The Differences Between Direct and Indirect Spend

38% of operators say their restaurant was not profitable in 2023.

Are you effectively balancing exceptional dining experiences with healthy profit margins across your multi-unit restaurant? 

In this industry, where profitability is a constant challenge, mastering spend management is crucial. But how can you ensure that every dollar spent contributes to your bottom line?

Understanding the intricate differences between direct and indirect spend is key.

While the terms “direct” and “indirect” might sound straightforward, their application within the context of foodservice procurement can be multifaceted and nuanced.

What is Direct Spend?

Direct spend refers to the procurement of goods and services that are directly involved in the production and preparation of food and beverages for a restaurant or food establishment.

These are the expenses incurred on items that are essential for the core operations of the business.

Examples of Common Direct Spend Categories

• Food Ingredients: Raw materials like vegetables, meat, seafood, and spices for dish preparation.
• Beverages: Soft drinks, alcoholic beverages, coffee, and tea fall under direct spend.
• Kitchen Equipment: Expenses for ovens, refrigerators, knives, and utensils.
• Packaging: Costs for containers, takeout boxes, napkins, and disposables.
• Cleaning Supplies: Expenditure on cleaning products for kitchen and dining area maintenance.

Efficient management of direct spend is crucial for controlling costs and impacting the profitability of a restaurant or foodservice establishment.

What is Indirect Spend?

Indirect Spend refers to the procurement of goods and services that are not directly involved in the production and preparation of food and beverages but are essential for the overall functioning and support of the restaurant or food establishment.

These are the expenses incurred on items that are necessary for the smooth running of the business but are not directly related to the core operations.

Examples of Common Indirect Spend Categories

• Facility Maintenance: Covers expenses for building repairs, renovations, and equipment upkeep.
• Cleaning Services: Includes outsourcing for regular and deep cleaning of the restaurant premises.
• Office Supplies: Expenditure on administrative essentials like paper, pens, and printer ink.
• Marketing: Costs for advertising campaigns, social media, and promotional materials.
• Staff Training: Expenses for employee training programs and workshops.
• Utilities: Costs of electricity, water, gas, and internet services.
• Insurance: Payments for property, liability, and worker’s compensation insurance.

Indirect spend, while not directly impacting the food preparation, plays a vital role in the overall efficiency and success of the foodservice business.

Proper management of indirect spend can contribute to cost savings and improve the overall performance of the restaurant.

How do I manage my Direct and Indirect Spend?

At Consolidated Concepts, we understand the challenges of managing direct and indirect spend across multiple locations.

With our innovative technology and centralized approach to procurement, we offer actionable strategies to enhance your spend management practices and drive sustainable growth.

• Leverage Technology and E-Procurement: Implement technology to streamline processes, centralize supplier databases, and automate orders, ensuring efficient spend management.
• Centralized Procurement: Establish a dedicated team to oversee purchasing decisions for all locations, providing better coordination and streamlined processes.
• Standardized Supplier Agreements: Negotiate agreements covering all locations to secure consistent pricing and terms, minimizing spend variations.
• Implement Spend Analysis and Reporting: Utilize analytics tools to track spending, identify patterns, and uncover cost-saving opportunities effectively.
• Supplier Consolidation: Consolidate suppliers to negotiate better terms and achieve economies of scale, reducing administrative overhead.
• Group Purchasing Organizations (GPOs): Join GPOs to pool purchasing power and access exclusive deals negotiated on behalf of members.
• Regular Reviews and Audits: Conduct frequent reviews to ensure compliance with policies and identify areas for improvement.
• Implement Budget Controls: Set clear spending budgets and approval processes to maintain financial control.
• Training and Communication: Educate staff on spend management policies and promote adherence to guidelines.
• Share Best Practices: Foster collaboration between managers to share successful strategies and drive continuous improvement.
• Sustainable and Ethical Sourcing: Emphasize responsible sourcing practices to meet consumer demand and enhance brand reputation.
• Stay Updated on Market Trends: Access timely insights on market trends and emerging technologies to optimize spend management.

By partnering with Consolidated Concepts and implementing these strategies, you can effectively manage direct and indirect spend, optimize costs, maintain consistent quality, and drive sustainable growth across your restaurant locations.

Fill out the form below and join Consolidated Concepts today to transform your spend management practices for success.