Are your restaurants and/or catering businesses ready for the rising price of commodities this fall/winter season? Do you have a plan in place to off-set price increases of raw ingredients due to this year’s drought? As an operator, now is the time to plan for the next three to four quarters in order to ride out these increases. Menu planning & innovation, purchasing programs and proper execution are crucial in this economic environment.
From Nation’s Restaurant News on August 23, 2012
The U.S. Department of Agriculture’s Aug. 21 update said: “Serious agricultural drought effects persist east of the Rockies, despite cooler weather and recent showers.” For the week ended Aug. 19, the USDA reported that 51 percent of U.S. corn and 37 percent of soybeans were rated in very poor to poor condition.
Jeff Powell, president and chief executive of the 15-unit Razzoo’s Cajun Café, said he expects his Addison, Texas-based chain “will be negatively impacted by the drought and other pressures on grain supply.”
“Corn particularly is a baseline driver of economics in the supply chain,” Powell said. “A shortage of corn caused by drought or other dilution of supply by other uses (ethanol, etc.) obviously negatively impacts the dynamic. Corn is a necessary feed and source of oil, and when in shortage the impact on beef, pork and poultry prices is immediate.”
John T. Barone, president and commodities analyst for Market Vision Inc., wrote earlier this month that higher wheat prices for bread, pizza crust, pasta, flour tortillas and bakery products “are obvious.”
“The ‘sneaky’ price increase will come from the big bump in corn and soy meal prices," Barone said. "That’s because they are the primary feed inputs for poultry, dairy cows, pork — and this year, cattle, because grazing pastures have also been toasted by the drought.”
The USDA is projecting a 5-7% increase in corn, wheat, soybean, beef, pork and chicken commodity prices above their current levels. What is deceiving is that, in the short term, we could possibly see beef and pork prices drop as more cattle are sent to slaughter early, due to the lack of feed. Operators need to watch out for rising prices towards the end of Q3 2012 and moving forward into 2013. Planning ahead now, is key to being able to ride out the wave of these price increases for the next few quarters.
Here’s how you, as the operator, can get ahead of rising commodity prices:
· Menu Planning and Innovation
o Introduce New Menu items – you can often increase menu prices by introducing a new item to your menu. This tends to be less noticeable to your guests then just increasing the prices of existing menu items.
o Seasonal/ Daily Menus - changing your menu more frequently gives you flexibility to react to the market.
o Food Costs - Do you actually know what your menu items cost you? When was the last time you did a costing exercise for your menu? Do you know what your portion sizes are? It might be time to do this exercise again!
o Dessert Program – do you have a dessert program in place to actively sell desserts? House made desserts tend to have a larger profit margin and can help t off-set increasing food costs?
o Beverage Program – Can you further off-set an erosion of your food profit margins by increasing your bar sales? Consider specialty and season drinks.
o Purchasing Programs – do you have a systematic method for ordering food? Or is your chef doing his/her food orders last minute before the order board closes?
· Menu Planning and Innovation
o Introduce New Menu items – you can often increase menu prices by introducing a new item to your menu. This tends to be less noticeable to your guests then just increasing the prices of existing menu items.
o Seasonal/ Daily Menus - changing your menu more frequently gives you flexibility to react to the market.
o Food Costs - Do you actually know what your menu items cost you? When was the last time you did a costing exercise for your menu? Do you know what your portion sizes are? It might be time to do this exercise again!
o Dessert Program – do you have a dessert program in place to actively sell desserts? House made desserts tend to have a larger profit margin and can help t off-set increasing food costs?
o Beverage Program – Can you further off-set an erosion of your food profit margins by increasing your bar sales? Consider specialty and season drinks.
o Purchasing Programs – do you have a systematic method for ordering food? Or is your chef doing his/her food orders last minute before the order board closes?
o Distributors - Are you shopping your distributors for the best prices? Have you diversified? Or do you only have one broad-line distributor? Time to shop around again if you have not in a while.
o Purchase Sizes - Can you bulk buy some of your groceries to gain efficiencies of scale? This can allow you some breathing room to purchase your center- of-the-plate items in smaller quantities.
o Proper Execution – now that you have done some work making menu innovations, costing your menus and ensuring that you have proper sourcing, you MUST train your staff to execute properly!
o Purchase Sizes - Can you bulk buy some of your groceries to gain efficiencies of scale? This can allow you some breathing room to purchase your center- of-the-plate items in smaller quantities.
o Proper Execution – now that you have done some work making menu innovations, costing your menus and ensuring that you have proper sourcing, you MUST train your staff to execute properly!
o Ensure that these changes have been communicated to all employees and spend time to do some hands-on training.
Let us show you how the 4Q Consulting Approach can work for you!
Let us show you how the 4Q Consulting Approach can work for you!
4Q Consulting, LLC leverages in-depth expertise in all aspects of restaurant consulting and hospitality operations; we create client-specific solutions that drive measurable business improvement.
244 5th Avenue | Suite 1430 | New York, NY 10001 | 212-340-1137 | Mobile 347-834-4557 |
www.4QConsult.com | Noelle@4qconsult.com
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