By Carol Ward
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Attention to detail, restaurant consultant Ron Gorodesky says, can make or break a restaurant operation. It’s particularly true during times of economic crisis, when customers are fewer and those who do show up are watching their dollars more closely than ever.

“This business is all about attention to detail,” says Gorodesky, president of Paoli, Pa.-based Restaurant Advisory Services. “What used to work a year ago might not work today because people are making different buying choices.”

Food costs are a crucial area of concern, Gorodesky says, because “there are a lot of independent operators who don’t really know their costs.” Finding them out is a basic building block to success, and keeping them in line requires constant scrutiny.

Airport food and beverage operators are learning that firsthand, if they didn’t know it already, as the downturn in passenger numbers means fewer customers and dwindling profits.

Amidst the economic downturn, the reality is that many food costs continue to rise. Food commodity prices fluctuate because of myriad factors but have been on a general upward trajectory for the past several years. Linda Dunn, vice president of supply chain and analysis at HMSHost Corp., says the combination of higher energy costs, increased demand from an emerging global middle class, weather, land development and other factors play a role.

“We’ve seen steady increases come because of these issues,” she says. “2008 was a very difficult year based on commodity increases. They don’t happen all at once, but we’ve certainly seen increases.” Dunn adds that “things have dampened since the recession,” but says the easing of prices is likely a temporary blip in a continuing upward trend.

Although some food cost increases are inevitable, the good news is that there are ways to cinch spending on food with little or no apparent difference to the consumer.

“Even more so now than ever, cost containment and being able to increase efficiencies is an important piece right now,” says restaurant consultant Mark Kelnhofer, president and CEO of Westerville, Ohio-based Return On Ingredients® LLC. “Commodity costs have gone up, and to offset that, you have to become more efficient.”

Operators are eyeing every potential cost saving as the industry navigates through difficult times.

“When things are going well and markets are racing, there is a tendency not to focus on the small things,” says Pat Murray, senior vice president of business development for SSP America. “Today in the food business, people are challenged because we have fewer customers than we did a year ago. We have to get sharper with our business. Food cost is a logical choice.”


Looking To Distributors

Although there is little an operator can do about the base cost of a key ingredient, there are ways to shave food costs without compromising quality. Before making cuts in the kitchen, many operators turn first to their distributors and suppliers in hopes of cutting a deal.

Chain restaurant operators and franchisees have little maneuverability when it comes to purchasing decisions, but independent operators should be negotiating with distributors if they haven’t already, says Gorodesky.

“In this environment we’re in, if you’re not locked in to a prime vendor, it’s a great time to shop various distributors,” he says. “Especially if you can offer and really pay on 10-15 day terms, you’ll get tremendous pricing in this environment.

“Another key thing on the buying side, if you’re independent, is the ability to purchase through joint restaurant buying clubs that are in most major markets,” Gorodesky adds.

Giorgio Kolaj, co-founder and executive vice president for global business and development for Famous Famiglia, says his company negotiates as much as possible with its suppliers and vendors.

“We want our partners to be not only profitable but prosperous, because we need them around,” he says. “But there’s got to be some give and take.”

Instead of a direct cost reduction, Kolaj says sometimes a change in delivery frequencies or product packaging can change cost profiles for both operators and distributors.

HMSHost recently experienced that firsthand.

“We approached all of our vendors and asked what they can do to help us with costs,” says Dunn. “We had a vendor offer up a price reduction if we moved from purchasing the product with the brand name and logo on it to an unlabeled package. It was the exact same product inside.”

SSP America is evaluating the types of products it purchases, and in some instances preferring to purchase product ingredients rather than pre-made products if the price makes sense.

“We look to see if it is possible to buy things fresher and have them prepared by our employees, rather than have them come in prepared and pay for the labor of somebody else’s employees,” says Murray. “The cost of goods might be a little less, but the cost of labor might be a little more.

“In all the recipes we’ve rolled out over the past three or four months, we’re looking really hard at that, both because it produces better product but also, candidly, some of the things are less expensive and they also enable us to justify more labor,” Murray continues. “If I’m going to spend a dollar someplace I’d rather spend it on someone’s salary.”

Gorodesky says the opposite action can sometimes work in an operator’s favor.

“Labor has become more expensive, relatively speaking, than food,” he says. “There are some items where, before, you might have been doing a lot of preparation as opposed to buying a finished product. Measuring those tradeoffs has to be redone because the relative price for labor in many markets has increased relative to food. For food and beverage operators, it’s always been about managing your prime costs, which is the total of your food and beverage costs and your labor costs.”

Operators can also weigh things such as ingredient or brand substitutions to help curb costs.

“You can look at the recipe to see if there is anything you can do to make that menu item less expensive,” says Kelnhofer. “That could mean changing a recipe, tweaking it, maybe reducing an ingredient so you can reduce the cost. The other option is on the purchasing side, to find an alternative product that ultimately costs less to help drive that margin.”

Some are more amenable to changes than others. Kolaj says Famous Famiglia will never deviate from the quality ingredients that have been put into its recipes for years. The company uses cold-pressed, extra virgin olive oil in its dough products, has proprietary coffee grown and harvested in Ecuador, and even bottles and ships New York water to all of its locations for use in food preparation.

Villa Enterprises has a similar policy, requiring all franchisees to purchase proprietary items from one of three approved distributors who cover the country.

“There is no wiggle room on that because we’re pretty fanatical about our quality,” says Adam Torine, vice president of business development for Villa Enterprises.

Torine says sometimes food costs that are too low signal a problem, as well.

“If an operator is way below what the food cost should be, that can raise a different kind of a red flag,” he says. “Are we not putting the right amount of toppings on the product? Are we not using enough in what the recipe calls for? Our No. 1 goal is customer satisfaction and high-quality product, and we want to make sure we’re not going the other way, too.”


Menu Re-Engineering

Many other operators are equally fastidious about the ingredients in their recipes. Nevertheless, subtle changes can make a big difference. HMSHost, for example, saw the price of blueberries skyrocket, making its standard blueberry and strawberry parfait a food budget buster. The company responded with alternative flavor options that operators can use to help control costs, Dunn says.

Dunn adds that new menu items are created with less expensive ingredients in mind.

“As opposed to changing a core item, we’re more likely to introduce an additional item that might have a little bit of a cost reduction in it,” she says.

HMSHost’s action is called menu reengineering, which Gorodesky says is crucial during an economic downturn.

“The ability to engineer your menu has become more important than ever, especially because customers are leaning toward the lower-priced items on menus,” he says. “It’s a great opportunity to make sure your food cost is engineered to a number that is acceptable to you.”

Because consumers are shifting their purchases toward lower-priced menu items, Gorodesky suggests adjusting prices of those items upward while keeping prices steady at the higher end.

“Because people are making these choices, you have to make sure they’re not killing your margins,” he says.

Torine says Villa Enterprises considers food cost when it decides on promotional or marketing efforts.

“With value meals or when discounting a product, we might look at our lower food cost items so we can not only deliver value to the consumer, but we’re also not hurting our operators at the same time,” he says.

Although the temptation may be to also alter recipe ingredients, both Dunn and Murray say recipe adherence is crucial to quality control. Noting that national companies are challenged by flexibility, Murray says SSP America doesn’t give latitude to individual operations.

“Really, recipe adherence is the core of where cost savings are going to come from,” he says. “The more you pay attention to a recipe, the closer you’re going to get to a theoretical cost and the more you’re going to save.”

No matter what the ingredients, deriving a recipe’s actual cost is crucial. Kelnhofer says restaurant operators often under-identify the true cost of an item. For example, a chef concocts a recipe using a quarter-pound of fish. That fish costs $10 a pound, so operators put the fish cost per portion at $2.50. That’s grossly underestimated, he says, because the operator failed to account for skin, bones and other waste. Extrapolate that out with other ingredients, and other recipes and food costs can be far higher than an operator might think.

“In most cases, recipe costing and setting pricing is very inaccurate,” says Kelnhofer. “Because of that, they’re probably not getting as much profit or gross margin on the menu item as they thought.”


Cutting Waste

Operators also need to scrutinize what is happening in their kitchens in order to minimize waste and maximize profitability. One key area is inventory on the line, meaning the product that is being used for the day.

“The smallest pan size you can fit on the line, that’s what you should use,” says Kelnhofer. “The product stays fresher, the quality is higher [and] you have reduced waste.”

On a broader scale, Kelnhofer says moving to just-in-time production practices reduces waste, as well.

“Just-in-time means you keep the inventory levels as low as possible,” he says. “The more inventory you have available, the more propensity you have to waste product.

“Most restaurants don’t have just-in-time methodology,” Kelnhofer continues. “They prep product in advance, several days out in some cases, depending on shelf life. But when you do that, you’re really putting yourself out there to waste product. The goal is to produce only what you need for one day.”

In airport food and beverage locations, operators need to make sure they buy carefully and stock appropriately.

“Some managers don’t look at the cycles of the business, they just place the same order week after week after week,” says Kolaj. “But distribution of passengers throughout the airport is not going to be identical week after week after week, and neither should your buying patterns. We train our employees to severely minimize waste, not only in how they prepare the products in the back of the house but also being cognizant of the traffic flow in their respective terminals.”

These strategies and many more will help operators rein in food costs to the extent possible given the general upward trajectory of commodity prices. Nothing is certain, but knowing the theoretical cost of each dish, pricing the menu with appropriate profit margins, minimizing waste and maximizing efficiency will all help operators achieve a positive result.

As Kelnhofer says, “You want to make sure you are accounting for all the costs properly and then setting the proper selling price to drive the margin. You just don’t want to make this a guessing game.”