While some restaurants are slowly reopening their dining rooms or patios and others are seeing equal or more revenue with online ordering versus pre-pandemic times, things in the restaurant industry are still slow-moving and uncertain. While you can’t control all aspects of your business right now, one thing you can control is some of your restaurant costs. Here are a few ways to tighten up the budget and save money for the future of your business.
7 Ways to Keep Your Restaurant Costs Down During the Coronavirus Pandemic
1. Optimize Your Restaurant’s Prime Cost
Restaurant prime costs combine your product costs (commonly referred to as COGS or “cost of goods sold”) and your people costs. On the product side, you’ll include everything from fresh produce to spirits, coffee filters, and other food and drink-related supplies while people costs cover salaries and wages along with taxes, insurance, benefits, and any other expenses associated with maintaining a team of employees. What’s not included are one-time, non-inventory costs like a power bill, equipment repair, or new track lighting for above the bar.
The formula looks a little something like this:
Calculating your prime cost takes the guesswork out of how much you’re spending on things like inventory, part and full-time staff, and other variables called “controllable expenses.” It’s a simple calculation with powerful implications.
While it’s helpful to understand money out, let’s not forget about money in, AKA your sales. Dividing your product and people costs by your total sales produces what’s called a prime cost ratio: (COGS + TOTAL LABOR COST)/SALES = PRIME COST RATIO
You can calculate this contextual ratio for virtually any length of time (daily, weekly, monthly, etc.), but as a general rule, the more often you run the numbers, the more reliable an idea you have of how you’re faring financially. If you only check in on your prime cost ratio every quarter, for example, you likely won’t be seeing the full picture. This limits your ability to continue to build cost-savings and other efficiencies into your business.
Keep in mind, too, that the goal here is not just to optimize your prime cost percentage, but also to achieve a consistent result over time.
2. Manage Labor Costs More Efficiently
We understand this can be a sensitive subject right now with layoffs and furloughs, but managing your labor costs is an important part to keeping your prime cost within an ideal percentage.
Using scheduling and time and attendance systems to ensure you have top-level visibility and can identify which employees might go into overtime before it is too late. These systems can also point out if your employees tend to clock in early or hang around before actually getting to work if you pair the system with a quick inspection of how your staff starts their shifts. Try turning your data into visual reports that are an effective way to quickly evaluate multiple sets of data at one time—and crucially, identify outliers.
Invest in training your staff. They will be less likely to leave, and be more productive while they work because valued employees that are put on a path to professional growth aren’t going to ditch you for another restaurant that doesn’t offer those things and, sadly, too many don’t.
3. Partner With Other Businesses to Increase Revenue
Small businesses outside of the restaurant industry across are struggling as well, so join up with another nearby business on a collaboration that benefits you both. Everyone loves a collaboration, from coffee roasters and beer brewers teaming up on a co-branded coffee porter to local restaurants and retail or spa services teaming up for a “date night in” package. If your restaurant is known for something that can easily be sold as retail – a pasta sauce, salad dressing, or margarita mix, for example – find a local bottling company and sell it in house and at local retail stores.
Providence Bagel in Rhode Island is collaborating with local businesses by offering up their drive-thru window for restaurants or food pop-ups that are struggling to get their food out to the masses due to lack of space or other logistics. After their North Providence location closes for the day at noon, another business comes in, sets up, and sells in the evening. They’ve dubbed their mission the Doomsday Drive-Thru.
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4. Maximize Your Inventory
While we always want to be mindful of food waste, getting the most out of every item you purchase is especially important now. Get your creative juices flowing and come up with ways to use fruit or vegetable scraps that might otherwise get thrown out (think soup stocks, cocktails, baked goods, and more). Even better, layout some ingredients that need a purpose for your staff and create a Chopped-style challenge for them to come up with the best way to utilize ingredients that are nearing expiration.
5. Use Seasonal Foods When Possible
Often seasonal foods are less expensive because of their abundance during their harvest season! Maximizing on these opportunities will not only help you keep your cost in check, but also provides an opportunity to possibly work with local suppliers who also need a hand.
6. Make Menu Changes That Increase Profits
Are there dishes that guests order infrequently and/or take up a large portion of your food costs? Reworking the menu a bit could help your chef capitalize on what’s available and drop dishes that aren’t as popular. (If there are dishes that aren’t selling much but you find hard to completely part with, introduce them as weekly specials instead.)
7. Don’t Rely on One Vendor
While shopping around for best prices can be a time-consuming task, it’s important to know what the competitive prices are for products, as well as what fees and charges are built into your final bill. Some vendors may charge freight or delivery fees that other vendors may waive if you bulk purchase items from them. All of these bill amounts affect the bottom line of food cost. Even if there’s a vendor you’ve used for years and are comfortable working with, it couldn’t hurt to shop around and at least see if they are able to match a lower price.