How to Lower Costs at Your Restaurant

Whether you’re a QSR, or a fine dining establishment, all restaurants share the same goal – to make more money. If you’re already at capacity, the only way to increase your profits is to grow your margin by shrinking costs. We’re going to take a look at four areas that, if managed properly, can substantially increase your margins. These areas are food cost, ordering, labour, GPO participation along with rebates. Let’s dive right in!

Food Cost

A large source of margin shortfall resides within your food cost. Waste, ingredient costs, and even your menu’s composition could be costing you tens of thousands of dollars each year in lost profits.

Menu Management

The most appropriate place to start looking at when managing your food cost is your menu. Which items are making you money? Which are costing you? By costing out your recipes and calculating how much you’re making or losing on each dish, you’ll find where you can make menu changes to increase or your margins, or remove items entirely. For instance, if all of one dish’s ingredients are costing you, is it worth keeping on your menu? What if it’s just one ingredient in the dish? Are you able to substitute that ingredient for something with lower cost? Or even remove it entirely from the dish?

In some cases, you may have no option to remove this item entirely. Unless it’s a loss leader and generates greater sales of an accompanying item, you’re only throwing money out the window.

Inventory Management

The next step in managing your food cost is ensuring your inventory management is a fine tuned, well-oiled machine. By counting your inventory at regular intervals with accuracy, you’ll be able to not only have enough on hand to cover your customers, but also accurately determine the quantity to be ordered going into your next time period. Without accurate inventories, you may end up ordering too little to meet demand, or going in the opposite direction and ordering far too much, potentially having stock go bad, wasting money and product.

Waste in restaurants can be a large source of lost profits. There can be many sources of waste, from improper prep, to dishes being returned due to not being cooked properly, and even as far as product going bad due to overordering and underusing. By efficiently and effectively managing your inventory, you’ll be able to lower your variances, reduce spoilage and waste, and ultimately keep more of your profits in your pockets.

Ordering

The next step to dealing with your food cost and inventory management comes back to your ordering, and not simply your order size. By looking at your contracts with suppliers, there are cost saving opportunities available in a number of sources.

If you’re asking “What can I negotiate on?”, the answer is “many things”. To start, you can negotiate for better credit terms, or credit terms in general. Perhaps you’re

currently paying on delivery, or net 15 days. By negotiating with your suppliers, you may be able to obtain credit terms that allow you to push payment out further.

Should suppliers refuse to negotiate on credit terms, you may be able to negotiate for better prices, even if you need to purchase in certain amounts, or at specific frequencies. If your suppliers refuse to negotiate on any terms, it may be more advantageous to seek out suppliers that offer better prices, comparable products / ingredients at lower prices, or better credit terms.

All of these options allow you to shift payments or reduce your costs, allowing you to increase your profitability.

Labour

The other largest affectable way to change profitability is to exert greater control over your labour. We’ll look at how you can control your staffing levels, and how proper training can help avoid increased future costs.

By appropriately scheduling staff for shifts and keeping labour hours within reasonable limits, you’ll be able to operate your business effectively while still constraining costs. If you see staff standing around during shifts and not working, you’ll know for the future whether you should be scheduling that number of employees for that day and time period.

As discussed, proper training can help keep your future costs lower. By training employees for a longer period of time, and ensuring procedures are adhered to, you’re less likely to experience staff turnover due to misunderstanding and getting frustrated. In addition to this, if you’d prefer to keep your staff numbers smaller, you may be able to cross-train employees to work in multiple roles. You’ll experience greater upfront costs in training this way, but you’ll have to train less new staff in the future, meaning saving money overall.

Rebates & GPOs

All of the previous recommendations do require some additional work in the beginning to ensure they’re set up properly; however, there are programs that require you to simply register and then go about your operations as usual.

GPOs

For those unfamiliar with Group Purchasing Organizations, or GPOs, they are groups of businesses, especially restaurants in our case, that leverage their collective buying power to secure better pricing when ordering. How do they change your processes? They don’t! You continue to count and order just as your did before, only now you’ll be getting lower prices.

Rebates

Many GPOs will also offer rebates available through various suppliers on a number of items. You need to simply register and order your desired products, and every 3 months or so, you get a cheque with the rebates on your purchases.

The combination of rebates and preferred pricing through GPO contracts allow you to save money without adding additional work. It’s always worth it to search out cost saving opportunities that require little to no time investment.

Conclusion

In conclusion, there are numerous ways to save on your operations, and while some do require additional work, the benefits can be quite extensive. From labour, to food cost, and even saving on ordering, there are ways to maximize your profits. If you have any questions about how these can work for you, don’t hesitate to contact us.