Feb 16, 2012

Restaurateurs: What to Consider When Cutting Costs

[caption id="attachment_393" align="alignright" width="425" caption="More effective than a "free kittens" sign"]

[/caption] As a child equipped with an Easy-Bake Oven and overactive appetite, you dreamed about opening a restaurant. Now that you’re an adult, you may have found that turning your childhood dream into a profitable business venture often requires tough costs that turn your stomach. Before you begin scrimping on items to meet your bottom line, consider the truth and consequences behind the following popular cost-cutting measures.

The True Cost of Cheaper Produce

When buying food for your restaurant, you should seek out the lowest bid, right? Not necessarily. Constantly changing suppliers for produce just to save a few cents per product may cost your restaurant in the long run. The hours spent evaluating competing bids, coordinating among many suppliers, or handling multiple small deliveries may not result in higher returns. In fact, the money saved in changing vendors to spend less on produce may not be worth the time you lose for more important management activities. “Using a prime vendor frees up management time that can be better spent on high-return activities like taking better care of your customers and developing your people. In my mind, trying to save 25 cents on a case of green beans is hardly a high-return activity worthy of much owner or management time,” Bill Marvin wrote for RestaurantOwner.com.¹ If you’re still not sold, consider this: Working with a single vendor can also be used as a marketing scheme. Explain to customers that your prices are slightly higher because your food is organic or grown locally. You’ll save time and money by sticking with one supplier, and you might attract a new audience of organic foodies.

The Hard Facts About What You’ll Lose (Besides Employees) When Your Restaurant Downsizes

Reducing staff size is a quick and effective way to cut costs at your restaurant. However, in service industries, like the restaurant business, human capital is often your best asset. So, if you face downsizing your staff, first consider asking employees to work part-time hours or take furloughs. When the financial situation of your restaurant improves, rehiring the same employees may no longer be an option, at which time you’d be forced to retrain new staff members. “The National Restaurant Association estimated that for each average hourly employee you hire, you spend $1,500 training them,” according to the Aaron D. Allen Consulting blog.² “Meanwhile, many restaurants have a 100 percent or higher turnover rate of employees. If you have a staff of 100, that means $150,000 per year in training new employees!” Additionally, keep your best talent—chefs, servers, and management included. High-quality service and an attentive wait staff are among the top reasons customers return to a restaurant. What do successful restaurants—like any small business—have in common? A strong identity and strong customer base. Now, this doesn’t mean a menu accompanied by a kitschy décor or cliché theme. Focus the identity of your restaurant instead on achieving superior food, service, and prices for your customers. If you’ve established your restaurant’s reputation and your customers are loyal, consider reducing your rent before cutting any other cost. Move the location of your restaurant. Trust that frequent diners—Bill, Charlie, Deb, and all those you know by name—will follow. With the right attitude and solid business practices, you can cut costs and keep a profit without changes you’d lose your lunch over. For more information, visit: 1. “The Easiest Way to Cut Your Food Cost 10 Percent” 2. “Top 10 Ways to Cut Costs at Your Restaurant”