While the commodities outlook for the industry is projected to remain largely favorable throughout 2016, foodservice operators working on extremely thin profit margins must continue to carefully monitor their food costs.
For several years menumakers have struggled with soaring commodity prices fueled by international demand, a weak dollar and a lengthy drought which among other things helped drive beef to historically high levels. The price of eggs, turkey and, to a lesser extent, chicken also was impacted by an outbreak of the avian flu.
Last year, however, the commodities outlook began to brighten, driven by rebounding feed crops, the slow but steady growth of herds and the rebuilding of stocks by poultry breeders. As a result, operators across the industry began to breathe a collective sigh of relief.
According to B. Hudson Riehle, senior vice president, research and knowledge group for the National Restaurant Association, 2015 turned out to be “substantially better” for operators than the previous two years in terms of food cost. Riehle notes that for the 12 months between February 2014 and February 2015, NRA research found that 27 percent of operators said food cost was their top challenge. For the same period between February 2015 and February 2016, however, that figure had fallen to 5 percent.
“Not surprisingly, concerns about food cost moved down the list,” he says.
While commodities like fresh produce and butter remain costly, prices are generally down from their previous highs — the market has seen double-digit declines in the wholesale prices of beef and pork, Riehle says. “Operators can expect a deflationary environment for wholesale food prices.”
Nevertheless, with pre-tax sales margins for the industry running only about 4 percent, according to the NRA, operators must keep a close watch on food costs which when combined with labor costs, account for about one-third of the sales dollar. “It comes down to measuring pennies on a daily basis,” Riehle says.
As a result, experts advise operators to remain careful in their day-to-day approach to maintaining a viable food cost. Some suggestions include:
1. Maintain a good actual-to-theoretical food cost. Dennis Lombardi, president of Insight Dynamics, a Columbus, Ohio, restaurant advisory service, recommends that operators inventory all recipes, and monitor what is actually being used compared to what the recipe calls for. “The more it's a scratch made kitchen, the bigger the disparity tends to be,” Lombardi says.
2. Take advantage of favorable commodity prices. Fred LeFranc, chief executive and president of Results Thru Strategy, a consultancy in Charlotte, N.C., suggests purchasing food items that are bargains and offering them in the form of specials or LTOs. If the selection proves to be popular and costs remain favorable, consider transitioning it over to a permanent item, he says.
3. Employ menu engineering. Strategically place the most profitable items on the menu so the customer is more likely to order them, says Dale Miller of Master Chef Consulting Group in Clifton Park, N.Y. “Normally, the top two items and the bottom item in each category are the items most ordered by customers. Boxing a profitable item can also increase sales.”
4. Train staff to monitor portion control. LeFranc says to train the back- and front-of-the-house staff not to over-portion. That is a common way to increase food costs, he says. Teach employees that your menu is priced to both ensure your guests are satisfied and that you can make a reasonable profit.
5. Source strategically. The bigger your operation is, the more leverage you have to negotiate prices, Lombardi says. Smaller and medium-sized operations might consider joining a co-op to help leverage their buying power.
6. Use food products that are in season. Miller says food that is in season often tends to be less expensive than out-of-season items, so it's a smart move to bring seasonality to your menu.
7. Find ways to use underutilized food products. Less popular cuts of meat and other food items tend to be priced lower when compared to more popular foods, Miller says. He also recommends that menu items be simplified wherever possible.
8. Conduct competitive price comparisons. Once the deliveries have arrived, check your vendor invoices to make certain you're writing a check for the amount that was promised.
9. Reduce food waste. Establish an incentive program that rewards employees for decreasing the amount of food waste. Incentive contests also can help make your employees aware of food costs. “Controlling waste is crucial to keeping food costs in line,” Miller says.
10. Control your inventory. Having too much inventory on hand can drive up your food cost. An inventory that is too large can lead to food spoilage, experts say, and it also makes it harder to detect food when it is missing though shrinkage. Savvy operators know to source products that can be used in multiple preparations which can help simplify the menu and reduce the number of items that must be inventoried. In addition, make certain all foods are properly rotated which also helps to minimize food spoilage.
11. Balance your menu. Make certain you are menuing the right mixture of low and high cost food items.
Even as food costs continue to decline, other operational costs may remain problematic. Consequently, it makes sound financial sense for operators to not let down their guard, experts say.
“With rising labor, healthcare and insurance costs, it is more important than ever to keep food costs in line,” Miller says. “It will be critical to constantly monitor the numbers in order to maintain the bottom line and ensure profitability. Not doing so can result in the loss of jobs through business failure or from thinning the staff in order to maintain profitability.