Q: I know product costs are going to continue increasing. What are the realities we’re facing in 2013?

A: The summer of 2012 brought a severe drought throughout the mid-west and much of the United States. Though some prices have increased, substantial price increases will hit in 2013 according to the USDA Economic Research Service (http://www.ers.usda.gov/data-products/food-price-outlook/summary-findings.aspx). 

Increases are expected to be 3.0 to 4.0 percent. This cost increase is another $8,400 per $1 million in sales with an 80 percent food sales mix and a 30 percent food cost. Beverage pricing will continue to feel pressure as well. Implement these recommendations to avoid falling victim to inflation pressure:

  • Increase pricing on best sellers. Evaluate your best sellers and take small, insignificant price increases on those items. Price sensitivity tends to be less on best selling items. Nearly all menus have best sellers so taking a small increase on the highest volume items will add up. The important exercise is to look at your item sales for an entire year or extrapolate them if you don’t have the data (food AND beverage). The restaurant business has a surprisingly high number of small transactions. For example, if only 28 burgers are sold per day that number reaches 10,000 burgers sold per year. If a burger price increases from $8.50 to $8.95 that’s $4,5000 per year and the guest impact will be minimal. Take slow movers off the menu and replace them with products that have a better margin or better fit the brand.
  • Use I-1183 to your advantage. It’s time to change the way of doing business with liquor. Some companies had had phenomenal success by changing their approach to purchasing and are reducing their liquor cost leaps and bounds. Get familiar with different brands that have easy to tell, wonderful stories of artisanship and community, not to mention better pricing. Use brands that are not as easily recognized but are often better product. The big brands have the best marketing and advertising but rarely the best product for the price. There are many superior, less well known brands that will produce a better end product and the consumer will be thrilled with the taste and quality. You’ll be thrilled with the price. It’s simply an education process for staff, be sure to compare taste of the products against the better know, more popular brands. Once you have buy in from staff, sales will soar, they love to fight for the underdog.
  • Work with your vendors. Vendors are one of the most underutilized resources in the industry. You’ll learn something every time you take the time to sit with them and discuss your business. Your product distributors make their money by selling full cases and having full trucks coming to your location. It costs the average vendor between $50-75 to stop their truck, unload the truck, check in product, take care of the paperwork and drive away. The fuller, faster, and easier you make their deliveries, the better price they can offer. Start with two simple questions with your sales rep, “What can we do to make your business more profitable on our account and on what items can we get better pricing by changing our behavior?” Mutual benefit creates trust and better relationships and ultimately better pricing. Don’t cherry pick your items, work through a conversation on every item of cost consequence to the restaurant and use the 80/20 rule. It’s better to pay a little more on some items and less on items with higher usage.

This year is sure to bring a unique set of challenges. Being proactive and take action immediately to make sure this is the best year in the history of your business.

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