The cost of the food and beverage your restaurant sells is referred to as your Cost of Goods Sold (COGS) or food expense. It is one of the few variable costs in the restaurant business. With the profit margin in this industry being so low, it is extremely important to not only control your food costs – but to find ways to constantly whittle away at them without impacting your customer’s experience.
There are many practices to reduce your food costs, but did you know that you can save money by altering the way that you order product?
Below are three ways to reign in your COGS through wise purchasing practices:
- Minimize vendors to harness your purchasing power. Take an overall review of how many vendors you are using and at what volumes. You should be able to obtain 80-90% of your food purchases from 2-4 vendors. Once you determine which vendors can accommodate most of your needs, talk to those vendors about discounts. There are usually discounts at every level of purchase. For example, many vendors have a tiered pricing structure that gives an automatic discount once you order certain quantities of product. Other vendors may agree to discounts if you can guarantee an agreed upon volume or dollar amount. If you only spend $200 per month with a vendor, ask if you can have a 3% discount if you agree to a three-year contract.
- Eliminate the purchasing of specialty items. Take a good look at your product mix and determine which are the highest sales velocity and the highest margin and create new menu items incorporating more of these items. Also, try to find any ingredients that are only used in a few recipes and rework those recipes to taste great without that specific item so that you can nix those items from your orders. For example, if you purchase saffron but only use it in one dish on your menu then find a way to substitute the saffron for another herb that is used in a numerous other menu items.
- Control days on hand (DOH) inventory. DOH measures the average number of days you hold inventory before selling it. For example, if you order 180 lbs of chicken and use 30 lbs of chicken each day then that chicken is on hand six days, meaning it will take you six days to use the entire order (180 / 30 = 6). However, if you order 1800 lbs of chicken your DOH becomes 30 days. Not only does this mean that you have to make room to store a large amount of chicken, you also raise the risk of increasing your costs due to spoilage. By taking a look at your historic use, you can gain enough visibility to order only what you know you can use in between deliveries. If you are receiving a quantity based discount, then talk to your vendor about storing the product in their space and only delivering it as needed. This will ensure that you are freeing up your coolers and the vendor will rotate out the product so that it is fresh when you receive it.
Be sure to revisit these reports every few months to make sure that you are staying on top of what is selling, what is not, and what costs have increased due to season, market, trends, etc. Make a point to run reports at least quarterly adjust your menu accordingly in order to keep your costs low and profitability at its peak.