Don’t Let Food Cost Eat Up Bottom Line Profits

Food costs are the most significant driver of restaurant business profitability. For a typical restaurant chain, a million dollar reduction in food costs has the same impact on the bottom line as a $25 million increase in same store sales or opening 22 new stores. When a small change in this key input can lead to a magnified impact on the bottom line, costs must be managed aggressively – particularly in today’s inflationary and competitive environment.

Food service purchasing professionals combat rising costs and competitive pressures by negotiating strong contracts with their trading partners, obtaining the best possible price for the highest quality products that meet their specifications. Unfortunately, operators seldom recognize the full value of these efforts as they are unable to monitor contract compliance within their organization or across their suppliers, ensuring their units are buying the right products and paying the right price. Taken individually, pricing deviations of a few cents may appear small, but the cumulative effect across a restaurant chain over time can total several million dollars of untapped savings opportunities. Worse yet, off program purchasing reduces rebate and marketing funds collections and may lead to lapses in quality control that could lead to brand-damaging events.

Everyone agrees that better information – information about unit and system wide purchasing, contract and trading partner performance, marketing fund and rebate collections, quality controls and events, and customer behavior – is the key to addressing these challenges. In the food service industry, however, where complex business practices are often supported by manual processes in an environment that lacks any standards for communication among trading partners, “better information” can be hard to come by. It’s buried in disparate systems or stacks of paper remitted by franchises, distributors, and manufacturers. Even should an operator manage to aggregate all of this information and have the resources to review it, it might as well be written in Greek. Distributors and manufacturers are “speaking their own language,” referencing their own product and location codes, pack sizes, units of measure, and other descriptors that are meaningless to the operator. Countless hours can be invested in collecting and decoding all of this information without producing any real result.

So is this just the nature of the beast? Until recently, the answer would have been an unfortunate “yes.” There is, however, an alternative. Leveraging innovative technology, leading operators are auditing 100 percent of their purchasing, ensuring they are reaping the full value of their contracts and controlling quality, at the touch of a button. These capabilities alone can drive significant value to the bottom line, but are even more powerful when used as part of a larger, unified solution that allows operators to gain control over key business drivers and visibility into system-wide processes.

A “unified solution” begins with robust product information management, providing a single source of truth for key product and trading partner data. With this in place, additional capabilities can be layered into the system that not only support spend management, but also enable such key processes as promotion and inventory management, quality and compliance measurement, and business analytics.

Regardless of the business process being supported, “best of breed” technology solutions help operators ensure the right information reaches the right person at the right time, ensuring the right decision is made. While there are different approaches to leveraging technology in this manner, for any given approach to succeed it must include four key elements that ensure actionable information is put in front of the right person at the right time, enabling better decisions.

Elimination of Paper Based Processes

As long as critical data is buried in reams of paper sitting in file cabinets or off-site storage facilities, it’s useless. Given the quantity of data involved, manual conversion of paper to an electronic format is also a non-starter. Best of breed systems must provide for the electronic collection and standardization of data from internal and external sources.