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THE LAW OF NUMBERS - CONTINUED - HOW TO CUT COSTS

Mar 14, 2016
Article #325
Author: Mel Jones

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A couple months ago I wrote an article on how to reduce the cost of running your restaurant business, or any business for that fact,  by reducing the number of items you need to keep track of such as food and paper products. This article received great reviews.  Many have asked me to write in more details on how to go about implementing this concept in your restaurant. 

This blog focuses on reducing the time spent on food and paper items and therefore reducing the overall cost structure with the theory being the fewer the items to track, count, inventory, prepare, move around, space, pay bills, etc. the less man hours as well as the less spoilage and theft will occur.

The first concept a restaurant owner needs to understand is there are items in the kitchen taking an enormous amount of time and space to manage (order, maintain, pay for, inventory, prepare, etc) and there are items that take little time to manage. For example, salt is a low price commodity requiring little time to manage and one can buy several months supply of it and it won't spoil nor does anyone want to steal it.  Fish on the other hand spoils quickly, takes-up lots of space, it is hard to predict demand, is very expensive and has a high theft rate. 

Here is where you'd start.  The typical kitchen contains three types of items.  I categorize them as A, B, C.  A items account for 80% of the value of your food inventory, but very few actual items numbers, while C items account for perhaps 5% of the value of your food inventory and 80% of the item count.  B is every thing else like fruits and  most vegis, frozen items, and certain spices.  

Your money is in the A items. So your focus needs to be on those items.  This blog will focus on those items for now.

Those items are usually the proteins, certainly vegetables and fruits as well as certain special and expensive spices. These should account for roughly 20% of the item count. These need to be looked at closely to determine if you need all of them of has your menu evolved over time.

For example, I visited a BBQ restaurant a few months ago.  This restaurant over time went from carrying 2-3 protein items to perhaps 10.  They went from making 3-4 sides to making 15. He was making some 10+ BBQ sauces as well. He couldn't get his labor or food costs down to industry levels of under 30%.  He was trying to satisfy every possible customer's needs. 

No matter how hard he tried, he couldn't get his labor or food cost under control.  Now let's think about the labor. He's making 15 side dishes every day. That's got to be using plenty of man hours to prepare them.  He's preparing and cooking 10 proteins every day.  That's taking a lot of man hours to do.  So how could he reduce labor unless he reduced the number of items being made?  He can't!

He was afraid to make changes to the menu, which is a common fear in this business.  Fortunately, the fear is unwarranted.  If you make the best product, give the best service and provide a good value, people will come even if you remove a few items from the menu. 

So this owner implemented some of these changes as I write and if he truly does what I suggested, he'll see his labor drop from 38% to the high 20's. He'll see his food costs drop from the 35% range to the 30% range as spoilage is reduced, and with fewer items to track, he'll be able to monitor theft better. His product quality will improve as the labor isn't being forced to prepare so many items in s certain fixed period of time. 

How many times have we seen restaurants packed and we look at their menu and its simple with few choices, but the choices are the very best product one can find in the area. 

To conclude, limit your A items to as few as possible and don;t get sucked up by the idea you're going to lose customers because you take something off the menu.  It just isn't so. By making the best of a few items, you'll gain customers and loyalty and even a following. 

                                                                                                                                                                                                                                                       

We at SellingRestaurants feel obligated to educate the public, our customers and our clients with information that can help them make more intelligent buying and selling decisions. 

Mel Jones is one of the premier restaurant brokers in the nation having published hundreds of articles on buying and selling a restaurant and bar business, selling thousands of restaurants in CA., WA and AZ and building one of the most copied business models in the brokerage industry.  Mel started SellingRestaurants in 2004 with the one simple concept, give the buyers the information they need to make intelligent buying decisions without being pestered by a broker or hiding information, prepare the business for market by researching key details that make or break deals and educate the buyer on the buying process to create an intelligent buyer.  Prior to SellingRestaurants, Mel was a Chief Financial Officer for Universal Music Group, the largest music company in the world.  There he participated in more than $11.5 billion of merger and acquisition transactions.  He also work for top companies such as Nestle Foods, USA. He hold a Bachelors in Business Administration Finance as well as atteneding Law School at Gonzaga University.  Give Mel a call at 480.274.7000 or e-mail him at [email protected] if you have any questions. 


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