Question: I believe in using only one food distributor but they are always changing the prices in areas I don’t have time to manage?
Answer: If you’re serious about making more money, you have got to know how your biggest, most volatile costs are running, not just once a month, but at the end of every week.
As a refresher Prime Cost is cost of sales (food and beverages) plus all payroll costs, including gross payroll of all management and hourly personnel and payroll taxes, benefits, worker’s compensation, etc.
Prime cost usually runs 60 to 65% of total sales in a full service restaurant and 55% to 60% in a quick service restaurant. And your food and beverages purchase are normally 50 5o 75% of those numbers!
First step is to create an automated system with your vendor to view purchase invoices online or receive them in some electronic format such as an excel worksheet. This should include all credits posted to each specific invoice such that you can match up the total invoice to your payments being drafted from your account or checks being written per invoice. Never assume the distributor is updating their records accurately.
Next process is to setup a system to hold the distributor accountable for price fluctuations that would impact your controllable profit. For example, most distributor discussions in the field focus on the ingredients for dough, cheese and sauce and toppings. It’s when you don’t have time to compare the toothpicks and cleaning supplies that you can get taken advantage. We recommend a system to monitor the increase in cost percentage of every item purchased from a distributor.
On your next purchase of that item your system will catch any honest mistakes in price increases or decreases or intentional ones that a foodservice representative charges to potentially generate a higher commission to be made on your account. Simply, take the time to get a quote from several suppliers and pick the distributor you choose to work with based on past service not price. Then share the costs with them and work out an accountable arrangement to keep integrity with price offerings so you can focus your time on new customers, marketing, and the entrepreneurial side of your restaurant.
Engaging in ongoing competitive bidding practices to get the lowest prices actually leads to higher foods costs.
Question: Why is sales mix of my menu items important?
Answer: Sales mix is a term that refers to how many menu items you have sold in a specific period. For example, one large pepperoni, two sausage and three small meat lovers will generate the restaurant a different profit than changing that combination to two large pepperoni, one sausage and three calzones.
Each menu item when costed properly generates a specific gross profit. Thus when added together in a given period a different combined result will occur most of the time.
That is why your overall food cost percentage is important as a weekly tool to monitor but more accurate monitoring should be had in identifying which menu items generate the highest gross profit in your sales mix of menu items. Specials could be generated and wait staff awareness to promote higher profitability items.
Most foodservice distributors can provide tools to generate food costing programs and then you will need to match up your weekly sales mix of menu items to determine which combination will yield the highest profit. Integrating costing with point of sale or cash register weekly sales data is often difficult but well worth the effort. This is one area the chains focus on since they have learned the profitability to their restaurant operations.