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Wednesday, September 10, 2008

Food Cost Benefit

As we see oil prices beginning to drift lower (after threatening to go above $200 per barrel this summer), corn just hit a one month low. Prices of certain commodities are still near historic highs but this decline is a positive for restaurant operators.

On the micro-economic front, the industry has focused intensely on food cost control. Restaurants are buying less expensive ingredients and watching their storage areas closely. I hear lots of stories about tight cost control each week. The energy is moving beyond cost of sales. Operators are looking at power bills, sewage usage and garbage pickups. No expense category is ignored.

In the long run, the macro-economic conditions will improve and sales will rise. Smart operators will continue to control costs tightly. Future operating margins will be better than before the current downturn.

The coupon fever in our region has cooled a bit. Beverage sales are still off from the peak but a greater % of patrons are ordering drinks. Budget conscious guests are loosening up a little and splitting a dessert item again.

I was in the field last week and flights seem fuller. Airport restaurants were doing a brisk business in Washington and Miami. Fellow travellers seemed to be willing to pay for a meal before going to their gates rather than purchasing a sandwich on board. Portion control can be seen everywhere as kitchens carefully monitor the center of the plate ingredients.

Investments in cost control systems and tighter policies will payoff for years to come. Lower commodity costs and a drop in energy prices could accelerate the speed of the profit improvement in 2008.

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