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Wednesday, December 18, 2013

Does Going to a Locally Sourced Strategy Lead to a High Food Cost?

Everywhere you go this year, restaurants are featuring locally sourced foods.  You'll find lots of locally grown produce when in season.  Here in Northern Virginia many area artisans sell their vegetables, fruits, cheeses, breads and pies at the excellent weekend farmer's markets. 

We recently enjoyed breakfast at the Silver Diner in Springfield.  Here guests find a smooth blend of 1950s diner decor and all the hot food trends.  While waiting in line, guests are entertained by a singer who is letting them know the biscuits are coming out of the oven.  The diner has a bakery on the premise.  Silver Diner has made a commitment to healthier food.  They feature nitrate-free bacon and sausage from local suppliers, agave sweetened fruit toppings, organic produce, free range poultry raised without antibiotics, and farm fresh eggs raised by an Amish farmer.  The terrific coffee was freshly brewed with locally roasted beans.

Our check came to $60 for four people.  Everyone was very pleased with the food quality and the service was excellent. 

The locally sourced trend began heating up in 2010 and is very much a factor in many menus.  Organic produce is everywhere now and many guests restrict their restaurant visits to places with an all organic policy.  These trends are popular in every style of service from QSR to fine dining and continue on a path of solid growth.

Do restaurants featuring higher quality, locally sourced foods experience higher food costs?

The answer is yes if you focus on the cost of food per guest.  Some ingredients may cost three times more than a mass produced alternate.  To offset the higher cost of food per guest, a restaurant needs to sell the menu items for higher prices to enjoy the same profit margin.  Local competition and guest perception of quality will determine just how high you can raise your prices.

I personally appreciate the high quality coffee served at the Silver Diner.  I'm willing to pay extra for the hot, fresh beverage, and the aroma of properly roasted beans used in the brew.  We all enjoyed the jelly produced with sugar cane and the organic ketchup.  We let the singing baker know his biscuits were wonderful.  The $15 check average seemed reasonable for the quality of both the food and the service.

The line we stood in shows other people feel the same way.  I estimated the cost of serving each of our four breakfast meals at between $2.50 and $3.50.  Using an average of $3.00, the food cost % would be 20%.  Breakfast traditionally has a lower food cost %.  Frequently, the labor cost % is higher for breakfast. 

The labor cost was clearly higher than many local competitors.  They run the bakery on premise.  The fresh produce used in the menu items needs to be prepped.  All meals are prepared to order and the wait staff encourages their guests to speak up regarding special requests or allergy restrictions.

In summary, I feel the use of locally sourced, higher quality, healthier food ingredient options will cause your food cost per guest to increase.  If your operation is fighting with competition on price alone for market share, you need to understand the risk involved with a substantial increase in menu prices.  Your market may demand locally sourced items.  Make sure you cover your higher costs with higher menu prices.  Try to feature menu items and beverages which your guests can readily notice the quality.  A positive customer perception is critical.

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