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How To Deal With Rising Food Costs In 4 Steps

Rising Food CostsMore and more it looks official – the U.S. economy is pulling out of recession slowly but surely.  The restaurant industry is cautiously optimistic about sales growth this year and consumers appear to be venturing out of their downturn shells.

Unfortunately a growing economy – even one that’s growing so slowly – has started to creating more demand for basic resources like gasoline, which has spiked in price over the last few months.

That, along with many other factors, like mandates that divert crops into biofuel production, has started driving up the cost of food.

It’s bad news for restaurateurs, who have been through the mother of all price wars over the last two years in order to keep business flowing through their doors.  Customers may be eating out more often, but they are still very price sensitive and deal-hungry.

Despite this, most restaurants will probably be forced to raise prices this year.  Luckily, those increases will be relatively small.  Experts are predicting a 4% rise in food costs, which usually translates to pennies instead of dollars on menus.

Even so, many big chain restaurants are starting to tweak their supply chains in order to wring as much savings as possible out of the market, which has proven pretty volatile in the past six months.

4 Steps to Easing Your Pricing Pain

  1. Cut down on long-term supply contracts. Locking in prices for an extended period of time is nice because you insulate yourself against the risk of a hike.  On the other hand, you also can’t shop around for the best price and you generally lose flexibility. If you’re willing to put in the time, the following tips will save you money, help your margins, and minimize your price increases.  But don’t be fooled – leaving the comfort and security of a long term fixed price contract certainly involves risks.  Ultimately it’s up to you and your restaurant’s particular situation to decide if playing the market is right for your business. It all starts with limiting your long term commitments.
  2. Shop suppliers hard. There’s no room here for long relationships and friendly deals.  The big chains are using their buying power to bleed suppliers dry before moving on to the next guy with a better deal. You have to be the same way if you want to get the best prices possible.  You may not have the same buying power as Darden but you do have a choice, and you need to be brutally rational about every single one.
  3. Be flexible. There are more sources for more kinds of ingredients today than ever before.  That’s great if you’re shopping hard to supply your inventory.  But you also need to be flexible about the kind of ingredients you buy. That doesn’t mean you need to sacrifice quality.  Instead, take advantage of seasonal deals, local surpluses, and market trends to find the ingredients that are moving at rock-bottom prices, then adjust your menu and recipes to accommodate the ingredients you’ve brought in. This kind of reverse-engineering will keep your menu fresh while also saving you big on food cost.
  4. Buy in bulk. Since you’re spending so much time shopping, when you do find a deal snatch up as much inventory as you can possibly cram into the walk-in.  Of course you’ll have to walk a tightrope between storage space, amount of time to sell all that inventory, and available cash, but if it’s done right you can really save by buying up sale items cheap. It may also be time to expand your storage space in order to ratchet up more savings on larger bulk buys.  Of course you’ll have to weigh the trade-off between the cost of a new walk-in and the savings you can realize, but between cheaper inventory rates and a tax write-off for the purchase, you should be able to make your investment back in a reasonable amount of time.

Limiting your long term supply commitments and playing the local, seasonal, and oversupply markets takes time, creativity, and a tolerance of risk.  But if you’re willing to play the game you can be handsomely rewarded.

About Greg McGuire

Greg has blogged about the food service industry for years and has been published in industry magazines, like Independent Restaurateur and industry blogs like Restaurant SmartBrief. He lives in Colorado with his wife and two sons and enjoys reading, live music, and the great outdoors.

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