3 Smart Strategies to Help Manage Your Restaurant’s Food Costs

Shrewd management of food costs is critical to any restaurant’s success. It won’t matter if your service and menu items are outstanding if you’re not making enough of a profit margin with the ingredients to come out on top. Fortunately, there are a number of food cost reduction strategies you can employ to reduce waste and help add some cushion to your bottom line.

Waste Management Is Crucial to Trimming Food Costs

One of the simplest, cheapest things you can do you reduce your restaurant’s food costs is to implement an effective waste management program. Some restaurants do this by using tracking software that weighs everything out, keeps tabs on the inventory in use and tracks the amount of waste being produced. Others do this by not letting any little scrap go to waste. For instance: citrus skins can become marmalade, piths can become lemon cream, pits of peaches and plums can be used for cocktail bitters, watermelon rinds can be pickled, food prep trim can be made into stock—you get the idea. It is estimated that 2-3% of the average restaurant’s food costs go out the door as waste. You’d be surprised how much your food costs can be mitigated by simply being more conscientious about managing that waste more effectively. Make sure to communicate with your staff about why waste management is so important as well: getting their buy-in is also critical to the success of your food cost reduction strategies!

Reducing Restaurant Food Costs in Pricing & Purchasing

Despite rising costs in food, labor and energy, many restaurant operators resist raising menu prices for fear of losing customers. While the concern is valid, increasing menu prices is an inevitable result of rising costs. Fortunately, there is a way this can be done with minimal resistance from your consumer base. For instance, research has shown that consumers seeking indulgences (think espressos or high end burgers) are not as sensitive to price increases. Consumers are also more likely to embrace a price increase if it comes in the form of a new menu item, or as a restructuring of an old favorite.

Reducing costs in the purchasing category of overall food costs often comes down to having a solid relationship with your suppliers. It’s important to prioritize key ingredients and then establish genuine partnerships with the vendors who supply them. Suppliers often have alternative options for inventory. It makes sense, therefore, to have a good relationship with them. You want those guys on your side. Top-to-top relationships are essential and partnerships should be entered cautiously. Other options to reduce costs in purchasing include looking for rebates or bundling offers on key products, purchasing the food in a form that results in less labor and/or waste, joining a purchasing cooperative or simply switching vendors.

Reducing Restaurant Food Costs on the Plate

In terms of strategies to reduce food costs on the plate itself, you could try using smaller portions, lower-cost proteins or lower-cost sides. You could increase the focus on sides to allow for a smaller or less-expensive protein. Remember that value perception has a lot to do with “trips to mouth.”You can enhance that perception while simultaneously decreasing food costs by choosing a side item that increases the number of times the fork goes into the mouth.

The cost of food is out of our control, but the way that we manage our food costs is not. Reducing waste and getting smarter about the ingredients you use can make a world of difference in increasing your bottom line.

3 Factors Affecting the Price of Commodities for Restaurants in 2014

With the exception of beef, the beginning of 2014 initially looked like it would be a fairly moderate year in terms of rising commodity costs. The last few months, however, have seen record highs in several staple commodities, causing many restaurant operators to have concern over additional inflation in the coming months. Although the U.S. Department of Agriculture forecasts that overall food inflation this year will be between 2.5% and 3.5%, sharp spikes in certain commodities may have restaurateurs looking for other options to offer on their menus and setting up strategies to control costs. Here is an overview of a few factors effecting the cost of commodities in 2014.

Global Demand Drives up Commodity Costs

So far in 2014, U.S. exports are rising and global demand is continuing to drive up the cost of commodities—cheeses, in particular, have hit record highs. For example, the price of Chicago Mercantile Exchange block cheddar cheeses is typically below $2 per pound, but has already soared to more than $2.40 a pound in the first quarter of 2014. Of course, as the climate changes and the world struggles to feed its swelling population, global demand will continue to be a major factor in the cost of commodities.

Drought and Disease Continue to Spike Commodity Prices

Drought and disease have already made their mark on this year’s commodity prices. An outbreak of PEDv (porcine epidemic diarrhea virus), which kills whole litters of piglets, recently drove pork prices to record highs. Since it takes pigs about six months to grow to slaughter weight, it is estimated that the disease will most affect pork inventory this upcoming June through September.

The drought in Brazil has spiked the cost of coffee, sugar and soy products. Coffee has been particularly effected. A drought condition known as Coraçao Negro (“black heart”) causes the beans, which are normally green, to become black and shriveled, and has already been found in some of the drier, northern regions of the country. The effects of the drought are unlikely to reflect in 2014 wholesale coffee prices but are showing in commodity costs. It’s possible that commodity coffee future prices could rise to over $3 per pound if the August harvest in Brazil is poor. Drought in California has further raised the price of feed, which, in turn, is pushing more beef and dairy producers to slaughter their cattle rather than pay to feed them.

Beef Prices Will Continue to Soar

Drought has been wreaking havoc with the price of cattle feed such as corn and hay for the last several years. Dams have dried up, pastures have withered away and with the impossibly high cost of feed, many ranchers have been left with no other option than to liquidate their herds. As a result, the U.S. cattle supply is currently at the lowest level that it has been since 1951. In February of this year, the retail value of “all-fresh”USDA choice-grade beef jumped to a record $5.28 per pound. This same grade of beef cost $3.97 as recently as 2008. Even though conditions in some parts of the cattle producing regions of the U.S. improved in 2013, it is unlikely that the cost of beef will go down anytime soon. Many ranchers may not be in a position to increase their herd numbers after so much liquidation, and those that can still have to wait the two years that it takes to bring a calf to slaughter weight.

Restaurant operators know that food prices are anything but predictable. When spikes in commodity prices occur, the best you can do is have management strategies in place that will help you control your costs and retain your profit margins.