Strength in Numbers: Reducing your food cost could be easier than you think

From the spring 2018 issue of Canadian Restaurant & Foodservice News

By David Scott Peters

If there is one thing that doesn’t change, it’s death, taxes and restaurateurs’ rising food cost. Sure, there are some ingredients that may drop in price due to seasonality, but odds are they’re going up year over year, and you can only raise your prices so much before you price yourself out of business. You can’t just keep watching your profit margins slip away with each delivery truck that pulls away from your back door, so what’s a restaurant owner to do?

It’s all about attacking your descending dollar report.

Step One

You will need to gather some information from all of your vendors and every business you purchase food from. You’re looking for what broadline distributors is called a descending dollar report or descending case report that shows your last six months of purchases (or since you changed your last menu flip). The descending dollar report will list all of the products you have purchased from that vendor for the time period sorted in the order of what you have spent the most money on down to the least. You might have to put in some work and put together your own spreadsheet if you’ve been getting handwritten invoices.

Step Two

Once you have all of this data gathered and in spreadsheet form, you will combine all of your purchases and sort that spreadsheet from what you’ve spent the most money on to what you have spent the least amount of money on. It will look like this:

In this example, the total food purchases for this report were $64,146.43 for all vendors and stores. You will notice that the first 12 items are highlighted in yellow. When you add these highlighted items together, it comes out to be $32,786.78 or 52 per cent of the total $64,146.43 in purchasing. What this demonstrates is one simple overlooked fact in the restaurant business: Your top 10 to 12 purchases represent 50 per cent of all your purchasing! So what does that mean?

First, let me share a little story

At one point and time in my career I was the COO of a 30-unit sports bar chain as a franchiser. My team was in charge of getting the best purchasing deals for our franchisees. Over the years I learned something that most restaurants in the United States don’t know about the broadline distributors. I learned about something called marketing money.

It’s pretty common knowledge by now that when you go to a grocery store, all of the products on the eye-level shelves occupy premium space on store shelves, a privilege that manufacturers pay for. This product positioning is meant to influence us to grab the products and put them into our carts, and manufacturers have learned that this is critical to getting their products sold.

Well, the same practice is true in the distribution world. Your broadline distributor will sit down with their manufacturer and ask for their best price. Once they get that price, the distributor will say, “Now add $5″—random number, just as an example—”a case to that price and give us that $5 back for each case we sell and we’ll put you in our book and sell your product.”

This is known as marketing money. Before you get upset about it, know that it’s a common practice with all distributors and is just the way it’s done.

Now, as a franchiser, we learned we could bypass this marketing money by bringing in a new manufacturer that wasn’t already in that distributor. For example, in our chain we used Anchor Appetizers. At the time, we were approached by a new appetizer company called Great American Appetizers, which was set up by some ex-Anchor guys. We flew out to visit them and determined that switching to their product made economic sense for our franchisees as the savings were significant.

Because we had 30 units, we were able to get a slot in our distributor’s warehouse for this new product. And because we brought them in, there was no opportunity for the distributor to negotiate marketing money, which meant instant savings for our franchisees.

Step Three

Now that you know there could be products that are available to you at a lower cost, here’s what you do. Take the top 10 to 12 products in your descending dollar report and ask your food salespeople, “If I promise to buy all of this product from you over the next year, can I get a better price?” If you’ve ever been to a food show, you understand that if you promise to purchase a volume of product they’ll lock you into a better price for it. Well, distributors are able to do the same.

Take Action!

Using my appetizer example, by asking this question, your salesperson would open their laptop, do a search and find the Great American Appetizer products and give you the opportunity to purchase it. The results will be amazing. If you could purchase the same groceries out of your top 10 to 12 items on your descending dollar report for less, you may see as much as a two-to-three per cent savings! So what’re you waiting for? Gather the data, negotiate the terms and reap the rewards!

David Scott Peters is a restaurant consultant, speaker and founder of TheRestaurantExpert.com, offering an exclusive online restaurant management software designed specifically to meet the complete operational needs of independent operators. For more information, visit www.TheRestaurantExpert.com.