Saturday, January 12, 2013

7 Tips for Restaurant Financial Survival

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. 

If your company is determined to survive these economic times then start building management team(s) bring new resources on board.  It's Your Money...besides, your competition did all this last year.   

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:  Connect on LinkedIn.