Managing the Impact of Restaurant Commodity Price Swings

Produce prices are in constant fluctuation. This is no big deal for a restaurant if the shift is small, but can make a massive difference if the price jumps significantly—especially if the commodity is one of your most used items. You can’t control the changing costs of commodities. You can, however, employ some strategies to help manage the impact of those changes. Here are a few techniques to help ameliorate the impact of commodity price swings in the best way possible.

Have a Clear Picture of Which Commodity Items Are Driving Your Highest Costs

In most restaurants, it’s usually about 20% of the commodities that are driving 80% of the costs. When it comes to managing commodity prices, these items are the most critical to focus your cost saving efforts on. Don’t get side-tracked pinching pennies on items that have a negligible impact on your overall costs. Focus on the big guys, and then take the time to shop around, compare prices between produce suppliers and find opportunities to negotiate better deals.

Want to Know When the Next Restaurant Commodity is Going to Soar? Keep an Eye On the News

Commodities prices are affected by what is happening globally, and no one can predict when the next fluctuation will come. That said, keeping an eye on the news can at least provide some indication of the next big price increase and can help you be prepared to handle it. Whether it’s a drought in the Bread Belt, frost in Florida or civil war in Columbia, commodity prices are going to be affected. Knowing where your main commodities are coming from and monitoring the news from those areas will go a long way toward giving you a head start in dealing with the forthcoming price increase that occurs when disaster strikes.

Consider Restaurant Purchasing Contracts Instead of Managing Produce Orders In-House

Another way to manage commodity costs is by partnering with a purchasing company. There are a number of benefits to doing so—not the least of which is negotiated rates, as well as buying and consulting support. Restaurants who have purchasing contracts are protected from being at the whim of dramatic shifts in commodity costs throughout the course of the year. When deciding to enter into a purchasing contract, shop around and get a number of proposals as a tool to negotiate the best deal. Know your specifications to ensure that you’re getting comparable price quotes from suppliers and distributors. Look for fixed contracts to best manage commodity prices over time.

The downside of purchasing contracts is that you’re not free to shop around for a better deal until the contract is done. If you know that the price of a produce item is likely to go down, look for shorter-term contracts. When your contract is up, be sure to take a fresh review of available alternative options before signing the contract for another round.

No one can guess what will cause one item to spike while another stays static, but we all know how much those fluctuations can effect our bottom line—especially when they are unexpected. Taking the time to be aware of which commodity items could cause the most risk in your restaurant business if prices fluctuated, monitoring the news from areas where those commodities come and considering purchasing contracts to lock in better prices are all great strategies to help manage the impact of commodity cost fluctuations.

Highlights of the 2014 Restaurant Industry Forecast

Every year, the National Restaurant Association (NRA) puts out a comprehensive annual forecast for restaurant industry opportunities and challenges that are likely to arise in the year to come. The NRA bases these predictions on the most current economic data available, as well as extensive surveys of both restaurant operators and restaurant patrons alike, providing valuable insights across all dining segments. Here are some highlights of the 2014 Restaurant Industry Report.

Restaurant Industry Sales will Increase but Consumer Confidence May Remain Fragile

Sales in the restaurant industry have been steadily increasing since the recession four years ago. While the gains still aren’t near what they were after any of the previous four recessions, 2014 is actually projected to be a record year in terms of restaurant industry sales. Early reports indicate industry sales will reach $683 billion in 2014; a 1.2% increase from last year (after adjusting for inflation.) It is interesting to note that in terms of size and scope, the restaurant industry is larger than 90% of the world’s economies. If the industry were a country, it would rank number 20 in terms of economic strength!

One of the biggest factors that influences sales in the restaurant industry is consumer confidence—in other words, their willingness and ability to spend their hard-earned cash. It would appear that many consumers are stuck in a ‘recessionary mindset’ and, unfortunately, this aspect really hasn’t improved much over the course of the past several years despite the addition of several million jobs and the economy gaining momentum. An NRA survey conducted at the end of 2013 reported nearly 60% of respondents as describing their personal finances as either fair or poor. What’s more, nearly half said that they aren’t dining out or ordering in as much as they would like to, creating what some are terming a “pent up demand.” The good news is that 35% of respondents in this same survey also indicated that they felt their personal finances would improve in 2014, and the odds that restaurants will be a beneficiary of that pent up desire to spend are good.

Restaurant Industry Job Growth and Expectations in Terms of Recruiting and Retaining Employees

Another key driver of restaurant sales has always been job growth, and 2014 stands to be a good year in that arena as well. The NRA expects total employment to rise 1.8% this year (the most impressive increase since 2006.) The increase in the availability and security of jobs helps boost consumer confidence as well, which should unlock some consumer spending.

Nearly half of restaurant operators across all segments (except fine dining) expect recruiting and retaining employees to be more difficult in 2014. Many plan to put more focus on labor issues this year and bolster their training budgets in an effort to develop existing employees and enhance overall productivity.

Food Prices & Other Top Challenges Restaurants Face in 2014

The average wholesale price of food rose 2% in 2013. Food prices this year are expected to be mixed, but to continue to advance overall. Beef, in particular, is projected to move up higher than any other commodity group in 2014. In terms of other top challenges operators expect to face this year, many are similar to concerns voiced in 2013. Topping the list is complying with health care reform, followed by building and maintaining sales volume, dealing with fierce competition for the market share and the state of the economy in general.

In sum, 2014 stands to be a good year in the restaurant industry, despite cautious consumer spending and a host of operational challenges that must be addressed. If you’d like some help getting geared up for the coming year, the Restaurant Management Group provides comprehensive operational and turnaround management assistance. They can help identify specific areas of opportunity as well as effective strategies to maximize your margins, reduce your costs and improve your overall profitability.

Food Trends to Watch in the 2014 Restaurant Arena

This time of year, everyone’s looking ahead trying to guess what the new year will bring. In the restaurant industry, there are curiosity upstarts which are likely to be passing fads, as well as a number of food trends that have been slowly gaining steam for years. Both of these menu trends are quite likely to take front and center in the years to come. Here are the highlights of some of the more important and interesting food trends for 2014.

Good-For-You and Guilt Free Dining

Both health consciousness and environmental responsibility have been movements on the rise in the general populace for years now, and all reports indicate that they aren’t going away anytime soon. In fact, when asked which food fads are most likely to remain hot menu trends ten years from now, chefs around the country said environmentally sustainable foods and local sourcing are the top two movements and here to stay. This was followed by health and nutrition, children’s nutrition and gluten-free food options. 

In response to the demand for veggie, gluten-free and eco-friendly dining establishments, healthy ‘green’ restaurants are popping up all over the place and steadily moving into the mainstream. Predictions show that in 2014, early investments in green restaurants could well pay off. 

Single Item Restaurants and À La Carte Menus

As consumers get more and more accustomed to the ease and convenience of being able to order exactly what they want, when they want it, many restaurants have found success by offering extensive à la carte menus. Not only do such offerings make the customer feel catered to, but they actually can increase a restaurant’s bottom line since à la carte orders tend to ring up higher totals than traditional plate meals.

What’s more, there has also been an increase in the popularity of single item restaurants, or establishments that focus on serving only one item, and doing it extremely well. For example, there’s a restaurant in Los Angeles that specializes only in sausages. There’s another very popular bakery in Chicago that serves only meatloaf. Even gourmet PB & J and macaroni and cheese shops are being greeted with open arms. There’s something to be said for focusing on doing one thing, very well.

Strange Cuts of Meat and Novelty Items Mark 2014 Restaurant Trends

The final trend we’ll mention in this post is the recent rise in the popularity of luxury and novelty food items. While the specific ones mentioned here may be passing fads that are hot now and forgotten later, people’s love of the strange and new will never cease. Year after year, we will see trends from the novelty category hitting the top of the charts. 

This year it looks to be such items as ice cubes infused with herbs and other ingredients to flavor cocktails, strange cuts of meat such as tripe, beef tongue and beef pastrami being used in chili, and cheese steaks and sliders. Restaurants are now focusing on providing a neurosensory dining experience with meals in the dark, tactile tableware, diffusers controlling temperature and aroma, or music and visuals cued to courses. 

Some of these food trends, such as hyper-local sourcing and healthy eating, are certainly here to stay. Others, such as beef tongue in your chili, may be trends that are over before they really get going. Either way, it pays to pay attention to what’s hot now, what’s likely to stay hot in the future, and how your restaurant can best position itself to take advantage of these movements.

Restaurant Industry Food Trends to Watch in 2013

One of the interesting things to watch from year to year is the shift in which foods consumers can’t seem to get enough of. Some of this year’s food trends aren’t anything too novel, and others are rather surprising. Here are a few examples of what to expect.

Savory, Sour, and Asian Influence in the Restaurant

For years, dishes which are known to be tart, acidic, or bitter have been neglected by mainstream dining establishments. Not so anymore. Don’t be surprised if you see a plethora of new sour and savory menu items popping up. From fermented sausage to new spins on sauerkraut and desserts, sour is taking its day in the limelight. New methods of creating savory fruits also fall under this category and chefs around the country are dehydrating, pickling, fermenting, grilling, salting, and generally manipulating the flavor of fruits that we normally eat raw.

Asian foods taking the place of traditional American comfort food is another big trend this year. Whether it be the spicy, fresh flavors of Thailand, the tart taste of Korea, or the soothing concoctions of Vietnam, don’t be surprised to walk into an American diner this year and see delicious, Asian-inspired flavors on the menu.

Sophisticated Snacks in the Diner

Another surprising trend forecasted for 2013 is the fact that many restaurants are now offering snack options on the menu. Snacks are loosely defined as something that is not a meal, but can be purchased and consumed in three minutes. These days, people often snack their way through the day, taking food where they can grab it quickly in between their busy schedules. In fact, many people even consider a couple of snacks eaten together as a meal.

As a result, restaurants are finding that they can easily cater to this crowd simply by adding a few quick-grab items to the menu. While a snack used to mean a bag of potato chips, many restaurants are upping the ante by offering sophisticated snacks like glorified mini-burgers or shakes, upscale dips or crab cakes at a low price to consumers on the go. Popcorn, in particular, is enjoying a boost in popularity as a snack this year which given its low price, is a particularly easy item to add to your snack menu.

A One Diner Fits All Approach, Leaves No Diner Behind

Although there is still plenty of demand for upscale dining which provides a very specific fare, most casual dining establishments are finding that it is lucrative to cater to the needs of each individual demographic of consumer that enters the establishment. This means having something on the menu that will appeal to the vegan and vegetarian crowds, the gluten-free crowds, the weight-watching crowd, the budget crowd, etc, etc.

Being more flexible about the fare that is being offered and attending to the dietary needs of the various types of people who frequent the restaurant goes a long way toward building loyal clientele.

The forecast for the restaurant industry bodes well for this year, and we will continue to see big shifts in industry trends. You can count on health, portion sizes, and dining customization to remain at the top of the list, as well as an influx of new and exotic flavors that can’t be easily created at home.