SevenTips for Lean Times

Megan Rowe

Steps you can take nowto tame your operating costs.

By Megan Rowe

The economy may still be chugging forward, but runaway interest rates and energy costs are pecking away at profit margins for restaurant operators in all market segments. Raising menu prices to make up the shortfall is not an option—not when your guests have to be cajoled into venturing out for a meal. The alternative, a little belt tightening, is more viable. Here are some relatively painless ideas you can implement right now.

Be religious about recipe costing.
It seems very, very basic, but figuring out the true costs of preparing a recipe is vital to profitability, and it's a step many busy operators skip. "You have to know what goes into that recipe and how it affects the bottom line," says David Scott Peters, a systems consultant and founder of Smile Button Enterprises in Peoria, AZ. "No item should cross the threshold to the customer if it hasn't been costed out first."

The basic steps include listing all the ingredients, calculating the cost of the yield (how much usable product is left once the ingredients are processed) and determining portion sizes. That will determine the cost of the dish, which will in turn determine the menu price based on the restaurant's targeted food cost percentage.

It also avoids the possibility of taking a loss on a recipe. "Many creative chefs come up with ideas, but they may lose money because the manager says to the kitchen manager, 'How much should we charge for this special?' and he scratches his head and says, '$8.95,'" Peters observes.

Make technology a planning tool.
One location in Bear Rock Cafè's chain of 37 cafes kept failing to bring its operation costs in line with targeted numbers, and management couldn't figure out why. A third-party cost management program, which uses historical data to forecast future staffing and supply needs, helped pinpoint the problem: the opening crew was stealing product.

The main point of the program is not to deter theft, however, but to help owners and managers plan according to expected demand for a specific day. Labor projections are broken into 15-minute units, in and of itself creating efficiencies. "If you have 40 employees in a restaurant, and 15-20 of them on any given day, and you can schedule them in quarter-hour increments, a 15-minute savings times 15-20 can add up pretty quickly," says Bart Carmichael, vice president of operations for the Cary, NC chain.

It also helps establish the right pace for production. "It will tell us how many baked potatoes we sold at 10:00, 11:00 and throughout the day, how many cookies, how much chicken and bread, how much meat we need to slice. It eliminates waste," he adds. It also red flags glitches: In one case, a restaurant was going through too much meat for the number of sandwiches sold; it turns out the meat slicer needed to be sharpened.

Bear Rock Cafè absorbed the cost of creating the original reports and parameters for the program, and each unit pays a monthly fee to use it. Carmichael says the investment pays for itself in the first two to three months. Restaurants have been shaving 2 to 6% on their food costs and 5 to 10% off labor.

Go co-op.
If you're an independent restaurant operator, you're probably not paying the same prices for equipment and supplies as you would if you were part of a larger chain. One way to bulk up your bargaining power is to team up with a buying group.

Dine Originals, a 700-plus-member national organization for independents, recently struck a deal whereby members can purchase food, equipment, furnishings and other items through a central purchasing organization, in this case Marriott's Avendra division. Avendra, as the largest hospitality procurement company, enjoys preferred prices with more vendors than the typical small operator. "Getting the highest quality goods for the fairest price is their bailiwick," says Don Luria, president of Dine Originals and owner of Terra Cotta in Tucson.

Dine Originals members in Houston did a pilot program with Avendra and reported savings of 10%-15% on major equipment purchases and 8% on food. Member Wade Beckman said his restaurants "had total food and non-alcoholic beverage savings on invoices of 6 to 8% off of invoice prices with very little effort." In Columbus, Katzinger's Deli owner Diane Warren said her first purchase of a slicer saved about $400 off the lowest price she could find locally.

Target the top 10.
Focusing on the 10 costliest food items is a great way to start taming expenses. Why just the top 10? "If you're missing a green bell pepper, it's not going to have the same impact as if you are missing a case of heavy cream or a case of fryer oil," says Scott Levine, a former design and operational efficiency consultant who is now corporate director of food and beverage for PM Hospitality Strategies in Washington, DC. Levine suggests creating a list of these items and inventorying them during each shift. "That way, you can monitor what you should have on hand based on what you have sold, versus what you actually have on hand, and check for any variances." Any unexplained shortages can be investigated.

Theft is not always the explanation, either. "No one really steals fryer oil, but maybe you will find out that cooks are not really filtering the oil but instead throwing it away at the end of every-shift," Levine says. "If your fryer oil costs are going through the roof, you can catch the problem very quickly and turn it into a training issue."

Share your space.
Dirk Yeager, owner of the Blue House Cafè in Portland, ME, didn't want to stay open Sundays or evenings, preferring to spend that time with his young family. But he hated to see his restaurant space idle on weekends and evenings.

He approached Dave Mallari, a chef at another local restaurant, about opening the place on Sundays. After doing that for eight months, Mallari—who had dreamed of running his own place, but was not ready to make the capital investment it required—talked with Yeager about starting his own dinner-only operation on the site. The two drew up a lease agreement that covers Yeager's increase in fixed costs and pays him a percentage of Mallari's net sales. So now the property has two personalities: the Blue House Cafè, serving casual breakfast and lunch every day, and Francisco's, serving upscale international fare at dinner, which is open Wednesdays through Saturdays. Mallari got his own place, and Yeager isn't saddled with a chef's salary in the evenings.

The logistics were a little tricky, but Yeager says the arrangement has turned out to be a win-win. Yeager and Mallari found an insurer willing to cover both businesses separately, and they worked out a separate food storage arrangement for both operations. The restaurants cross-promote and share a wait staff. Minor dècor adjustments in the evening, such as rugs and curtains hung on spring-loaded rods, give the same room a different look. Both chefs take time to explain the split to confused guests, who were at little confused at first but are catching on.

Every penny you save will be reflected on your bottom line.

Be a shrewd shopper.
Douglas Robert Brown, author of The Food Service Manager's Guide to Creative Cost Cutting, offers a number of suggestions to improve purchasing:

Stop throwing money out with the trash.
No one really likes to spend too much time thinking about garbage, which is probably why waste management companies have popped up. They promise to do the dirty work for you, and save you money in the process. Arby's has trimmed 10 percent annually from its trash-hauling bill after signing on with Oakleaf Waste Management, and Einstein and Noah Corp. saw savings of 18 percent immediately.

Here's how it works: Oakleaf and other similar companies take a look at your waste management needs, determine the most efficient pickup schedule and container-size for your situation, help you figure out ways to reduce the tonnage (such as recycling) and negotiate with local companies on your behalf. Between those steps and the fact that Oakleaf has more purchasing power than a single restaurant or even a chain, the process can slice the costs of handling your trash an average of 10 to 15 percent. For restaurants, which deal with a lot of heavy waste, that can be a hefty chunk of change.

While many operators would find it very tempting to turn over trash hauling responsibilities to a third party, that's not enough of a motivation for most. Oakleaf and others wouldn't be in business if they didn't produce. "We make money only when we save our clients money," says Gavin Gates, Oakleaf's COO.