-of-sale systems that keeps track of everything that’s supposed to go into every dish that’s ordered. The recipes for those dishes are programmed into the system and are subtracted from the inventory when those items are ordered.

The cost of the food being ordered is constantly updated in the system, too, “so if you have 40 menu items that use potatoes, as the price of potatoes change, immediately the cost of all those menu items changes,” he says.

Rather than relying on industry benchmarks for cost, each Monday they compare the theoretical cost of goods—what the computer says it should have cost—with the actual cost.

“If the variance is off by more than a point and a half, we have a problem,” he says—either the cooks aren’t following the recipes or something’s being stolen.

He says the system would work at most restaurants.

“If you were to go to some four-star restaurant that has a $300 prix-fixe dinner and the chef uses whatever item comes in from the [farmers] market that day, it’s almost impossible, but for the great majority of restaurants, it’s really not that complicated,” he says.

Even with specials, most chefs have 80 or fewer dishes that they rotate on their roster.

“So they catalog the usual specials and we activate them [in the computer system] when they run them,” Regan says.

Kevin Boehm, owner of Perennial [7] and BOKA restaurants [8] in Chicago, has a similar approach.

“When chefs do a tasting for a dish, it comes with a pricing sheet, and we assess a value to each dish, which goes to our product mix,” he says. “At the end of the month, we know how much we should have spent on food.”

If they’re more than 2 percent off, he says the problem could be in five areas: theft, spoilage, failure to follow the recipes, failure to get an anticipated yield from a product or bad product mix—which is to say that the high-cost items are selling better than the low-cost ones.

Then it’s up to the restaurateur to determine where the mistakes are occurring and to fix them.

Jon Bloostein, owner of the six-unit Heartland Brewery [9] in New York City, recently installed a software system and flow meters on all of his taps.

“They literally measure every single ounce of beer that goes out and reports it back to the database,” he says.

They get a report of every beer at every unit indicating the variance, in ounces and percentage, of what should have been poured and what was poured.

“A 2-percent variance is good; if it’s 15 percent, you better start troubleshooting,” he says.

Problems could include use of beer in cooking, extra-foamy beer, a private party that was not measured and other factors. If it’s a problem at one tap, theft could be the issue.

“It makes the management and the bar staff much more conscientious,” Bloostein says.

The result: The company has gone from a variance of between 13 percent or 14 percent to one of 4 percent to 5 percent.

Many chefs say they can save money by using better products, particularly seasonal items.

“When you use things in season, they’re plentiful and cheaper,” says Eric Hara, chef at The Oak Room [10] in New York City.

Carlos Jorge, chef of Solu at the Resort on Singer Island in West Palm Beach, Fla., says seasonal items are where the interests of the chef and bookkeeper converge.

“My overriding concern is always the bottom line, and using the seasonality of ingredients is the best way to go from plate presentation to flavor profiles to pricing,” he says. “You get such a greater yield, product and price.”

Jorge also advocates “knowing what your guests want, analyzing the living daylights out of it, and producing based on expected business levels and guest preferences.”

He says he uses old-fashioned comment cards to find out what his customers want. That and inventory.

“If something’s moving well, maybe you can bump the price up, but if it isn’t, I’ve got to get that extra mise en place off the menu,” Jorge says.

Working at a hotel, Jorge also is cognizant of the 260 employees that he has to feed every day.

“We get a food credit of 25 cents per hour worked per employee,” he says. “If we offer them lobster and filet, obviously we’re going to run over, but in a luxury hotel you’re not going to give them mac and cheese and frozen lasagna.”

But by cross-utilizing leftover banquet meals in the cafeteria, he can offset that.

Chef David Paul Johnson, whose new restaurant, David Paul’s Island Grill, is scheduled to open this month on the Hawaiian island of Maui, says one of the best ways to see what’s being wasted is to look in his own garbage.

“That tells the entire story of what has happened in my kitchen,” he says. “It only takes one minute to purée tomato tops and bottoms with some garlic and herbs to create a tomato water reduction that can be served with a fresh piece of fish or used to enhance a delicate risotto,” he says.

“There is no shame in looking in the garbage. It’s a bigger shame to throw away food that could be used to feed someone.” — [email protected] [11]