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Friday, October 31, 2008

Major Drop In Food Cost

Fall is in full swing and the days are getting shorter in the Northern Hemisphere. Here in the Mid-Atlantic, it is now soup season. Soup sales have a tremendously favorable impact on food cost percentages. There are many ways soup helps the operators.

When I worked in the remote site camps, we always had huge stock kettles full off peelings, bones, trimmings and other bi-products of the prep process. The chefs made highly profitable soups, sauces and gravies with the stock.

Slow cooked roasts and mashed potatoes make a comeback on football game days.

In addition to the favorable seasonal impact, gasoline prices are now in the $2.25 to $2.75 range (down from over $4 per gallon this summer). Lower fuel prices help our industry in many ways.

We should see drops in the fuel surcharges and in the case costs from broad line distributors. Customers will see their disposable income pickup as they pay less for filling their gas tanks.

As corn prices continue lower, we'll enjoy better prices on beef, poultry and pork. These lower prices come to the patient as it is common for beef rib 109 to spike during the Christmas season. Watch the markets for buy signals.

Consumers are looking to save during the week. If you can engineer profitable budget meal options for dining in or for take-out, you'll have an edge.

The stock market just had its best week in years. Some of the people who had their 401K slashed to a 201K will begin to feel better about their retirement years. Hopefully, we'll see less pessimism in the press.

Friday, October 24, 2008

Squeezing The Lemon

Operators are working the monthly income statements searching for ways to generate more profit. Many operations are running just above or just below the break even point. Profit improvement efforts produce a huge impact at the break even point. A 1% drop in costs may be the difference between profit and loss.

Sales are tougher to come by this year. If you find you continue to break even once sales volume improves, its time to implement an aggressive cost cutting campaign. You can't afford to miss these opportunities to put money in the bank. A 1% rise in sales won't equal the profit produced by a 1% drop in costs. Every dollar of sales requires food and beverage to be served to guests. This cost of sales reduces the income produced by the gain in sales volume.

With guest counts down and average checks off, there may be a huge temptation to fill seats through huge discounts. This strategy risks losing profitable seats on a busy night. Discount lovers take seats which could have produced superior profits. Rather than offering discounts at every meal, you could offer busy night patrons a discount for a slow early week meal period.

Cost cutting efforts produce profits faster than incremental sales improvements at the break even point. Many managers have already cut their cost of sales to the bone just to stay afloat. If you have squeezed all the juice from the lemon, try some new ideas. I'd start with direct operating expenses. Check on linen usage, sewage bills, utilities, garbage pickup, paper and disposable usage, and other costs which do not help produce additional sales.

You may be able to reduce your costs by closing earlier on many slower nights. Late night hours on slow nights are very unprofitable. Late night sales potential may not justify the labor costs. Compare your final hour's sales less the cost of goods sold to the labor costs for the same hour. If you can't cover labor, you'll save by closing earlier.

By finding cost savings and improving the quality of sales volume, operators can gain an edge over the competition.

Thursday, October 16, 2008

Some Let Up In Sight

Oil is trading below $70 a barrel today for the first time in over a year! Hopefully, we'll see the grain prices which have followed crude prices continue their downward trend. If you haven't locked prices on your high volume items, you may want to let the market drift lower.

Lower oil prices will eventually make the price of gas cheaper and this will give consumers more discretionary income. Your delivery fuel surcharges should be moving lower. As lower energy prices revive the food service model, we should find lower cost of goods sold, lower heating and cooling charges, and higher customer counts.

The federal government's recent decisions may not jump start the housing market but the inflation fears should be less. This will help keep interest rates low. Americans are adjusting to the reduced access to credit and they are watching their expenses closely. Value menus will still have the edge. QSR patrons like to build a meal from a value menu. Casual dining guests are searching for meals below $15.

Generally, the recent crisis should give way to a challenging but manageable business climate for restaurants. If you are in range of the break even point sales level, some proactive measures may help put you in the black. Make sure you challenge fuel surcharges. Look at the invoices from 2 years ago and document the increases. If you haven't been able to raise menu prices, the lower cost of sales will immediately help your bottom line. Stay on top of market conditions.

David Maloni, of American Restaurant Association, now offers a free portal Commodity Central with daily trends in the futures markets. Both Hogs and Corn futures are down over 4% today. If these trends persist, you'll see lower invoice prices.

Restaurant Data Pros

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