Cutting costs to reach greater profitability is a tricky balance. On one end, restaurant operators are desperately looking to offset labor, rent and other cost increases, but at the other end is preserving the guest experience.
Luckily, there are a lot of areas where operators can save without denigrating the experience. As a panel of experts dubbed “Fat Bottomed Lines” discussed at the 2019 Restaurant Leadership Conference in Phoenix.
For Jason Tipp, CEO of Pincho Factory, it starts with labor. When he became CEO not long ago, he saw ample opportunity to shave labor without actually cutting any guest-facing labor.
“We talk to our mangers to think about prep, how long does it take to do prep,” said Tipp. “It sounds really simple, and it’s something thing that people in operations know really well.”
He said it’s an easy conversation to have to just get mangers to think about right sizing labor during prep times or around closing time. He said educating mangers on how that extra employee or two hanging around directly affects their paycheck.
“Every time we make a decision about keeping someone on the clock, it affects the P&L, and by the way your P&L determines your bonus,” said Tipp.
He also took a close look at food costs, but had to find the base cost before he could tell mangers what to work toward. The company founders were looking at the P&L every month, and asking managers to shed food costs where they could.
“When I came in, I had a very simple question, what is our food cost?” said Tipp. “You can’t ask a GM to get to 28 percent food cost if your overall food cost in the company is 35 percent.”
For Eric Sheen, accuracy helped reduce food costs. The operations specialist and CEO of Restaurant Partners Procurement, an advisory firm for restaurants looking at their supply chain said one tactic he advises clients to do is get better scales.
“We switch all our restaurants from ounces to grams, get rid of those cheap scales and get some good ones,” said Sheen. “You can be much more accurate.”
He said after that, he looks close at menu prices. With the breakneck pace of product innovation, rotating limited time offers and ongoing turnover, menu pricing can easily fall through he cracks. Things like add-ons of chicken to a salad or drinks are things that seem small and get overlooked, adding up to hundreds or thousands of dollars.
“It’s all cash that could go to the bottom line that is going out the back door. I’d highly recommend going back home and getting someone to go through all the prices and make sure they’re right,” said Sheen.
Also in the operation is unnecessary energy use. It’s not just an environmental issue, but a huge money drain, said Vince Purves, president of Consolidated Concepts, a consultancy that helps restaurant operators figure out their supply chain contracts.
“Your opening staff comes in and turns on your fryers, flat top and everything, but there’s no real prep being done on that equipment, so you have two hours where everything is on burning BTUs and the AC has to flip on to cool the kitchen,” said Purves. “You should never fire a piece of equipment before 15 minutes before you need to serve, it saves you on energy and maintenance costs and it doesn’t affect the guest. Take the time to educate your operations guys—it’s all free money.”
And then there’s the supply chain, just taking a close look at the food shipments can save an incredible amount of money. Tipp said after bringing in a supply chain consultant, they found a major error in French fry shipments.
“They found $18,000 that we never would have found over three months,” said Tipp. “We think we’re going to get about 200 basis points just from opportunities like this we didn’t know were there that we don’t have time to focus on.”
Sheen said larger companies have more potential errors, sometimes massive, ongoing issues in the supply chain. He said one company he worked with ordered boxes of 240 wings.
“We couldn’t find a case that was more than 200, so for the last three to four years, they thought their spec was 240 but they were actually losing four orders on every case, or $1.6 to $1.8 million over the last three years. And it took bout 90 minutes for us to do that,” said Sheen. “It’s that detail that really drives the bottom line.”