Serving up savings
Purchasing consultants can cut food costs
Gregory M. Thomas, founder of CFO Partners Inc.
Specialized consultants with extensive foodservice experience can help small and mid-sized restaurant groups find new ways to control their costs.
Meals we enjoy when dining out reflect countless decisions great and small.
Operators, too, consider quality, consistency, value, availability and other variables to create selections that fit their dining concept, their price level and that fill tables. Even in the electronic age, there's no automatic shortcut to a restaurant purchasing formula that separates success from struggle.
The struggle is tougher as rising food costs create intense price pressure. Beef, chicken and other commodities have climbed more than 7 percent over the past year. With customer counts down as families also are squeezed by the current economy, fast-casual and casual-restaurant operators shy away from significant menu repricing.
What can change is how food and other high-turnover products are purchased. Specialized guides help small- and mid-size restaurant groups repair profit erosion.
These independent consultants function as an external purchasing department and bring significant savings within months by spotting opportunities to change product specifications, vendor contracts, distributor relationships and other supply chain mechanics in ways that are invisible to customers but vividly visible on the bottom line.
Clients typically see savings in the next quarter and can cut costs by 1 percent to 3 percent of total sales. That adds up to at least $200,000 a year in cost savings for a $20-million group – achieved for an average annual consulting fee of $50,000, which pays for itself in three or four months. And the yearly rate typically remains stable even if units are added during the contract term. Procurement outsourcing brings the same type of expertise, efficiency and innovation as other outsourcing. The basic approaches and advantages are similar whether the process being re-engineered involves restaurant food, IT services or accounting.
Until recent years, independent restaurant chains generally were unaware of this solution. It gains converts because of two basic business facts: When companies use exclusive distributors, there is no incentive to lower costs. And purchasing clout is diluted when they use multiple distributors.
Smarter supply-chain management shifts that imbalance. Restaurant groups with 10 to 30 units are ideally suited to take advantage of industry-wide purchasing experience and proven best practices.
Purchasing consultants start with a comprehensive assessment of suppliers, product specs, product use patterns and vendor contracts to develop a detailed cost analysis and strategies for savings.
The main gain comes from assuring that precisely correct items are ordered. Advisers look closely at item usage, flavor profiles, grading, size, growing or packing locations and other details to spot ways to tweak specs without affecting quality. Most operators don't analyze product use that closely, and many don't know what their long-standing food specs say.
Targeting heavily used staples gains immediate traction because 10 to 15 items account for 80 percent of purchases by most groups. Later-stage savings may involve cleaning chemicals, smallwares and other operating supplies – such as paper products – though edibles never move off the front burner. Food, beverage and paper costs typically exceed 30 percent of sales.
Results also flow from exploring new vendors, soliciting manufacturer bids or renegotiating the distributor relationship. Mid-size groups with substantial volume in certain key items can qualify for direct-purchase contracts with manufacturers that lock in prices for a period of time, eliminating a middleman markup and using the former supplier only for warehousing and distribution.
As client watchdogs, consultants negotiate discounts, assure that distributor errors are not passed along and apply rebate management controls so end users pay a fully transparent price. An advocate also may secure beneficial contract terms, such as more frequent deliveries without surcharges.
Overall, the biggest bang comes from establishing or reworking product specifications to adjust quality grades, sizes and packaging in ways that slice hundreds of dollars from invoices without noticeable impact on taste, appearance or appeal.
What really matters?
Some operators fear guests may detect a change and dine elsewhere. But owners can greatly overestimate the impact of product tweaks, as shown by the experience of a fast-casual group with five units in the Southeast. Its switch to a lower-level brand of turkey product, the signature item, saved $100,000 each year without eroding customer counts.
Another operator significantly cut paper costs and raised the brand image by changing from prepackaged plastic utensils back to silverware.
"Know your customers," a mantra in any field, comes into play when balancing product grade levels with market-segment sensibilities. Operators should consider whether guests recognize and want premium quality. Are they paying specifically for top-shelf fare such as Certified Angus Beef or are they coming mainly because of ambiance, selection, location, reputation and other factors?
Once that reality-check is performed, procurement advisors assure that restaurants get precisely what they want and don't pay for more than is needed. This is an ongoing process, not a short-term overhaul. Fluid markets mean food and beverage products must be reviewed periodically and evaluated alongside new items.
Bottom line: Informed buying decisions create sizable savings.
Buck-trimming stops here
The key word is "decisions," which stay right where they always were. Advisers advise so owners can act. Operators still determine what's sacred and what's touchable in terms of quality, portions and sources.
As client allies, the most effective purchasing partners provide objective recommendations unconnected to sales. They have an arm's-length relationship with manufacturers and distributors, who don't pay commissions or incentives for generating business.
As part of their responsibilities, these guardians of client interests may randomly audit unit invoices to spot overcharges for substitutions or unauthorized deliveries.
By monitoring commodity markets and distributor pricing, consultants see when it's wise to delay or accelerate certain bulk orders. Groups able to purchase by the train carload can avoid weekly or monthly price fluctuations for fresh items through contracts with growers or processors.
Gregory M. Thomas is the founder of CFO Partners Inc., a Michigan-based company with experience in the fast-casual and casual restaurant segments. He can be reached at email@example.com.