Food Cost Management, Restaurant Accounting

How to Save You and Your Supplier on Food Costs

If you’re in the restaurant business, you know that there are few absolutes in this industry. In fact, the only thing that ever really remains the same for restaurant owners is that continuously bidding for the lowest prices on food often leads to higher costs, not lower ones.

Sound counterintuitive?

Of course it does!

But it’s true. When your purchasing process revolves around keeping a rotating door of vendors and price shopping between all of them, it’s almost impossible to save money. In fact, the approach is likely to be much more expensive than simply taking a more streamlined path.

Here’s what you need to know about how to save you and your supplier money on food costs.

How Restaurants Make Money on Food

Quick: Which establishment makes more money: a chain restaurant or an independent establishment? If you guessed a chain, you’re right.

Chains are much more profitable than smaller restaurants — about two to three times more profitable, to be exact.

While there are many reasons for this, one of the biggest is that chain restaurants have typically figured out how to streamline and simplify their purchasing processes in a way that allows them to keep the most money in their pockets.

Factors Impacting Supplier Prices

Virtually all suppliers price their items with consideration to the following four factors:

  1. Product cost. Product costs are the prices the vendor pays to buy the product from a supplier. Prices are lower when the volume is higher.
  2. Administrative and selling cost. These costs include the expenses associated with servicing an account and processing the orders. Factors like lead time, order frequency, invoice volume and specialty products can all influence these costs.
  3. Handling and delivery cost. This is the cost per drop. As a general rule, the drop is the same regardless of whether a supplier is delivering one case or 100 cases to your establishment.
  4. Profit margin. This is the percentage that a supplier marks up products to make a profit.

Allow the Supplier to Make Money on Your Account

If you want to save money, you need to give your supplier a chance to make money on your account. While this may sound counterintuitive, it’s the only real way to cut costs, build stable relationships, and save money on the orders you place annually. When this dynamic exists, you’ll enjoy lower prices and a more streamlined partnership.

Here’s how that works:

Smart suppliers care more about total gross profit than markup percentages on various accounts. For example, if your restaurant purchases about $700,000 of food each year, you might be buying that material from several distributors. More likely than not, though, at least one of those distributors would lower their markup costs if it meant securing more of your business.

If one of those distributors can get $500,000 annually from you, instead of $10,000, it makes sense for them to work on a smaller profit margin.

This also saves you the hassle of shopping around, and you simply know which avenue you’re going to pursue every time you need to place an order. By establishing this relationship, it’s easy to build long-term partnerships with distributors while also saving money on each order you place.