Every restaurant owner knows keeping costs down is the biggest key to turning a profit.
In the restaurant industry, margins are tight. You need to know how to get the best prices with vendors so you stay in the black. Whether you’re running your first restaurant or your sixth, knowing how to get the best prices with vendors, negotiate, and keep costs down is a vital skill. Restaurants are tight ships and there’s not much wiggle room to spare. If you can save money, you’ll please your customers with competitive prices and attract top talent for your staff with fair pay. Here are five ways to save on restaurant costs and keep your business afloat.
As a restaurant owner, food and vendor costs probably keep you up at night. Commodities from bananas to lobsters change prices with the market, sometimes on a daily basis. Staff turnover will wreak havoc on your restaurant too, so you want to keep your pay competitive. Customers demand quality and value, so you must keep prices down. Industrial equipment costs a bundle…It’s no wonder you’re lying awake thinking of ways to save on restaurant costs.
In an inconsistent industry, there are a few consistencies you can rely on. Certain costs stay relatively fixed: your rent, staff, and utilities like water. There are also ways to save when you’re working with vendors and suppliers of food and equipment. Like any business, you want to pay attention to the market, buy when prices are down and stretch your inventory when prices are up.
Here are five ways to save on restaurant costs and negotiate the best prices with all your vendors. You can save on every item from equipment to food (from soup to nuts)!
5 Ways to Save on Restaurant Costs
1. Learn Which Prices Fluctuate
While many restaurant owners may assume vendors are giving them the best price for an item, prices from the same supplier may actually vary from customer to customer—even on the same day! Vendors may change prices based on their relationship with the restaurant owner, the volume you purchase, delivery location and many other factors.
While the fluctuations aren’t huge (in most cases price variance is less than 25%), it certainly adds up over time. Hold vendors to their quoted price (ask for a quote in writing), do your research and always ask them to cut you a deal, especially if you’re a regular customer.
A word of caution on negotiating volume discounts, however. A volume discount on a single ingredient may not be as lucrative as a volume discount for a total order. It’s important to look at the quantity as well as the price when requesting a “deal.” Don’t fall prey to the illusion that a bigger bag means more. Often times, a vendor is more likely to give you a greater discount on your total purchase.
It’s also important to understand many prices fluctuate for a variety of reasons—not simply the whims of your vendors (in fact, they often have very little to do with it). A vendor management tool like PlateIQ will help you see increases, changes and trends over the course of a month, quarter or year. Keep an eye on upward trends in case it’s time to negotiate with a new vendor or adjust your menu.
Speaking of keeping an eye on trends, food fads will greatly affect your prices. Whether it’s kale, avocado toast or bone broth, the latest trend will always shift market demand and change food costs. Keep up the latest and greatest restaurant trends so you cut costs in other areas and meet your customers’ changing tastes. It’s tempting to follow every new idea and fancy food that comes along but keeping your menu relatively consistent will also help you anticipate and manage food costs. Add one or two trendy specials and see if they take off.
2. Buy Local & In-Season
Every season, take stock of your menu. Changing at least a few of your dishes each quarter will keep your menu fresh and help you take advantage of seasonal deals. Build on your success and promote your most popular dishes, but don’t forget to change with the times, too. Most ingredients are much cheaper when they’re in season, so plan accordingly. Of course, there’s always the risk of unforeseen events like a shortage, storm or flood causing cause prices to suddenly surge, so keep your menu flexible with a few back up ideas.
Plan your menu to include seasonal specials that showcase the bounty particular to your region. Working with local vendors is a great way to procure produce and local fare that’s farm fresh and affordable. Many local vendors are also eager to work with their neighbors. They may share the best deals and blue ribbon items with a restauranteur who’s willing to mention them on the menu.
Local suppliers are often more than happy to allow regular quality checks. Some will also offer to take back unused items or allow late order adjustments. Local vendors are easy to work with and the products are fresh, high-quality and delicious.
Best of all, customers love the quality of seasonal specials as well as local flavor. So, working with a nearby co-op, farm or food producer will boost your reputation, and likely be cost effective—a win/win for frugal restauranteurs.
3. Negotiate Contracts
Restaurant owners quickly learn they need to be shrewd negotiators. There are a few key tips to negotiating, but the biggest is to always do your homework before you begin. Shop around, talk to different vendors and suppliers. Need to plan a major equipment purchase? Ask for quotes and look for alternative solutions, such as leasing, which is often more cost-effective.
From your biggest vendors to your smallest suppliers, it’s important to build a relationship and get to know their background and history. Talk to your buddies in the industry and get their recommendations. Ask vendors for references and always check their wares.
When you work through contracts, especially with food suppliers, opt for short-order or year contracts rather than multi-year and multi-use. A lot changes over the course of a year, and you don’t want to get locked into a deal you can’t leave. Look at the full scope of the contract and know exactly the parameters: due dates, delivery dates, and when your contract ends.
Be up-front, honest and flexible in your negotiations. Openness will help build trust and ensure you’ll keep your reputation strong. As everyone in the restaurant industry knows—reputation and honor matter. Whether you’re working with employees, customers or vendors, you want to protect your branding and your business integrity. Aim for the best deal, but stay amicable and keep your bridges from burning. You never know when you may need to return to a vendor or ask for a favor.
4. Stock Up and Stay Ahead of Market Rates
Inventory management is critical in the industry. Using a backend or back-of-the-house tool, like Simple Order or Toast will help you calculate food costs down to the recipe level. A backend management tool will also help you deal with orders and juggle the multitude of balls you’re keeping in the air at any given moment.
Actively managing your inventory will keep costs low and let you stay on top of rising food prices. You’ll ensure you’re only asking for (and paying for) exactly what you need from your vendors. Tightly monitored inventory also helps you avoid food waste due to spoilage, poor planning or employee mistakes. Restaurant owners need to know exactly what ingredients are going in, and what the final product looks like when it comes out onto the plates of your waiting patrons.
Fresh ingredients are critical, but if there are staples you use regularly, stock up and store the less-perishable inventory on-hand. This will help you stay ahead of changes in the market. Many restaurant owners avoid stocking up on food too far in advance, of course, but other purchases can be made when the market’s cooperative. Consider the non-perishables you need for your restaurant. Alcohol, linens, service ware and kitchen supplies are all great items to buy when you find a hot deal.
5. Get Credit for Smart Choices
Need to purchase major equipment? When looking at purchasing industrial kitchen equipment, there are plenty of considerations. Long-term purchases add to your inventory as depreciating assets and investments. Don’t simply aim for the best deal or cheapest price. Do your research. Consider buying equipment used or leasing options as well.
It’s important you factor in the peripheral costs when you plan for an equipment purchase. Installation, maintenance and cleaning are all considerations when you’re buying a major appliance or industrial supplies.
Even furniture like tables, chairs and barstools should be carefully considered and researched before purchasing. Look at reviews. If you decide to buy second-hand or gently used items, request the full history before you agree to the final purchase. When buying new equipment, study and understand the nuances of the service plan. Always ask what type of warranty is offered and what insurance coverage you need to protect your purchase.
You may also want to look into tax credits and other benefits of purchasing energy efficient equipment. Some states provide business-owners with extra incentives to switch to energy-saving appliances and environmentally-friendly items. Research offers and ask vendors before you buy.
Vendors want to keep you happy because returning customers are good for their business too. Build your relationship with your vendors and suppliers, shop smart, plan your menu carefully and take advantage of seasonal sales and deals. With the right strategy, you can find plenty of ways to save on restaurant costs.