How are you controlling food costs through this difficult time

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Permalink Reply by Jeffrey Mitchell on July 5, 2008 at 8:27am

Re-evaluate your purchasing. Having been on the sales side recently, there is a lot of uncertainty there as well. There is nervousness about people's ability to pay and a customer's ability to survive. Logistically, they face struggles with rising fuel costs, and the commodities market, as ethanol has such an impact on corn prices (and everything that eats corn, i.e. chickens, and beef). Notice I have not even mentioned the other competitive pressures that are always present.

While it probably impacts the independent, more than a large company with a purchasing department, some of these strategies that we just implemented should be shared.

I know the mindset is "if I have multiple vendors, none can get too greedy." I have experienced that on both sides of the business. But, as I said above, the current market, vendors want commitment. One location in our company had the mentality that three vendors in the business would cause cutthroat competition at his food cost benefit. Not so, we just shaved 75 basis points off our theoretical food cost by eliminating competition and going into an 80% agreement with one of the vendors.

Being back in operations, I feel like my jaunt to sales has made me a better customer. We no longer need to "squeeze" the rep. It is interesting when you get in sales to find out all the pieces of their business. Some great examples that most people do not think about:
- Everyone wants a morning delivery, will they shave some margin points if you take a less than ideal delivery time?
- Credit is money too. Financially, it benefits a business is to delay our Accounts Payable as long as possible to maximize the float (interest) on that money. But, every dollar we earn in float, costs them. Do you really need net 30 terms? Do you have them, but pay weekly? Credit terms are often part of the pricing equation for reps - longer terms means more worries that you might get in too deep, and never pay them (bankruptcy). Take shorter terms in return for better pricing.

And, last but not least, ask your rep. If you have a good relationship, they should be able to help you out with different product lines, promotions, or rebates. If they know the partnership is strong, and they do not have to worry about someone else getting in the door, they will make it worthwhile for you.

Permalink Reply by Jeffrey Mitchell on July 7, 2008 at 7:21am

The ideas I had would more likely apply if you don't have a Primary Vendor. Most agreements have all those terms set (drops, drop size, terms, and usually a fixed margin on categories).

Use these pointers on your backup, or on your primary, without using a Primary Vendor Agreement.

And, Joe raised a point I forgot - you can use online ordering to see your prices BEFORE ordering, and, by ordering online, you may be able to get your rep to reduce your margin even more.

Permalink Reply by Tony Martinez on August 19, 2008 at 1:08pm

This may sound crazy, but I've found it to be true...look at your recipes and the products you're using to produce your menu items. Use higher quality (and more likely higher priced) items....hang with me here for a second, I'm going somewhere with this...

I've found that by using better quality items, I don't need to use as much in my recipes and as a benfit to the customer, they have a better dinning experience. Now how this helps my cost is like this...

Cheese that is 100% real, no additives, preservatives and has never been frozen is more expensive, but I'm using 30% less on my pizzas, getting better performance, better flavor and I can tought the benifits to my customers...they have a better experience and come back more often. They also bring others to experience the pizza and brag about the secret they've found...now they're building my business for me!

I can't say with 100% certainty that this will work in every application, but it's working for me...just a thought for you too.