Each month our CEO, Bill Jones, will take a deep dive into a topic of his choosing. He’s got thoughts, tips, and things to watch out for – all designed to help you out. This week he discusses food cost control and the ultimate causes of high food cost in the restaurant industry.
Hello –
I hope these blog entries will be interesting to you. As CEO of Orderly, I get to talk with a lot of independent restaurant operators and review a ton of data coming from their restaurants. Occasionally, an interesting perspective will emerge, and I will try to share with you as briefly as possible. So, here goes…
The most head-scratching thing I encounter is both the absolute conviction from many restaurant operators that they are throwing away money on their food purchasing, while at the same time these same operators will consistently fail to prioritize their food cost control efforts.
- Would you run a restaurant without an accounting system? No.
- Would you run a restaurant without a Point-of-Sale system? No.
- Would you run a restaurant without a Point-of-Spend system? A what?
While thousands of dollars are spent in your restaurant every week on food and supplies, virtually no independent restaurant operators have a system in place to track that spend and look for opportunities to save.
It just doesn’t make sense. Especially considering that every dollar you save from smarter expense management hits your wallet.
Almost no one nowadays would consider driving your car without a seat belt on. We’ve all learned that seatbelts save lives all the time. And it’s simple. Can you drive without buckling up? Sure, but it seems like a really, really bad idea.
Running a restaurant without a system to manage all of the money streaming out of your bank account on food is sort of like that – a really, really bad idea. It’s important to understand the causes of high food cost, and ultimately, how to reduce food cost in your restaurant.
I’m not accusing anyone of bad behavior, but we all know suppliers are running their business to maximize their profits – just like you are too. If they know you aren’t watching and they need to make a little more profit this week, then what keeps that ever dynamic price of your ingredients from inching up every so often?
Likewise, while your chef isn’t trying to waste your money, rounding up on all orders is often easier than really thinking hard about quantities (or lower cost suppliers).
About 60% of our prospective customers do not have an up-to-date spreadsheet of their ingredients. That tells me that they are running their ship blindfolded.
The reason, I’m convinced, is that it is simply too big of a pain to create and maintain this list. The list itself doesn’t solve any questions by itself, so it’s all pain, no gain. Therefore, they never get to the part where they can start getting benefits. So the question on how to control food cost gets muddled.
All “textbooks” will say you have to take a full inventory. Think the list is fun…try counting everything. And then, you still aren’t there. The payoff comes only after you have counted everything the second time, at a consistent interval from the first time. Then, add up all your food purchases (remember to categorize your spend) and do the math.
If I ran a restaurant, I think I too might be one of the blindfolded operators winging it. Seriously, after talking to so many operators, I really feel that pain.
That’s why I called this the easiest, hardest, most important thing for restaurant operators.
Easiest – Even a little effective food cost control and management, you can generate thousands of extra dollars of profit. Way easier than selling more cheeseburgers.
Hardest – The way inventory management is traditionally done is often a frustrating, mind-numbingly detailed exercise that yields dubious results.
Most Important – Stop focusing solely on inventory. The most important metric to your business is your COGS. It’s really more like a seatbelt. It can save you. So, buckle up!
– Bill
