Earlier in 2019, at the Restaurant Leadership Conference, industry leaders discussed the all-important fat bottom line. Instead of focusing on growing revenue, however, this discussion revealed important cost-cutting techniques designed to maximize savings and increase profits.

Let’s take a look at what these leaders consider the biggest impact on overall profit.

High Rents

Jason Morgan, the CEO of two emerging fast casual concepts–Original Chop Shop and Bellagreen—sees high rent as one of the biggest challenges that restaurants are currently facing. He believes that this is due, in large part, to the flood of money that hit the industry from the private equity sector over the last five years.

While some entrepreneurs and mega-corporations are willing to pay the price, others understand that, at a certain point, the risk is greater than the reward. Jason is one of those—a CEO who is willing to wait for second generation sites.

Which leads us to the solution for this pain point that many restaurants are facing—patience. Companies are waiting it out, allowing others to sign bad deals that will ultimately lead to second generation space.

Third-Party Delivery Fees

Like many in the restaurant industry, Jason sees third-party delivery fees as unsustainable. In his business, he’s seen these costs go from 100 to 300 base points over the last two years. The problem is that restaurants are feeling pressured into providing this service due to consumer demand, but, considering the rising fees, delivery using third-party services does little to fatten up the bottom line.

One solution is dispatch operations such as Olo. Using these dispatch companies, Jason shifted customers from third-party sites to the restaurant’s site, paying 10 percent per order instead of the commonly charged fee of 30 percent from third-party services. Customers simply order and pay on a restaurant’s existing digital ordering site, and the best-matched quote from an available delivery service provider pops up and is scheduled.

The Numbers

Jason Tipp, an entrepreneur in the Food Service industry and past CEO of Florida-based Pincho, a Latin American street food concept with 12 units, explained that the founders of this successful chain were not from the restaurant industry. Because of this, numbers such as prime costs and food cost were not prominent in their considerations. Once he came onboard, he stressed the importance of these numbers and developed stronger operations in order to reduce these costs.

One simple approach they took was enabling the general managers to really see the operations from the bones up in order to determine how to create a more efficient operation. They examined how long it took to do prep in the morning, how long it took to close a restaurant after the last guess was served, and how many employees were needed for these activities. From there, they were able to develop clear, cost-saving guidelines for their units.

Their other goal was to get their food costs in order—adding up the food they sell, the food they buy, and determining the percentage in sales, which required costing out all of the recipes. As Jason states, “You can’t ask a general manager to hit 28% food costs if the reality is based on input costs in your recipes that is 35%.”

Eric Sheen, CEO of Restaurant Partners Procurement, also see’s food cost as an operational issue. He puts it in terms of the 80/20 rule. In other words, only 20 percent is your actual cost while 80 percent is all operation controls. Therefore, it there is a food cost issue, the problem often lies in the operation, not the distributor.

One of their solutions is switching recipe measurements from ounces to grams, which is a more precise method. He also recommends investing in digital scales. Another area in operations that accounts for an increase in costs is pricing differentiation between the menu and the POS system. An example he uses to describe the impact that occurs when you don’t correlate the two is this: Iced tea was increased by 20 cents which was addressed on the menu, but not in the POS. Say you sell 50,000 iced teas—that’s $10,000 missing from the bottom line.

Another common error is not getting all the items, such as drinks, on the bill. To combat this, some POS systems won’t let your servers send an order to the kitchen before drinks are run up on the check. If the guests are only drinking water, you can put it in at zero charge.

There are a thousand tiny details that go into ensuring the highest profit margin. Another example Eric shared comes from an organization that sells 10 million pounds of chicken wings a year. They pulled out a couple of cases and found that the case count was at about 200, but their spec was for a 240-wing count. The wings had gotten bigger over the years, but the establishment sold by wing, not weight. They estimated that, over the last four years, they had lost about 1.4 to 1.8 million dollars a year.

Contracts

Vince Purves, President of Consolidated Concepts, the largest Group Purchasing Organization (GPO) for multi-unit operators in the U.S., is very familiar with distribution contract negotiation. He notes that it’s easy to negotiate your contract and then ignore it until it’s ready to expire some three years later. It is better, however, to remain engaged with your distributors throughout the year.

In actuality, the supply chain is affecting your cost of goods from multiple avenues including the shortage of drivers in the trucking industry to the price of fuel and insurance. There is much more to rising costs than just the cost of the product itself.

The question becomes: How do you hold distributors accountable to contract prices?

Vince finds that auditability is a key component. “Really make sure what you have from a contract standpoint, whether it’s your distribution or it’s your manufacturer cost contract, is truly and accurately in the system.” Don’t assume that distribution prices are correct. As with most data, it takes a person to key it in, and people are human and prone to mistakes. That’s one of the roles we assume at Consolidated Concepts, making sure our client’s systems are right, their prices are correct, and holding them accountable.” With increasing costs in real estate, products, and labor, it’s clear that restaurants looking to increase their profit margins must maintain tight operational guidelines and develop key relationships in the distribution sector. Consolidated Concepts can help reduce both food and distribution costs—keys to a fat bottom line.

Another avenue that restaurants are turning to is working with third-party consultants that help them develop a supply chain that can stay ahead of weather-related opportunities and challenges. Consolidated Concepts specializes in streamlining the supply chain for multiunit brands through the use of technology, partnerships, and procurement specialists.  

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The warm days of summer have given way to the crisp days of fall. In the not to distant future, meteorologists will be discussing arctic blasts, whiteouts, and blizzards that have left motorists stranded.

So, what does a restauranteur do when one of those stranded trucks is carrying their much-needed supply of fresh food? What contingencies are in place when rain-drenched California leads to a gap in the supply chain when it comes to fresh fruit, tomatoes, and artichokes?

If those in charge of operations haven’t bothered to look ahead, managers will find themselves apologizing to numerous unsatisfied customers and owners will find their profits falling.

While weather is hardly predictable, you can be certain that supply chains will be affected at some point in time by the coming winter. According to Resilinc’s Supply Chain Annual Report, 2018 saw global supply chain disruptions increase by 36 percent, in many cases due to extreme weather events.

Here are the steps you can take now in order to weather (pun intended) the storms ahead.

The Contingency Plan

Take an in-depth look at your needed supplies and the items on your menu that are most susceptible to a disruption in the supply chain. Then, develop a plan that takes into account weather variables that the winter season brings and find options when it comes to both supply and demand. Where there’s a will, there’s a way. Here are five points you’ll want to consider when developing your backup plan.

Substitutions

Accept the scenario that, at some point in the years or months ahead, products and ingredients that are key to your menu will be unavailable. Winter months can particularly disrupt those that have based their business model on the farm-to-table concept with a focus on sustainability and supply chain transparency. Locally sourced produce, meat, and seafood can be difficult to substitute when faced with a winter weather event.

On the other hand, produce derived from national suppliers can travel, on average, about 1,500 miles before arriving at its destination, making them more susceptible to weather-related events related to travel.

For these reasons, it’s important to develop long-term, strategic partnerships with both primary and secondary suppliers—both national and local. Look for suppliers located in different areas or those with varying growing techniques such as the use of greenhouses, warmed by the sun, or hothouses, heated by artificial sources.

After updating your supplier list, take a look at substitutions within your menu. When the summer of 2019 saw an avocado shortage that led to a 129 percent increase in pricing, some restaurants banned the delectable fruit altogether, switching out items such as guacamole with a cheese and bean-based dip or a “mockamole” made with green veggies and peas. Others chose to fool the public with “fake” guacamole made with calabacita, a Mexican summer squash. Probably not the best choice. 

Weather Alerts

Get a map out and pinpoint where all your key supplier’s manufacturing locations originate. Then, set up weather alerts for the areas that will most impact your supply chain. Once you have this visual in place, it’s much easier to find alternative suppliers in areas that would not be affected by the same weather events. The Business Continuity Institute (BCI) found that almost 70 percent of businesses did not have full visibility of their supply chain. Make sure that you fall into the 30 percent that do.

Build a Team

Being proactive requires developing a qualified team that is ready and trained to step up to the plate when a restaurant’s supply chain is threatened. Your supply chain management team should include disaster response—with each member understanding their role in managing and helping the organization through a disaster or weather-related event. One member may take the lead in contacting suppliers on the substitution list while another may procure space for protecting perishables should the disaster strike close to home.

Technology

Technology offers tremendous support in this area. Centrally storing all procurement data optimizes a restaurant’s ability to respond to supply chain disruption, particularly those with multiple locations. According to the BCI, organizations with technology embedded into their supply chain are much likelier to have business continuity arrangements.

Supplier management software can help a restaurant maintain real-time visibility into their supply chain.

Third Party Consultants

Another avenue that restaurants are turning to is working with third-party consultants that help them develop a supply chain that can stay ahead of weather-related opportunities and challenges. Consolidated Concepts specializes in streamlining the supply chain for multiunit brands through the use of technology, partnerships, and procurement specialists.  

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With the world watching Hurricane Dorian’s path along the Southeastern seaboard, restaurant operators are bracing for a storm of their own. In the world of food costs, Mother Nature is often the one x-factor that no one can control.

While commodity experts have projections on what they think will happen with crops each year, nothing can put a wrench in those plans quite like drought, floods, hurricane’s, freezes, or any other natural disaster.

So, when it comes to risk management, having a contingency plan for weather-related challenges should be top of mind, especially now. Citrus crops, avocados and anything else that grows in moderate temperate climates, specifically in Florida, are at risk. However, operators can pass through these unavoidable implications if they take the necessary steps to protect themselves and their supplies. Here are some ways to prepare and minimize the impact:

1. Create an acceptable list of substitutions for key / high volume ingredients that are critical to your menu. Examples of this include using blueberries in place of strawberries, plum tomatoes in place of layered tomatoes, and citrus grown in other markets.
2. Identify an alternative / limited menu in anticipation of certain products being unavailable. These can be used as limited-time offers until your original ingredients become available.
3. Pre-determine alternative sourcing for your top five to 10 critical items.
4. Adjust par levels and confirm the right pack size being used to minimize waste.
5. Utilize every and all local produce programs at your disposal.  The window of opportunity may be limited so work with your produce supplier to determine best opportunities.
6. If you can, use a frozen product in recipes that can easily accept them.
7. If you have room, plant a small garden inside your restaurant and capture the “grown here” flavor. While it may take some time for these plants to grow, you can always buy something that has a crop readily available.
8. Look to use greenhouse type products in your menu. This can definitely be done where herbs or other hybrid varieties of produce can be found.
9. Maintain flexibility whenever possible on menus. Avoid specifying particular vegetables or fruits whenever possible.
10. Look at alternate pack sizes that may be more cost friendly.

Nobody can truly predict what Mother Nature has up her sleeve. But by having a plan before the next natural disaster occurs you can better protect your ingredients, menu items and customer expectations. In regard to Hurricane Dorian now, have an alternative plan of action so your menu items and customer base have little cause for concern.

It appears that Americans will long remember—at least until the next hot topic makes the headlines—the war that erupted as the 2019 summer season winded down. It was a war that resulted in exhaustion for some, irritation for others and, as most wars are prone to do, great wealth for big business followed by tragedy. Yes, you guessed it, we are referring to the “Chicken Sandwich War.”

It started with a tweet. On August 12, Popeyes announced via Twitter that their long-awaited buttermilk-battered chicken breast sandwich on a brioche bun was on the menu. Their rivals, namely Chick-fil-A, Wendy’s, and Shake Shack, felt the first rumblings and knew their market share was at risk.  

Chick-fil-A responded with a tweet of their own which, of course led to another tweet by Popeyes—and the war had begun. Suddenly, according to Google Trends, Google searches for “Popeyes chicken sandwich” grew almost 1000 percent. Wow.

Millions of Dollars in Free Advertising

According to Forbes and Apex Marketing Group, Popeyes would have had to pay an equivalent of $65 million dollars in marketing for the attention it received. Not bad. Restaurants reported selling over a thousand chicken sandwiches in a day—with long lines and irritated customers creating havoc.

Just two weeks later, on August 27, the fatal announcement was made: Popeyes had run out of chicken for their newly claimed-to-fame chicken sandwich. Really? Just how did this extraordinary demand lead to a supply chain crisis? And is this a sign of the times when social media gone viral can disrupt the best laid plans? Originally, Popeyes believed their chicken inventory would last until the end of September, instead, they went through two months of chicken breasts in just two weeks.

In typical supply-versus-demand economics, someone even tried to sell a Popeyes’ chicken sandwich on eBay for $7,000. Only in America.

Disrupted Supply Chains

Mind you, supply-chain tragedies are a worldwide phenomenon. In February of 2018, the United Kingdom experienced the closure of 600 branches of Kentucky Fried Chicken due to a chicken shortage. According to The Sun, KFC’s new supplier, delivery giant DHL, faced challenges getting fresh chicken out to the 900 restaurants across the country.

Recently, when KFC tested a plant-based version of their fried chicken—Beyond Fried Chicken—at a location in Atlanta, they sold out in just five hours.

So, one wonders, just who was supplying the 2,400 Popeyes’ locations across the country with their chicken? (Currently, Popeyes is not divulging that information). And, why is there a shortage when the U.S. is expected to process a record 43.3 billion pounds of this poultry in 2019?

It comes down to the specifications of a certain product. Restaurant chains, particularly fast-food enterprises, don’t head to the big conglomerates, such as Tyson, and buy up massive chicken breasts. Their products are often made for quick turnaround and include breading, seasonings, or a specific size that requires additional processing.

Unfortunately, as Popeyes works out their supply dilemma and searches for new chicken suppliers, time is slipping away. As any in the marketing industry know, businesses need to ride the wave of viral fame when it comes their way. For now, McDonald’s is scrambling to create a chicken sandwich worthy of getting in the competitive game, while still maintaining quick service times, and Chick-fil-A and Wendy’s are still selling chicken sandwiches.

If nothing else, the war of the season reminds those in the industry the importance of streamlining their supply chain and developing their social media strategy. And then being prepared for the resulting avalanche of success should the nation take notice.

Consolidated Concepts helps multi-unit restaurants manage their supply chain and distribution agreements, including negotiating custom contracts for LTOs and specialty menu items. Discover how Consolidated Concepts can reduce costs while increasing operational efficiency and improving revenue.