Tip to Save on Food Cost with Your Food Distributor
Food prices have been rising at record rates since the pandemic started almost two years ago and lower prices aren't on the radar for at least for the near future. Beyond menu engineering or signing up for a prime vendor agreement, what can a restaurant owner do as a quick fix to lower food cost? In this video, I'll give you one powerful tip to save on food cost with your food distributor today.
Today, I want to help you lower your food costs with one powerful action. Food costs are out of control. So much so that I have members who have taken chicken wings – one of their top sellers – off their menus because they simply can't charge enough. They literally can't charge their customers enough to actually sell them and even recoup the cost.
You've seen these costs rise. Chicken wings are up almost 350% – some cases 400% – since January. While the restaurant coach in me knows that the long-term solution to rising food prices is to create your budget and create recipe costing cards in software for everything from your batch recipes such as soup, side dishes, sauces, ingredients, desserts – I know that's a lot of work and takes a lot of time.
While the importance of fully embracing and implementing these systems cannot be overstated, I understand that sometimes a quick fix is necessary before you can get to the bigger systems.
Today that quick fix is something very simple that will take a little info gathering, a little spreadsheet, and a little bit of time. It's gathering your descending dollar report.
What is the descending dollar report? Your descending dollar report is everything you purchase from your vendors within a certain period of time. It included your broad line distributor, specialty vendors such as meat vendor, or maybe your produce person. It doesn’t matter who or how big, you are going to go to anybody you buy product from and ask for a descending dollar report. It's also known as a descending case report. One is sorted based on dollars spent from the most to the least, and the other is how many cases you bought to the least.
If you're familiar with spreadsheets, you just put that data in, create a sort on the column for what you spend the most money on to the least.
If you’re an owner that engages in cherry picking your products from week to week – lining up three distributors, looking for the cheapest price on whichever products each week and then buying the cheapest product – you’re wasting a lot of time. And quite honestly, you do not get the bang for your buck. You're spending more time and then getting screwed on paper and janitorial. That's why a prime vendor agreement is so important.
With that said, let's say you get all this data from all of your vendors and sort it based on the most money spent to the least, what you're going to find is with all your purchases, no matter who you buy it from, the top 10 to 12 items represent 50 percent or more of all your buying power.
That means for every dollar you spend purchasing product, 10 to 12 items represent 50 cents on every dollar. It is huge. If you could save money on those top 10 to 12 items, would you see your food costs drop?
If you attack it right, you could see a 2–3 point drop in your food cost. This is powerful. Call all of your distributors and request a spreadsheet of all your data. That way, you can copy and paste the date from multiple spreadsheets if you have multiple vendors and do the sort. Make sure you’re pulling data from the same date range, ideally six months to a year.
Quick note: If you have made a change to your menu recently, make sure you get data from the last time you changed your menu. For example, if you changed your menu three months ago, you want three months ago purchasing. You do not need products that you don't sell anymore in this this sort.
If you're running to the store, the grocery store, you're running to a Smart and Final, a Sam's Club, a Costco, then you have to manually enter in that data for the same timeframe. Please also be conscious that if you buy chicken from three different vendors, all the data goes on the same single line. If you're using software such as Margin Edge, Restaurant 365, or my old software, you'll find the software will do that automatically for you if it was set up properly. But when you're doing this manually, remember chicken is chicken. Put all the purchasing on that same line, even if it's from Sysco or US foods, I don't care which vendor you choose. I know it's a different product, but it's still the six ounce lobe, if you will.
Put all this data together and sort it from what you spent the most money on to the least amount. Then attack your top 10 to 12 items in this descending dollar report. Then call up each one of your distributors and ask if you promise to buy all of this product, i.e., chicken, from them, can you get a better price.
Sometimes the answer is yes. Sometimes the answer is, “Dude, I'm already giving you the best price possible.”
What do you do when they say no? You say, “Hey, distributor, can you get me a like quality product or better-quality product at a cheaper price?”
Notice I didn't say get me a cheaper product. We're not going to go against our core values and downgrade our product. You want like quality or better quality at a cheaper price.
Why does this work? See, I used to be a franchisor, and we used to negotiate pricing to get all of our product brought in directly from the manufacturer at a cheaper price. In doing this we avoided something called marketing money, where the all the distributors say, “Hey, give us the best price possible now add $5 a case, and when we sell it, you're going to give us $5 back, and we're going to market you.”
That’s an industry practice, not a distributor practice. It’s what they do to make money. As a franchisor, I was able to bypass that marketing money and get that product brought in at a cheaper price. We did have some products that were proprietary, but many were not. So when I brought in a proprietary product, no one else could have it. That was specifically for the franchise. That's all. But when I negotiated with, say, Anchor appetizers, a better price, we brought it in at a better price.
In some cases it was something that was not regular for our distributor, but because we had enough tonnage, we got a slot. That's a big deal in a distributor to get a slot for your product because it means you’re moving enough of that product that they can afford to do that. We got it at a cheaper price and didn’t have to pay marketing money. But because it wasn't proprietary, a trade secret for our concept, anyone else could buy it, too, but our salesperson wouldn't naturally tell another owner about it unless you ask, “Do you have a like quality or better-quality product at cheaper price?”
Because you asked they go through the book and find this product for you. Now, suddenly, if you could save 10 cents a pound on cheese and $5 a case on this and so on and so forth, going down that descending dollar report for the top 10 to 12 items, which represents 50 percent or more of your purchasing power, you're bound to reduce your food cost two to three points. This is something that is actionable today.
You can't get that savings twice. Once you go through the report and get new prices or new products, that’s all the savings you can get. If you do go down the path of a prime vendor agreement, that's already been built into your agreement, so you're not going to save an additional two three points. That’s done in the initial agreement. But you could move another two or three points because of promising tonnage and having that partnership reducing the number of drops paying cod.
If you want a quick fix to your food cost woes, start gathering your descending dollar reports for each of your vendors and attack your top 10 to 12 items today.
If you would like to learn how to own a restaurant that doesn't depend on you being in it to be successful, watch this free video course that teaches you three key principles to running a successful restaurant. If you're ready right now to make some serious changes in your restaurant, you can also book a 60-minute call with me where we talk about your challenges and figure out exactly what is holding you back from having a restaurant that doesn’t depend on you being in it to be successful.
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