Restaurant Consulting NYC | Happy New Year! | 4Q Consulting, LLC

Best Wishes 

for a Happy New Year 

filled with Health, Happiness 

and Spectacular Success 

from all of us at 4Q Consulting, LLC

4Q Consulting can develop customized business and 

operational guidelines to help you start and run your business. 

 Email us today for a free business consultation at www.4qconsult.com.

All original content copyright Noelle E. Ifshin, 2014-2015. 

Restaurant Consulting NYC | Happy Holidays | 4Q Consulting, LLC

Happy Holidays and Best Wishes 

for a Happy New Year 

filled with Health, Happiness 

and Spectacular Success 

from all of us at 4Q Consulting, LLC

Restaurant Consulting NYC | Between the Lines - Operational Challenges That Can Make or Break Your Restaurant | 4Q Consulting, LLC

Between the Lines - Operational Challenges 

That Can Make or Break Your Restaurant

Today’s restaurants face many challenges: intense competition; rising cost of goods and real estate; and the slow U.S. economy - just to name a few. Restaurants average profit rates of 3-5% of sales* - thin margins by any measure. However, poor management can make those margins evaporate faster than a sauté pan of boiling water. It is no wonder that 60% of all restaurants fail within the first three years **

As a restaurant owner, you oversee all areas of your business.  These can be separated into three basics: Finance, Sales and Marketing, and Operations. Yet with only so many hours in a day, many owners neglect the breadth of their responsibilities, and only watch their revenue.  Sales and marketing is important in getting customers into your restaurant, and we covered this at length in Attracting Customers.  However, it is what happens within your operation, between top-line sales and bottom-line profits, which makes or breaks your business.

Here are the 4 biggest challenges that can make or break your restaurant:

Poor Financial Controls – Owners often watch their sales daily, while not watching their costs and expenses as diligently.  Common sense points out that if your profit margin is zero it will always be zero, regardless of sales level, unless you change something. Restaurants should measure costs in relation to sales on a weekly basis, as discussed in both Why a Weekly Food and Beverage Inventory is Crucial to your Small Business and Does your Restaurant Compile a Weekly P&L Statement.  Reviewing weekly statements allows you to spot problems and make operational adjustments much sooner than waiting until the full P&L at month’s end: improper product ordering and handling, waste, cash management and employee theft can be significant drains on your business, every day.  

As revealed in How Much of your Profits are Being Eaten by Employee Theft, many employees steal because they can get away with it, and few restaurants have the right controls in place to prevent it. Further, Measure by Measure and 4 Simple Ways Your Restaurant Employees Can Help You Be More Profitable showed how not controlling spoilage, waste and improper portioning can decimate your small margins. 

Poor Staff Training – As we stated in our Blog:  A Well Trained Staff is Your Secret Weapon, “People run your business and your business is only as good as your people. An effective training program is an owner’s key tool to ensure consistency in product and customer service, which is a basic tenet of running a restaurant.”  This is true for all staff, at all levels.  

With a properly trained staff you have less waste in your restaurant.  A short list of why this is includes: Training mangers on proper inventory and ordering avoids excess product; stewards on proper product storage and handling avoids spoilage; cooks and bartenders on proper recipe execution and production levels maintains portion controls; and servers on proper use of the POS system minimizes incorrect orders, misfires and voids.

Poor Quality Control – Quality Control is all about consistency. In our experience, consistency is best achieved by adhering to standard operating procedures that are codified in writing. As outlined in 4 Reasons Why Your Restaurant Needs an Employee Handbook, recipe books, job-specific handbooks, and training manuals standardize tasks and clearly communicate to employees your expectations and the standard to which they will be held. These procedures should cover, in detail, every process in your establishment, from purchasing guidelines to how to deal with an unhappy customer. As boring and unsexy as it sounds, excellence comes from consistency, which can only come from diligence and attention to detail. If customers know what to expect every time they walk in your door, they will keep coming back.

Poor Leadership – Whether it is you, as the owner, or an outside hire running your restaurant, there is a big difference between being a manager and being a leader. As discussed at length in Follow the Leader, “In order to lead rather than just manage, which is vital in today’s diverse, fast-paced world, one must be able to be more than a day-to-day task master. While a manager deals with the technical dimension in an organization or the job content, a leader marshals resources, human and otherwise, for the best possible results.”  Leaders communicate vision, build relationships and trust, train, coach and mentor, and encourage change and risk-taking.

Often, managers who come up through the ranks are not properly trained as managers and make common mistakes.  In the Top 4 Mistakes Managers Make in Managing People, we discuss how “Managers are the front line representation of your business and must effectively work with a diverse group of people. They must live and breathe your company core values and practices.”

Restaurant success depends on many things, but it can all boil down to one question: Where does the money go? Having a handle on your operations is a key to answering this question. Have processes and procedures to reduce economic drains, train your staff to follow them, hold them accountable and have trustworthy leaders in your organization. Additionally, you must be vigilant that your standards are upheld, and make changes as needed. It doesn’t hurt to get an outside, objective opinion from time to time as a gut check whether it is a consultant or mystery shopper

Don’t know where to begin?  4Q Consulting can develop customized business and operational guidelines to help you start and run your business.  Email us today for a free business consultation at www.4qconsult.com.

All original content copyright Noelle E. Ifshin, 2014-2015. 
   

Restaurant, Hospitality & Real Estate Consulting NYC | We’re Having a Heat Wave, A Tropical Heat Wave… | 4Q Consulting, LLC

We’re Having a Heat Wave, A Tropical Heat Wave…

Just as Irving Berlin wrote: 

“We're having a heat wave, A tropical heat wave, The temperature's rising, It isn't surprising, She certainly can can-can."

With a mini heat wave in the NYC forecast for this week restaurant owners should be prepared to take some proactive steps to keep both their guests and employees safe when the mercury rises.

Here are 4 areas to focus on to keep guests and employees safe in a heat wave:

Keep People Safe – 

• Keep guests and workers cool, comfortable and hydrated – make sure everyone is drinking plenty of water.  
• Either provide both shade and air circulation or close outside seating during the hottest part of the day – to ensure the safety of both your guests and employees.
• Provide water and food for your staff – Hydration is vital, but so is maintaining blood sugar levels.  
• Monitor staff and guests for signs of distress or heat stroke.
• Lighten the uniforms of the dining room staff – think about a summer weight uniform, with light colors and short sleeves.   
• Monitor patron’s alcohol consumption as over consumption in extreme heat can be accurately dangerous.

Maintain Your Equipment –  

• Service all refrigeration and HVAC units prior to summer so they don’t breakdown in a heat wave.
• Instruct your staff to keep the air conditioning at a consistent level.  Turning the AC or refrigeration units down too far will overload and freeze up your cooling system, rendering them useless. 
• Ensure kitchens are properly ventilated and have fans. 
• If your ice machine is air cooled and struggling to keep up, consider purchasing cubed ice for drinking; similarly, if your refrigerators and walk-ins are struggling, consider purchasing dry ice.

Monitor Food Safety –  

• Monitor refrigerator and product temperatures closely and take corrective action immediately. Remember, all foods must be stored at or below 41°F.  If your walk-in is above 41°F, your food is not properly stored and can be a health hazard.
• To keep cold food cold – 
• Keep walk in and fridge doors closed as much as possible.
• Install Air Curtains to minimize refrigeration loss when doors to walk-in refrigerators and freezers are opened
• Do not overload refrigerators – if the fan unit in the fridge is blocked, this will cause poor air flow and will inhibit the unit’s cooling ability.
• Do not block refrigerator’s external condensing unit with debris and storage items; which would inhibit the units cooling ability.
• Prepare food in small batches to reduce the amount of time food is out of refrigeration and in a very hot kitchen.
• Use proper thawing and cooling techniques: do not leave food out on counters to thaw; thaw all food under running cool water (water should be below 70°F).

Modify Menu Offerings – 

• Offer lighter menu items for the summer – heavy sauces, stews and roasts are can be unappealing when the mercury rises.  These could include cold options such as salads, sandwiches and cold soups.
• Add more small plate and appetizer options as people not only eat lighter food, but they tend to eat smaller portions when it is very hot outside.
• Add frozen non-alcoholic drinks, chillers and fruit flavored waters to menus.

As Cole Porter said in song: “It’s too Darn Hot!”  A few proactive easy fixes can help you get through these periodic heat waves while keeping your guests and employees safe. Also, keep these changes in mind for next year’s planning.

Don’t know where to begin?  Ask yourself, do you have the proper written procedures and operational guidelines in place to help you be as successful as possible?  4Q Consulting can develop customized operational guidelines and training programs to meet your needs. Email us today for a free business consultation at www.4qconsult.com.

All original content copyright Noelle E. Ifshin, 2014-2015.

Restaurant Consulting, NYC | Why the Right Restaurant Culture is Crucial to your Success | 4Q Consulting, LLC

Why the Right Restaurant Culture is Crucial to your Success

Wherever people live or work together, a culture develops. This is defined as “the behaviors, beliefs, values, and symbols that [a group of people] accept, generally without thinking about them, and that are passed along by communication and imitation.”1   Restaurants, like any other business, engender “Organizational Culture” – a culture specific to that group, which describes everything from its approach to customer service to the shorthand jargon that develops among members.

Your organizational culture is crucial for delivering the right impression to your customers, and your customers get a taste of what your business is all about every time they interact with your staff (see: Employees are Your First Customers – Happy Employees Part 1).  It is important to carefully seed and nurture a culture that defines the restaurant’s priorities, but also allows for some traits to develop organically from your staff.   

In our blog 4 Reasons Why Your Restaurant Needs an Employee Handbook, we discussed the handbook as a central document to your business. It is where you should define and codify the values that make up your restaurant’s culture, which are imparted to employees during on-boarding, as well as the ongoing training sessions.

Here are four reasons why you need to create and promote the right culture in your restaurant:

Culture Encourages Professionalism – By communicating expected behaviors, actions and values to all employees, you define what your culture is and how they participate within it while in the workplace; By encouraging those behaviors, actions and values to meet your standards (whatever they may be), you create a “Culture of Professionalism”. Managers and supervisors must reinforce the culture and lead by example, not by the philosophy of “Do as I say, not as I do", as we discussed in Follow the Leader. They must live and breathe your mission and values and tend this culture of professionalism in your restaurant - complimenting positive behaviors and correcting negative ones.   

Restaurants, large and small, that promote a culture of professionalism, without being stodgy, have employees with high levels of loyalty toward the company.  This type of business culture increases productivity, work quality and employee retention.

Culture Reduces Employee Turnover – The restaurant industry is known for its high turnover rates. Generally speaking, many food and beverage industry employees aren't looking to make a career out of tending bar, waiting tables or seating restaurant patrons. However, employees with high job satisfaction tend to remain with their employers longer, thus reducing turnover. Studies have shown that a well-defined and actively maintained company culture is associated with high job satisfaction.  Businesses can lower turnover rates by fostering a culture that values open communication, provides adequate training, and rewards employees for a job well done. By retaining employees, companies save resources recruiting and training a constant flow of employees; they build a higher caliber workforce that positively affects product quality, lowers operating costs and increases the bottom line.

Culture Increases Consistency – By lowering your turnover rate of employees, your increasingly experienced staff becomes a well-oiled machine that improves consistency within your operation. In Consistency is King, we discussed that daily vigilance to the standards you set are crucial in order to ward off possible problems that can impact costs or revenues: poor communication, order errors, kitchen errors, bad customer experiences, etc. Creating a culture of “Being the Best” consistently also leads to and reinforces your “Culture of Professionalism”.

Culture Improves Your P&L – As we examined in Restaurants Know Thyself, when your culture is defined, your restaurant has a distinct identity.   A well-defined culture increases both your top-line sales and your bottom line profits. When you have less employee turnover, you have a professional, experienced staff that works well together that creates a more consistent product and less waste – which improves your operating costs.  You build a repeat clientele that comes back time and again to visit their favorite server and to eat their favorite dish.  A successful restaurant has return customers at the core of it business, because repeat customers will attract new business and word-of-mouth advertising is the most efficient way to grow top line sales. 

Creating and nurturing the right culture in your restaurant allows you to take care of your employees who will in turn take care of your guests.  As a business owner, it is your job to be sure that your team has the tools it needs: Strive to be the best boss to your staff; hire only the best employees (with the right attitude) and enable them to be awesome through excellent training, to give the best customer service; have the highest possible sanitation standards; buy only the freshest ingredients; offer the best food and the best service. Be mindful of being consistent in all these things so that customers have the same good experience time and time again.

As seen in Employees are your First Customers, happy employees are engaged, exceed expectations and become brand ambassadors for your restaurant.  Your restaurant will become a business people want to work for, vendors will want to do business with and the place where many want to eat – again and again.

Don’t know where to begin?  Ask yourself, do you have the proper written procedures and operational guidelines in place to be as successful as possible?  4Q Consulting can develop customized branding and marketing plans, and operational guidelines to meet your needs. Email us today for a free business consultation at www.4qconsult.com

All original content copyright Noelle E. Ifshin, 2014-2015. 

1. https://www.tamu.edu/faculty/choudhury/culture.html

Restaurant Consulting NYC | Restaurants: Know Thyself | 4Q Consulting, LLC

Restaurants: Know Thyself

We have all heard the expression: “Jack of all trades, master of none” as it applies to individual people.  The same expression can be applied to your restaurant.  Your guests should not have to guess what you are trying to master or what your brand represents.  Restaurants need to decide, well in advance of product delivery, what they stand for, what their product is and what their message will be to the public. This becomes their brand’s value proposition.

Knowing what your value proposition is early on, and making that the base on which you build, is a key to presenting a unified message of who you are. It is essential not to dilute that value proposition trying to be everything to everyone: You would not offer barbeque, no matter how good, at a fine seafood restaurant; this is why well-known restaurateurs may own several restaurants, each representing a different concept or value proposition that they wanted to create.  A cohesive, singular message, as we talked about in Consistency is King, allows your guests to understand your restaurant.  If your brand message is confusing, your guests will be confused, might not return and move on to another restaurant.

Here are four brand values to help guide restaurants in finding out what their message and value proposition is:

Product Innovation – A restaurant that values being a leader in product innovation tends to be on the culinary cutting edge.  Your restaurant is continually seeking to push the envelope and the boundaries of food, beverage and service.  Whether it is exploring molecular gastronomy, sous vide cooking, rare hybrid ingredients or a new delivery system, you and your management team are never satisfied with the status quo. 

This value proposition attracts the type of customers who want to take this wild ride with you. This type of customer looks forward to your ever-changing menus and new ingredients, and likes to learn about new foods.  They come to expect this constant flux, and are disappointed if this level of innovation and product exploration stops.

Operational Excellence – When you think of large, fast casual chains and franchises like Chipotle and McDonald’s, you envision a restaurant that is a well-oiled machine.  Being consistent at what you do, from product quality and service to cleanliness, is the core value of this type of establishment. In restaurants where operational excellence is the main value, change is deliberate, well thought out and measured.  

Customers who value operational excellence expect a certain level of product and service every time, whether it is a taco at a taco stand or foie gras in a fining dining restaurant. These types of customers do not like surprises; in this type of restaurant, customers know what they’re going to get. 

Customer Intimacy – Customer intimacy is often found in smaller neighborhood restaurants, “joints”, diners, or coffee shops, where the staff comes to know the customers well.  In valuing customer intimacy, the restaurant can cater to customer needs and desires in a way that makes them feel special. A server who remembers your usual order and is able to anticipate your dining needs, creates an intimacy that attracts a loyal following in customers who value this – not all customers do.

These customers anticipate food at fair prices, knowing that it may not be the best (it still needs to be good!). The draw to this type of restaurant is that it is full of familiar faces, and has accommodating service. These customers seek a comfortable experience where “everybody knows your name”.

The Sweet Spot – It is a rarefied place when all of the above branding values intersect, creating “The Sweet Spot”. These are restaurants that have harnessed their creativity, worked out the kinks in their operation and fostered an atmosphere that is inviting.  It is important that you as an owner/operator understand your own strengths and weaknesses in relation to being able to hit this mark, as poorly implementing a core value can negatively impact the one(s) you are able to do well. Many successful restaurants achieve only one or two of these brand values - this is what they become known for and what their guests love about them.  

Product innovation, operational excellence, customer intimacy, and even “The Sweet Spot”, can be achieved at any level, from fine dining to fast food.   

When you have determined your value proposition, it should become the central tenet of your restaurant and be the basis on which you build your company culture. When everything you do is focused on your value proposition, your branding message will be clearly communicated to your customers. If your guests have to work to understand what your value proposition is, they will choose to go to another restaurant that has already figured it out.

Don’t know where to begin?  Ask yourself, do you have the proper branding values in place to help you be as profitable as possible?  4Q Consulting can develop customized branding and marketing plans, and operational guidelines to meet your needs.  Email us today for a free business consultation at www.4qconsult.com

All original content copyright Noelle E. Ifshin, 2014-2015. 

  

Restaurant Consulting NYC | Location, Location, Location...| 4Q Consulting, LLC

Location, Location, Location...

Everyone has heard the expression: “Location, Location, Location”. A restaurant's site selection is as crucial to its success as great food and service. However, many restaurants that open in “great locations”, fail because they don’t adjust their business model to the particularities of that location.  

Choosing a location involves more than picking a place and signing a lease. Your location selection will influence many parts of your business plans and operations. 

It is highly recommended to work with a licensed real estate broker who knows your local market as well as an attorney who specializes in real estate. They will best be able to guide you to appropriate properties, and to negotiate the best possible deal on your behalf; be patient as this process takes time.  If you already have a certain location in mind, you shouldn’t become too attached until you know it meets your needs.

Before you create a business plan, write a menu, or dash off to the bank to apply for a loan, here are 4 essential elements of a location to consider:

Population Base/ Demographics/ Foot Traffic – There needs to be enough people who live or work in, or pass through, the area on a regular basis to keep your restaurant busy.  The population base and the different types of traffic will dictate some of your operating procedures. For example, if you are in a thriving downtown commercial area, you might only open for breakfast and lunch but close for dinner, as there is not enough foot traffic to stay open. Your location, and its demographics, may influence your menu design, as well.

To analyze the population base of a particular area fully, you can commission a site study. A reputable local real estate broker or the local chamber of commerce can also provide some of this basic information. 

Financial Realities – Rent is usually your largest fixed expense, and you will probably have significant capital investment to prepare the space to be operational, therefore your business plan must account for covering and recuperating these expenses.  In building your business plan, you will have to budget several scenarios to determine how many guests you will have to serve, at a specific check average to be profitable at a given rent; you will also need to determine if the plan is sustainable over time, to meet your financial obligations. 

Buying real estate might be cheaper in the long run than renting space in major markets where rent is high.  By purchasing real estate you might be able to: create a rental income stream; realize large tax deductions on your property taxes; and take deductions for your mortgage interest payments.  Purchasing works well for those with investors or large capital reserves that are not needed to run the day-to-day business operations. Consult with your attorney and accountant.

Accessibility – There is a reason that major restaurant chains are often located near main intersections or highway and freeway exits. Most successful restaurants, whether in urban or suburban areas, are easy to find.  Your restaurant should be street-facing and not tucked away in a building or set back. 
How your customers get to you is also a consideration. A parking lot, easy public or street parking, and nearby public transit all improve accessibility; alternately you might offer valet service. The bottom line is that your customers need to be able to find you, and should be able to get to you - make it easy for them!

Operational Restrictions – A space that does not immediately accommodate or restricts your operational needs is not a bad space, it may in fact be a very good space; it just changes your operational and financial plans. A few examples of restrictions on property that can affect the capital investment or the targeted cash flow of your business:  Many office buildings do not allow cooking in the attached retail spaces, as they do not want smells permeating the building; if they do allow it, you may have to build out proper ventilation.   Ensure the space is ADA compliant, and meets local public safety codes; if it is not, you will have to alter the space to adhere to regulations. The zoning of a location is vital; some municipalities may limit sidewalk or outside seating, or may not issue liquor licenses if you are located near a school or house of worship. 

Additionally, many leases contain conditions, covenants and restrictions (CC&R’s) issued by the landlord.  Know what these are before signing a lease, as these CC&R’s can affect your business just as much as public zoning regulations and can cost you precious capital.

Do your due diligence. By understanding each of these elements, and how they may affect your business plan, you can better choose the right location for your new restaurant.

4Q can provide restaurant site selection consulting services and works with New York’s best commercial real estate brokers to find a location that meets your every need. 

Don’t know where to begin?  Ask yourself, do you have the proper business plan in place to help you be as profitable as possible?  4Q Consulting can develop customized business plans, and operational guidelines to meet your needs.  Email us today for a free business consultation at www.4qconsult.com

All original content copyright Noelle E. Ifshin, 2014-2015. 

Restaurant Consulting NYC | The Value of An A on Your Next Health Inspection | 4Q Consulting, LLC

The Value of an A on Your Next Health Inspection

Many operators view the health inspection process as a burden, however it is a big part of owning and running a restaurant.  Inspections tend to be broad, intrusive and include many aspects of your business. Inspections review your physical plant (i.e. plumbing, equipment and flooring); licenses, permits and paperwork; food handling including delivery, storing, cooking, holding, serving and discarding; and finally, cleanliness.  

Successful operators have always spent time and money to incorporate food safety and sanitation programs into their daily operations to avoid the monetary fines, legal fees and bad public relations that can result from critical violations.

Additionally, we now live in the age of the educated consumer who has more information at their fingertips than ever before.  Often in major cities there are websites and mobile apps that allow consumers to look up health inspection results before making their dining choices; not having an A grade can dissuade potential customers from visiting your restaurant.

Here are 4 basic steps to institute a food safety and sanitation program in your restaurant:

Know the Code – The food safety and sanitation code is set at the federal level by the Food and Drug Administration (FDA) and is usually updated every three years. The FDA codes are then interpreted and regulations are set at the state and municipal level.  These local regulations are often more strict than the federal guidelines and can change frequently.  Also, local health departments tend to focus on hot-button issues such as recent Trans fat bans, ice as food and consumer allergy notifications.  It is your obligation as a restaurant owner to know the most current regulations in your county or town, and remain in compliance.  

Work with your Local Health Department – Ignoring your local health department won’t make them go away or make your life any easier.  Quite the opposite – fighting with the health department can make your life miserable.  Actively work with your local health department to ensure you are in compliance from the start, which can save time and money during construction or renovation.  If your local health department provides training and audit programs, take advantage of these offerings. 

During your inspections, do not be adversarial or belligerent with the inspector – they are just doing their job and following objective standards.  If they cite you for a violation, fix it immediately, in front of them if possible. If you do not understand why something is a violation, ask.  The inspectors should be able to give a full explanation to you and your staff as to why a certain action has the potential to make a guest sick.

Train, Train and Retrain Your Staff – As we have discussed many times before, proper staff training is the key to any restaurant’s success; food safety and sanitation training is no different.  While some critical violations can come from your physical plant, the vast majority of violations result from employees’ improper actions.  Though it is not necessary for everyone on your staff to hold a food handler’s license, your entire team from dishwasher to bartender is responsible for food safety and sanitation in your restaurant.

A strong food safety and sanitation module during employee on-boarding is crucial to reduce behaviors that result in critical violations. Additionally, restaurants should be incorporating daily food safety and sanitation reminders into regular meetings, pre-service meetings and debriefings after every shift. 

Hold Your Staff Accountable - Create a culture of accountability in relation to food safety and sanitation in your restaurant. Daily checks and walk-through’s by managers keep this important issue top of mind for everyone.  As unsexy as food safety and sanitation is, repetition is the only way to make changes in behavior stick.  Repeatedly explaining to employees why an action or inaction can make a guest sick will eventually change their behavior and allow them to know when to take self-corrective action.  Incorporating food safety and sanitation into opening and closing duties, job responsibilities and performance reviews holds everyone accountable.

Passing your health inspection with flying colors takes hard work and dedication. The return on your investment is worth every minute and penny, as we see a direct correlation between great health inspection scores and an increase in restaurant sales.  Don’t let something that you can directly control be the downfall of your restaurant.   The bad public relations of a health department violation or shut down, often highlighted in your local newspaper, are nearly impossible to recover from.

If you are doing all of these steps, but still struggling with food safety and sanitation, consider hiring an outside consultant.  A consultant can often see through the emotional drama of your business to find the root cause of your problem.  Consultants can also perform regular sanitation evaluations or walk-through’s to get you ready so your inspections aren't a surprise.

Don’t know where to begin?  4Q Consulting can develop customized business and operational guidelines to help you start and run your business.  Email us today for a free business consultation at www.4qconsult.com.

All original content copyright Noelle E. Ifshin, 2014-2015. 

Noelle E. Ifshin, President, 4Q Consulting, LLC        244 5th Avenue, Suite 1430, NY, NY 10001   

Restaurant Consulting NYC | The Big Chill | 4Q Consulting, LLC

The Big Chill

The coldest air in almost 20 years has swept the nation this week with 90% of the country being issued freeze warnings.  Combine record snow falls from Storm Hercules last week, a vicious cold snap and the Farmer’s Almanac’s 2014 forecast for a colder and snowier winter than the average, and we have a recipe for rising commodity prices now and well into the spring.

Food and commodity prices are driven by basic supply and demand and tend to be inelastic – once they rise, they are slow to fall below the increased level.  This means that prices continue to go up, driving up operating costs.

These price increases can and will affect all aspects of the restaurant business, and operators must pay close attention to commodity prices and availability.  Now is the time to start planning for your spring menus and pricing levels, so as not to be caught off guard. 

Here are 4 possible increases to watch out for:

Meat Prices – According to Bloomberg, “Cattle futures reached $1.371 a pound this week, the highest since Chicago trading began in 1964.” This increase in futures pricing is due to several factors, most of which is uncertainty in yield levels at slaughter houses. In colder months, and in harsh weather, livestock need more feed to keep warm, increasing livestock farmers’ operating costs. Since livestock use more of their energy to stay warm in these conditions, they do not gain as much weight, resulting in a decrease in supply.

Dairy Prices – Dairy cattle, like beef cattle, will also use more energy to stay warm and have lower weights.  Lower weight dairy cattle produce less milk, which in turn lowers supply and raises prices.  Additionally, the on-going debate in the US Congress over the Dairy Policy portion, of the yet-to-be passed Farm Bill, is causing more uncertainty in the dairy market.  Unless a new Farm Bill is passed before March 1, 2014, the odds are dairy prices will fluctuate significantly until the un-subsidized dairy market can settle into normal supply and demand patterns.

Produce and Grain Prices – A deep freeze obviously harms produce crops.  Usually, these disruptions in the planting and growing seasons are contained in a few specific regions of the U.S.  This week all 50 states issued an unprecedented number of freeze warnings, affecting all regions of the U.S.  In Florida, the world’s second largest citrus-producing region after Brazil, this week’s freeze potentially harmed up to 15% of the citrus plants. This can have resounding impact for pricing going forward.

Wheat futures on the Chicago Board of Trade climbed as much as 1.2% this week, Bloomberg reports: “ 'As much as 15% of winter-wheat plants in the Great Plains face damage’, as stated by Kyle Tapley, a senior agricultural meteorologist at MDA Weather Services in Gaithersburg, Maryland.” This has implications for all grain-based products well into the spring and summer months.  Expect increases in raw cereals and flours and possible increases from your Bakery and Bread suppliers.

Energy Prices – Energy prices are on the rise due to demand and scarcity.  When the temperatures drop, demand for energy increases as we turn up the thermostat, while production of gas, oil and coal slows and can even stop, driving up prices.  Increased energy prices affect all other commodity prices, as it is more expensive to bring those products to market.  Additionally, increased energy costs affect restaurants by increasing the costs of product delivery and fuel surcharges, heating your restaurant space, heating your hot water and using your kitchen appliances.

During a cycle of limited energy supply and increased energy prices, farmers who grow corn may get a better price for their limited crop selling it for Ethanol production rather than feed. This in turn can drive up the price of feed and the cost of raising farm animals, pushing meat and dairy prices up, as well as cutting the supply of grain on the market with the price impact there as well  . . .  It is all connected.

As a business owner, you must be aware of all of the external economic forces that affect your business and be able to plan for them. As we head into this very cold and snowy winter, keeping an eye on costs and energy usage, and appropriately adjusting your menu and offerings, to maintain your quality and profitability will be a must for operators.
  
Don’t know where to begin? 4Q Consulting can develop customized operational guidelines to help you manage your costs through all stages of your business.  Email us today for a free business consultation at www.4qconsult.com. 

All original content copyright Noelle E. Ifshin, 2013-2014.