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Protected: Managing Food Cost

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Food Cost: This Horse Is Lame. Stop Beating Her, Brother…

food-pricesAs food prices keep rising, restaurant owners can’t help thinking about ways to deal with those eroding profit margins.

At times like this, it may seem like a good idea to shop around for better prices on your key ingredients. After all, what if you could:

  • Negotiate better prices with your current supplier?
  • Make several suppliers bid for your business?
  • Switch to new suppliers altogether?

This is a natural response. But you could be shooting yourself in the foot.

Here’s how.

Trying to get a better price on chicken breasts can only get you so far. The benefit to your business may be short-lived and illusory: The only way food prices are going is up. And you could be trying to solve the problem from the wrong end.

Think about what you’d have to give away to get a better deal:

  • Scenario #1: You sacrifice the food quality. If you are already a troubled restaurant, that could be the last nail in the coffin of your business.
  • Scenario #2: You replace your old supplier with someone less reliable. Then one night you may leave more money on the table than you could have saved on the ingredients.
  • Scenario #3: You throw yourself into heavy-duty negotiations that will suck up a lot of your time. You should know that your time has a high price tag attached to it and it may be better invested elsewhere.

Which brings us to the next point.

The fact that you can’t sustain the increase in food costs is a symptom of a bigger problem. If the menu is stale and unoptimized, if the concept is unexciting, and if you are doing a mediocre job of getting enough people to try your food, then don’t look for a bail-out from your supplier.

Sure, you shouldn’t be paying more than a fair market price for the ingredients. But you shouldn’t be paying much less either. If the basic economics of your business aren’t right, you’re fighting a losing battle against an enemy of your own creation.

That enemy’s name is “Poor Me” — and we’ve all met him at some point in our lives. He comes unannounced and turns a confident restaurant owner into a wimp who blames everything and everyone — government, weather, competition, economy, suppliers, even customers —  for the lack of profits in his business. To have a fighting chance, you need to get out of the cost-saving penny-pinching nickel-and-diming mindset and start plugging chasmic holes in your marketing.

When you can get enough customers to come and gladly pay the prices your food is worth, then you’d better be ready to seize the night. And that’s the night when you need your supplier on your side.

Tomorrow I’ll give you a tool that helps in managing food cost the right way. If you are a subscriber to RestaurantCommando.com, we’ll be sending you an email with your password to a special page on this website. And if you’re not yet a subscriber, you need to become one by tomorrow to get this special content! (Check the top right corner of this page for the subscription form.)

Plain-Jane Mundane Space-Age Restaurant Marketing

We arrived late.

The tour bus had just left and it was the last one for the day.

So the only thing we could do at the Kennedy Space Center in Cape Canaveral was check out The Rocket Garden and a Shuttle prototype turned into an exposition.

Turned out, I didn’t need a tour. There was something that totally captivated me for the next hour: The old rockets.

They turned out to be so unexpectedly “plain jane” and low-tech. So… MUNDANE. The gloss of a picture in the book came off, and left a sheet of metal clumsily wrapped into a tube. All the attributes of a son-and-dad-school-project-finished-the-night-before-it-was-due (I’m talking from experience here) were present: rough edges, uneven paint, and mill marks everywhere.

They looked like they were made in a garage. And in a way, they were.

I found it difficult to imagine them flying… Even more difficult to imagine that someone would crawl into that tin bucket dubbed as “the cabin,” strap themselves to a big barrel of kerosene and go for a dangerous ride. Nonetheless, there they were, the artifacts of the glorious past, a testament to a courageous epoch.

Now think about your marketing.

Are you spending money on the looks? The only person that’s going to be impressed is you. Your customers won’t care.

Are you trying to make it fancy or make it work?

If you want results, then study other businesses’ ads. Start with those plane-jane all-text ones that trick you into thinking you’re reading an editorial. People who run these ads treat them like their sales force: If these ads don’t produce results they get immediately pulled. Just as a sales person who doesn’t sell gets fired.

The gawky machines that helped the man conquer Space didn’t need to be slick.

The ad that helps you to conquer your market won’t be a slick one either.

170 Disgruntled Customers

Disgruntled CustomersWe’ve all had one of these …

Last year Irina and I were on a business trip to Salt Lake City. We had some time to explore the area and found ourselves in a small town halfway between the city and Antelope Island. It was dinner time and a small constellation of restaurants just off the freeway looked very inviting.

A Vietnamese place seemed like a good idea. We got in and placed an order. Fifteen minutes later, out came our appetizers — “fresh” rolls. The very first bite revealed a stink coming from what looked like a strip of pork gone bad inside the roll. Cancel the order we did, and out the door we went, still starving and ready to settle for anything that would be borderline edible.

Where am I going with this?

There are a lot of moving parts in your business. Many things may go wrong. You don’t have to try to kill someone to spoil their experience. It could simply be slow service or the way your staff treated the customers.

Granted, it’s hard to deliver great food and outstanding service with machine-like consistency, especially with the minimum-wage workforce in your employ. But the price of not doing that could be too high.

How high, you may ask?

Let’s put some numbers on it. The best related stats I know of come from a customer research company called TARP, based Arlington, Virginia. Here’s what TARP research has to say that is important to this discussion:

  • On average, one disgruntled customer will share their experience with 12 other people;
  • Each of those 12 people will in turn mention it to 6 others
  • And if you add the original customer who actually had the bad experience, we are talking about (1 person you pissed off) + (12 people that person has talked to) + (12 groups * 6 people they contacted) = 85 people will no longer think very highly of your restaurant just because of a little mess-up!

And we’re not done yet.

If you think that most dining parties are made of two people, you have to multiply that 85 by 2, giving us a total of 170 people you have no hope of EVER doing business with!

We should also think about ChowHound and gazillions of similar sites where people discuss their restaurant experiences. There could be half a dozen sites covering your restaurant and you may not even know it! Your mess-up may end up being inspected by thousands of people trying to decide where they’re going to eat tonight.

Going back to my story, we didn’t know anyone locally to share our experience with so it’s hard to calculate the real damage there. But we are definitely not going back there this August when we visit Salt Lake City again. And hey, I’m writing about that incident here in this blog, right?

Now let’s try to put a price tag on this.

There are 2 ways to do that.

One is to use the Average Lifetime Profit Value. Say, your guests come — on average — 4 times a year for 5 years. That’s 20 checks. And let’s say they typically spend $24. So a guest is worth to you $480 in potential revenue or $160 in gross profits (at a very hypothetical 1/3 food cost, 1/3 labor, and 1/3 gross). Multiply that by 170 (the number of customers that one bad dining experience could cost your restaurant) and that’s $27,200.00 in lost profits!

The second way to see this is to look at your marketing cost. How much would you have to spend on marketing to get 170 people in? If you don’t know that number, you should. I betcha your Yellow Pages ad doesn’t pull in that many peopl,e and it costs you many thousands of dollars.

Now, given these numbers, how many “little mess-ups” can you afford before it’s all over?

Do The More Successful Restaurants Offer Better Food Than The Ones That Are Not So Successful?

Do the more successful restaurants offer better food than the ones that are not so successful?

Not necessarily. Or at least, not always.

Knowing how to cook is never a guarantee of success. And we all know of restaurants with “so-so” food and recipes that have managed to create a virtual monopoly in their markets.

One thing is certain though: If your product is bad, you can’t fix it with more marketing. The product needs to be at least “okay” or “good enough.”

The food is only a small part of the equation. Your customers have a number of “wants” and “don’t wants” when they visit you. The “don’t wants” are rather basic, really:

(a) They don’t want to get poisoned;

(b) They don’t want to be ignored or — worse — talked down to or yelled at; and

(c) They don’t want to wait too long.

The “wants” are a bit more elaborate, but they are nothing that you can’t provide if you’re running what could be the beginnings of a real business:

(a) They want their entrees hot and their salads cold;

(b) They want the wait staff to be helpful yet relatively invisible; and

(c) If they are dining with someone else, they want that person to commend them for suggesting your restaurant.

Notice that the grandma’s recipe from the old country or the fancy wallpaper on the wall don’t even enter the equation yet. Nor does it matter if your recipes are authentic, exciting, or were devised by Gordon Ramsey himself — unless and until you can fulfill the basic “wants” and “don’t wants” of your clientèle.

And if you’re saying to yourself, “Oh, but we’ve got it covered; these things never happen in my restaurant,” think again.

Even the best restaurants can’t deliver on all six items with any level of consistency. They recognize this fact and they work on it daily.

Which is what makes them the best restaurants around.

Hey, did you just say, “But my business is different!”?

Puh-leease!!!

Restaurant Marketing Formula

Restaurant marketing is simple. Not easy — just simple.

Yet it may not always seem that way. Flipping through the pages of an industry magazine or listening to some “guru” talk about all the things you need to do every day — on top all the other stuff you’re already doing — can be frustrating.

There is no end to marketing and business management approaches, tricks, and techniques. The worst part is that oftentimes the new trick you learn will conflict with another one that has been working for you just fine. And when that happens, the big question is, where do you start? And most importantly, what actions will give you the biggest bang for the buck?

The answer to these questions is easy to find if you know the Restaurant Marketing Formula:

F + R + M = $$

Anything you do or will ever do to generate more profits in your restaurant business can be described by this simple formula.

F is your first-time guests.

R is your repeat or returning guests.

M is your profit margin.

That’s all there is to it:

F + R + M = $$

Let’s now look at each element in the formula in greater detail.

F: First-Time Guests

Many marketing books and seminars will get you focused on the “F” in the formula. Buying Yellow Pages ads, doing Val-Pack coupons or Internet marketing — all these methods address the “F” in The Formula. While it’s important to keep doing things that help the “F,” this is the hardest point to improve and typically the most expensive one to deal with.

You may make very little profit — or no profit at all — off your first-time guests. And that is okay, as long as you’ve got the other parts of The Formula right.

If you’ve been in business for a little while, chances are you’re getting enough first-time guests coming through your door to build a sustainable business.

R: Returning Guests

These are the people who dine at your restaurant regularly. Getting your existing customers to come more often is a lot easier and far more profitable than trying to find new guests. If you are like most restaurant owners, you have yet to realize the full potential of the R in The Formula. Creating a VIP Club, a membership program or a newsletter are great ways to dramatically improve the “R.”

Here’s the big issue with the “F” and the “R” in The Formula: Before you work on them, you need to get the basic business economics of your restaurant right. Otherwise, increasing the “F” and the “R” will only suck out your profits faster. If you’re losing money on every check, you just can’t “make it up in volume.”

M: Profit Margin

In the restaurant business, profit margins are thin and fragile. Any unwise marketing or business decision can completely wipe out your profits. A small shift in your staffing or food costs can significantly impact the amount of money you make from every check.

“M” is always the right place to start. You need to measure and manage the profit margin of your restaurant business, and you need to do that consistently and regularly.

Here at RestaurantCommando.com, we will provide a lot of tips, ideas, and tools to help you improve your restaurant’s bottom line. We’ll review this formula many times, and show you how to apply it to your business to create more bottom-line restaurant profits.