7 Fundamentals for Fighting High Prices and Soaring Costs

Have you noticed your distributor invoices lately? Prices are higher than Lindsey Lohan’s blood-alcohol-content on a holiday weekend. Are you scared? Nervous? Worried? Maybe you’d better be.

By Jim Sullivan

Have you noticed your distributor invoices lately? Prices are higher than Lindsey Lohan’s blood-alcohol-content on a holiday weekend. Are you scared? Nervous? Worried? Maybe you’d better be. A quick review:

  • Cheese and dairy prices up 15% or more
  • Protein prices nearly 40% higher than they were just two years ago
  • Corn and frozen potato inventory scarce and costly
  • Gasoline approaching $4 a gallon adding fuel surcharges to all goods
  • Labor costs up 3%

So what can we do in a season filled with soaring costs, sagging labor pools, and waves of stress and strain? You have 3 choices:

  1. Ignorance. You can stick your head in the sand, whistle past the graveyard, and take comfort in the familiar fairy tale that things will get better, prices will fall, calm will return, if you simply don’t do anything. But this approach will backfire more often than a 73 Camaro,
  2. Blame. This one’s easy. Blame and berate your distributors for the high price of gasoline, for corn shortages, for dairy and protein prices. How many exasperated conversations have you or your kitchen managers had with your distributors about costs lately? The reality is that supplier’s margins are lower than a cobra’s belly and they are subject to the same market forces—including supply, demand, droughts, floods and fuel prices—as operators are. Still, it’s easier to point a finger than to take responsibility, or
  3. Do something. Get real. Assess every system in place and every process you have relative to purchasing, preparation, people, and profit-building. Make it better, leaner, smarter faster and. And do it now. Cut costs where possible and raise prices where necessary. and do something now. It’s not business-as-usual anymore and the sooner you realize it, the greater impact you’ll have on your future. Here’s 7 tactics for overcoming the rising tide of cresting costs:
  1. Become more efficient in physical plant layout and design.

    Study—really study—and then eliminate the throughput, ergonomic and scheduling inefficiencies that impede guest traffic and spike labor costs. For instance, analyze table configuration. Determine if you’re maximizing customer flow at peak periods. Recent studies indicate that most full-service restaurants could increase sales as much as 30% merely by adding more two-tops and fewer four-tops to their dining room. Re-examine kitchen space, equipment layout, proximity and design. How much of your back-of-the-house labor dollars are being spent on people walking too far versus working more efficiently?

  2. Increase incremental sales.

    You achieve this two ways:

    • build new guest traffic via better local store marketing outside your restaurant to the customers you want
    • build repeat business inside the restaurant via better service with the customers you already have. I’d also suggest that your teach your guest-facing crew how to soft-sell more beverages, sides, and desserts every shift
  3. Maximize distributor partnerships.

    Since nearly 40% of your operating costs are related to goods and services provided by suppliers it stands to reason that an equitable amount of your time should be allocated to managing and improving those relationships. Remember that distributors face the same low margins and cash flow constraints that operators do. To keep your costs in line, pay on time, take advantage of bulk purchasing, and choose a maximum of two prime distributors to work with to negotiate better prices. “Ask your distributor sales reps what tools, resources, or insight they have to help you improve productivity, merchandising or training,” says Pat O’Byrne, a DSR with Shamrock Food Company in Denver, CO. “When you succeed as an operator we succeed as a supplier.”

  4. Learn to say no when you have to.

    “I’ve made more money by choosing the right things to say no to than by choosing things to say yes to,” says Danny Meyer, owner of the Union Square Hospitality Group in New York City. “I measure it by the money I haven’t lost and the quality I haven’t sacrificed.”

  5. Maximize retention (of the right people).

    A critical strategy for offsetting soaring costs is to make people your point of difference. Save money by hiring the right people. Choosing the wrong person can cost you three times their annual salary. Hire above the middle and then keep your best people both engaged and challenged. Make retention of high-performers part of your daily routine via self-awareness and introspection. Ask yourself: “How am I keeping my best performers?” Assess your “A” players and then assign each one a color-code (red/yellow/green), with red meaning high-performers most likely to leave. Watch for performance indicators like increased tardiness, sloppy appearance or declining performance. Though routinely overlooked, ROR (return on retention) is as important a financial measurement as ROI (return on investment) for any foodservice operator.

  6. Tell the crew what to do.

    And tell them why it must be done. Show the hourly crew specific examples of what has happened cost-wise in the last 12 months, and then brainstorm together the specific areas that they can impact relative to reducing costs and increasing sales. Reinforce the need and the necessary behaviors daily. If you don’t have the whole choir singing from the same page, your efforts are doomed to failure.

  7. Raise prices.

    This cringe-worthy option is a legitimate tactic as long as you are absolutely certain that you are not over-charging guests because of your own operational inefficiencies or laziness.

Have you been through tough times like this before? Probably. Did you survive? Hopefully. But there’s a sea change of challenges going on now in our industry that’s unlike anything we’ve experienced before. It’s not just higher prices, it’s segment-shifting customer tastes, an uncertain and unsettling global stage and a potentially crippling human resources churn that just won’t go away. In my opinion, our industry is facing its greatest financial challenge of the last 15 years and it’s time to look hard, get focused and take a big swig of reality. But I’ve said it before: change with the times or the times will change you.