2
Major Obstacles
Are Destroying
Your Foodservice
Operation’s Bottom Line.
Do you have a plan to overcome them?
If you’ve been in the foodservice industry
for any length of time, you know it
can be cutthroat and grueling.
We’re all painfully aware that even in
the best of times pre-tax profit margins
only range between 3% to 5%.
And during lean times it’s a struggle
just to stay in business. Research shows
that at the height of the Great Recession
in 2008 average net profit margins
for restaurants nationwide was a
scant 0.4%.1
Among the myriad of
challenges facing today’s
foodservice operators
2 major obstacles are
threatening their already
razor-thin margins...
1. Restaurants and Other Eating Places Revenue Growth and Net Profit Margins,
SageWorks, 2014
Obstacle #1:
Food Costs Are On The Rise – By A Lot.
The last few years have seen food
commodity prices skyrocket as a
result of drought in the Midwest and
California, higher fuel costs, grains
diverted to make biofuels, and
increased foreign demand.2
Research by the National Restaurant
Association (NRA) reveals 3 out 4
restaurant operators reported that their
food costs had increased over the past
year. Wholesale food price inflation as
of September 2014 YTD is up 5.1%, the
highest single year increase since 2011.
Add that increase on top of increases
of 2.1% in 2013, 2.8% in 2012, 3.7% in
2011 and the situation looks bleak.3
While that sounds grim enough, single
item inflation has skyrocketed as much
as 36% YTD for certain items.
This puts restaurant owners in quite a
predicament: can you pass the higher
costs on to your customers, or do you
have to absorb the costs and impact
the bottom line in order to keep
customers? NRA research shows that
menu price inflation has only increased
by 2.3% in 2014, meaning most
operators are choosing to absorb the
higher food costs. They simply aren’t
able to pass all of the cost increases
on to the customer.
2. Restaurants Battle Rising Food Costs, QSR, 2014
3. National Restaurant Association, Industry Update, 2014
2
Foodservice operators are trying to
combat rising food costs any way
possible:
• Surveys show 35% of restaurant
operators report using more private
label products and buying more
specially priced items.
• 41% report using rebates and
coupons more often than they did
in the past when making food
purchases.4
Recent research reveals that the most
common way operators try to cut costs
is by changing vendors:
• Surveys show that 19% of restaurant
owners have increased the number
of suppliers they use.
• 22% have cut their supplier ranks.5
• Restaurants use an average of
10 vendors.
• Fine-dining restaurants have a
slightly higher average of 13.3.
• However, depending on the type
of menu, 30 or more different
vendors is not unheard of!
6
Since food supplies are generally the
largest line item cost, it’s understandable
that owners are shopping vendors for
the lowest costs possible. Studies by
Technomic estimate that markups
average around 25% between factory
and restaurant. And suppliers are
quick to raise prices to their restaurant
customers when commodity prices
increase. However, when commodity
prices fall, prices to the end user are
slow to follow suit, unless competition
forces prices down.
Many foodservice operators are now trying to avoid the middle man
altogether and buy direct from the manufacturer.7
4. Operator Purchasing Study, Restaurants & Institutions, 2009-2014
5. How many vendors are you using? ChefTalk, 2014
6. Relative prices of food at three stages of the system, USDA Economic Research Service, 2014
7. Restaurants Fear Clout of a New Food Giant, Wall Street Journal, 2014
3
Obstacle #2:
The Massive Time
Suck of Business
Inefficiencies
To say that restaurant owners and
foodservice operators have long hours
is a major understatement. Many spend
upwards of 70 hours per week in their
restaurant. Where does the time go?
The top 2 time sucks:
1. Ordering food inventory
2. Managing vendor invoices
Ordering:
Recent surveys revealed that an average
of 1,108 hours per year, per restaurant, is
spent ordering and receiving products from
their vendors. That’s over 21 hours per
week! And with an average labor cost of
$13.00 per hour, that’s $14,404 in annual
costs (per location) just to order food supplies.
Paying vendors:
The typical restaurant cuts an average of
1,560 checks to their vendors, per year,
per location – 30 checks per week! At an
average cost of $15 per check (which is
the time spent by their bookkeeper or an
outsourced agency), that adds up to
$23,400 in annual costs (per restaurant) –
Just to pay their supplier invoices!8
8. Consider consolidation to trim costs, Restaurant-Hospitality Magazine, 2013
9. A chef’s plea to disrupt the antiquated food supply chain, gigaom, 2013
“Multiple times a week since my
restaurant, Chef Tony’s, opened;
I spent close to two hours putting
together food orders with five to
eight different suppliers.
There was no transparency on
pricing and everything was done
on paper and communicated
via the phone or by fax.
A mistake in one purchase
can be very costly, and
chefs like to make personal
decisions about possible
substitutions. This is a big
part of my 70-plus
hour work week.”9
~ Tony Marciante,
award winning
restaurant
owner in
Maryland
4
Fortunately,
it doesn’t have to be this way.
Studies show that the most profitable
restaurants meticulously track how many
days’ worth of inventory is sitting on the
shelf “as of last night” and they calculate
their Prime Costs weekly. Typically this
alone results in lowering their food cost
by 2-4% of sales in just a few weeks.10
Top performing restaurants are also
aggressively changing their purchasing
process by bidding out every item with
exact specs to at least 3 vendors. This
results in suppliers competing for their
business and has been proven to lower
food costs dramatically.
However, without an automated, very efficient system to handle this process,
it simply becomes one more major time suck in a week where you
already have no time.
To learn how Sarbari can help your restaurant or
foodservice operation organize, streamline, and save,
please visit Sarbari.com.
10. Critical Numbers: A Weekly Report Every Restaurant Should Prepare, Restaurant Owner, 2014