Sponsored by Cost Reduction Management - CRM
Surprisingly, many restaurant operators don’t consider the cost of goods as the primary factor in food cost. Waste, over portioning, theft and poor menu pricing are often the first culprits operators cite.
While these issues can be contributing factors, if you are running a good operation the biggest impact on food cost is the prices your suppliers charge.
Since most operators rely on their distributors to verify prices and honor all of their contracts, a food-cost spike is usually an indicator that something is wrong.
How confident are you that your suppliers are always charging correct prices and delivering your specified products?
Expecting your suppliers to self-audit creates a “fox guarding the hen house” scenario that can add cost to your purchases.
In a typical restaurant, 4 percent in added cost-of-goods expense translates to food-cost increases of more than 1 percent.
It’s not just improperly calculated prices that add cost. Inbound freight is a significant contributor. Since freight is usually managed by your distributor and is a distributor profit center, how certain are you that your freight costs are as low as they can be?
Purchasing personnel are far too busy with purchasing to become experts at distributor price verification. Even if they possess the background knowledge, the sheer volume of data makes a detailed audit difficult if not impossible.
“My purchasing responsibilities for close to 400 restaurants require a lot of time and focus,” says Mike Rosen, senior director of purchasing and R&D for Villa Restaurant Group. “I am also responsible for monthly price verification of the 12 distribution centers that deliver to our units. I chose to outsource that function. I get price verification and the product data I need to negotiate with my manufacturers.”
Major chains with well-staffed purchasing departments face similar challenges managing distributor price verification and freight costs.
“Back in 1980s & '90s Applebee’s had hundreds of restaurants,” says Bill Palmer, founder of Applebee’s Neighborhood Grill & Bar. “We had a corporate purchasing staff that did a great job of sourcing products and negotiating great FOB [freight on board] pricing. Even with that support, I saw value in having a company focus on my distribution program. We hired a company to manage inbound freight, negotiate distribution markups and verify our distributor prices each month. Even though the distributor knew the invoices were being audited, mistakes were discovered and we received credits every month.
There are a number of options to consider in determining what company can offer you the best results.
Get references and contact those references. Talking to someone with the same challenges you face can add insight.
Take advantage of any free analysis the competing companies offer. This will at least let you know what they offer and can provide a look at how much money is on the table.
Regardless of your final decision, one thing is certain: Continuing to expect your distributor to self-audit is costing you a lot of money over the course of the year.
Take the time to investigate what a successful system can do to improve your overall profitability and fatten up your bottom line!