Restaurant Chain CFO's and Purchasing Officers are on the front-line of developing strategies to meet tighter budget demands.
The benefits of implementing a best practices process in finance and procurement are considerable, but requires a deep and broad knowledge of the food supply-chain, restaurant menu management, commodity buying and access to company-wide spend analytics. If resources are not in your restaurant "tool-belt" it's time to seek third-party support.
7-tips to Emerging Restaurant Chains for financial survival
1 Expect the Unexpected - volatile commodity markets and reduced supplier inventory make this a brave new supply world. Track food cost basis points monthly by line item and purchase category; poultry may be down 4%, while wings increased .45 lb.
Don’t allow your menu guru or purchasing director to single source an item if they can't obtain a firm price (no change) for terms of 90 days or more. Competition drives lower pricing even in tight markets.
2 Manage "Gap" Pricing - if you operate in multiple markets, try to close the pricing gap between your highest and lowest prices for same item. Most chains save 2% to 5% by just comparing weekly prices on produce, bread and eggs within their own supply-chain. Negotiate everything back to the best price demonstrated in your system.
3 Distribution Fees - develop an RFP (bid) for distribution. Margins and case fees are actually on the decline in this economy, sub-10% margins and $2.00 per case fees are now common. Remember to negotiate based on dollar drops, keeping in mind that distributors see a dollar sign on your head reading; Gross Profit Margin per delivery. Make sure your program limits per delivery profits to $165. Hint: When did you last authorize a external warehouse distribution audit?
4 Spend Management - use cost-reduction specialists like Strategic Purchasing Services (SPS) to develop containment strategies, chart commodities futures prices and review your product specifications. A "fresh eyes approach will save thousands; and the project can be completed within 120 days.
5 Profit-From-Promotions - this is your 3 foot "tap-in" at the golf course - money in the bank! Don't blow it by selling higher priced products that don't give your bottom-line a boost. Our firm sources #1 overstocks at prices 40% below discounted retail pricing. Product values are out there - but you have to work harder to find them.
6 Financial Transparency - Now is NOT the time to keep the falling P&L away from the C-Staff. Let them help isolate key products that are hurting your profit margins (cost, labor, low sales, over-portioned) and get those"dogs" off your menu.
We encourage you to form cost-reduction teams, or "think-tanks" with representatives from purchasing, operations and marketing. Invite purchasing consultants and distribution executives to a few meeting, sparks lead to new ideas and bankable savings.
7 Leverage Every Dollar - join a buying groups (GPO’s) to help with low-volume item purchasing and to generate rebate income. If you don't have a commodity buying expert on staff, rent one...there are a number of highly respected third-party services like; American Restaurant Association (ARA) , Strategic Purchasing Services (SPS), Creative Purchasing Solutions and Axis Purchasing; proven resources to reduce protein costs and drive profits to your bottom-line.
To Higher Profits!
Fred Favole is President of Strategic Purchasing Services (SPS), a firm specializing in outsourcing, commodity contracting and advanced rebate recovery. His contact information: Office 912.634.0030 E-mail: Fred@StrategicPurchasingServices.com Connect on LinkedIn.