It’s no secret that restaurants operate on incredibly thin margins. And if you’re “in the biz”, you surely know that food costs can mean the difference between a profitable restaurant and one that hemorrhages money to a rapid, unglamourous failure. As a general rule, food prices rise approximate 2%, annually, as a result of many different factors: oil prices for transportation, harvest yields, cattle prices, and many others.
Restaurant owners and managers need to be savvy individuals if they’re to keep up with these rising prices without increasing menu prices to compensate. While the restaurant industry — and hospitality industry as a whole — appears to be on the rise, recovering from the “great recession”, the general public is still maintaining frugality in their indulgences, and an overpriced menu will repeatedly lose customers to the competition. This is especially true with the streamlining, simplification, and increasing popularity of online review platforms like Yelp and OpenTable.
So how can a restaurant effectively keep up with these changes, without scaring off their precious clientele?
Cut Waste
Food waste in the first world is out of control, representing $161-billion in losses among restaurants, hotels, and homes. With 40% of all food produced going to waste, effective waste management is the most important (and simplest) way for a restaurant to curtail their food costs and show higher margins. And it all starts with a good chef.
Your executive chef should know how to order appropriate quantities with little waste, and they should be able to make use of scraps and leftovers in specials. Every piece of wasted produce is money out of the restaurant’s profit. As a last resort, leftover and soon-to-be-wasted items can be donated to receive tax credits. Carefully maintain every cent of your inventory, and you’ll see the rewards immediately.
Upcharge Effectively
For substitutions or additions to any dish, there should be an appropriate upcharge. Even simple side or vegetable substitutions impact inventory and take extra time for the cooks to prepare, so a small upcharge is appropriate. Of course, all sides included with dishes should be the least expensive, keeping your costs at the minimum.
Stop Comping
There are restaurants that virtually never comp anything, and there are restaurants that comp hundreds and thousands of dollars every day. Which do you think is the more profitable?
Every comped item is a tick against your profit margin, and an effective front of house team should be able to ensure a successful service without using comps. When errors do occur, make comping a last resort. Instead, offer gift cards, complimentary drinks, or remade dishes.
Source Locally and Seasonally
Locally sourced produce will justify higher menu prices, and if you take the time to shop around, you can even save on your food costs. The farm-to-table movement is in full swing, and using ingredients that are locally abundant and in season can see a major increase in profit.
Negotiate
Are you negotiating the price of your green beans? Or any produce, for that matter? There are restaurant operators who make every effort to cut costs, even if it’s by cents on the pound. Especially if you’re buying large quantities of commodity products you’ll want to make sure you’ve effectively negotiated these prices. These saving will add up over time, and if you do enough volume with distributors, you may have more negotiating power than you realize.
Reconsider Portion Sizes
While this focus tips its hat to cutting waste, it can serve to help the general food waste epidemic while increasing your profit margins. Tapas style menus have seen a surge in popularity, as they allow patrons to carefully order the appropriate amount of food. As a general rule, small plates have a higher profit margin than entrees, and a menu that leverages smaller portions supplemented with sides and appetizers will be more profitable.
Do Your Homework
Most importantly, careful management of inventory, food costs, and current trends is the best way to keep ahead of the game. Money can be saved by looking toward trends in costs and planning menus accordingly. Exhausting your inventory and keeping a close eye on your costs of good sold will ensure that you’re making the best of rising prices. If you know where you’re making and losing money, you know exactly where to focus your efforts to be more successful.
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