Q: I’m interested in improving my margins this year.

I don’t want to overhaul my menu, and I think my prices are where they need to be. Where should I start on the cost side?

A:
The largest cost target on the restaurant P&L is prime cost, which is made up of cost of goods sold and fully loaded labor. Cost of goods sold is primarily made up of food cost and beverage cost. The discipline for running great costs in cost of goods is the same whether it’s food or beverage. It begins with the purchase and ends with the sale. Everywhere in between is ripe for improvement. Regardless of restaurant size, any business can be world class and improve margins by functioning tightly in the following areas:

Optimize purchasing habits. 
Study POS sales mix data for what sells most. Take the top 20 percent of sellers on food and beverage, and analyze the recipes for each. Analyze pack sizes and pricing for the items most frequently used in those recipes. Optimize purchasing of those items. Ask your vendor if there is a better pack size or bottle size that has better pricing per unit of measure. Simply meeting with your vendor and asking what can be done to bring the price down on those items yields better results. They know their products and pricing. The second important discipline is to ensure an item has multiple uses. All items need to be in more than one dish or drink otherwise you’re paying or wasting too much.

Professionally receive product. 
It’s estimated 50 percent of all product cost problems come through the receiving process. It’s important to have a trained receiver accept all deliveries. Don’t skip the important step of accepting an order which is to count or weigh those items sold by the each and pound. Match the delivery up to what was ordered and the invoice not just the invoice. Inspect all product and reject what doesn’t meet specification. Lastly, don’t let the driver put the delivery away. It’s much easier to miss items when they are already in storage or miss an important rotation of product when the vendor delivers into storage. The incentive of the driver is to get in and out as fast as possible not to ensure accuracy.

Store as little as possible on hand. 
Inventory is like toothpaste. As you work your way to the end of a tube the value of the toothpaste goes up. You carefully ration the toothpaste until you can get a new tube. Once you obtain a new, full tube of toothpaste the end of the prior tube is quickly discarded in the trash as an inconvenience. The same principle applies to ingredients. The lower in the bottle the more precious that bottle unless there are several others in storage or readily available. For beverage target about 30 days of cost in inventory, for food target about three to five days to keep inventory low and fresh. This will be more difficult the more remote the location or the ingredients, be careful to keep close to seven days of cost.

Make sure to count product often as well. Weekly inventories provide the best control. They become more efficient and the amount on-hand tends to decrease as managers don’t enjoy counting and recording a huge inventory. Lower inventory also keeps more cash in the business. For high end proteins and liquors count them daily and reconcile them to what was sold out of the POS. The more frequently you count the more familiar you’ll be whether the product was sold, wasted, or stolen.

Portion as accurately as possible. 
For food, in the heat of the rush portions are more likely to be off recipe creating unnecessary margin bleed as they are sold. Pre-portioning allows line cooks to be accurate and fast, serving the right amount. In the bar having pre-mixed mixer or drinks on tap will help keep drinks consistent. Keeping a wine glass with a colored water pour as a measurement will allow accurate pouring of wine. Make sure beer has an appropriate and necessary head on it and is not being poured off. In a restaurant where sales are $1,000,000 per year with a $25 guest check average 40,000 guests are served annually. A little off on 40,000 is a big number, be as tight and accurate as possible.

Improving margins can be fun and easy if you apply great discipline and stick to it. What gets measured gets managed. Increase your focus on these fundamentals and you’ll see a 2 to 5 percent reduction in your cost.


For more information on improving profitability and driving sales, contact AMP Services at rbraa@ampservices.com. Rick Braa is the co-founder of AMP Services, an accounting and consulting firm specializing in helping companies grow profitability.