How to save on restaurant supplies without losing your mind

We work with some of the brightest and most dedicated restaurant leaders in the country, yet digging into supply costs is surprisingly difficult for many of the restaurant groups and chains we speak with.

Throwing in the towel on cost management is not an option. 

Restaurant supplies are one of the two biggest cost categories for restaurants. In fact, spending on food, paper, and cleaning supplies eats up between 25% and 30% of restaurant sales. That’s $250,000 to $300,000 per year, per location.

So how do you dig into your costs to find opportunities to drive savings and increase profit? This post focuses on the basics.

How do you save on supplies

The key metric for managing supply costs is your Supply Spend per Sales Dollar, typically represented as a percentage.

[total supply spend] / [total revenue]

Why this metric? Because the vast majority of your supply spend is variable. In other words, the dollar amount you spend on supplies goes up the more you sell, and down the less you sell.

When you start to use spend per sales dollar, as a Northstar for controlling supply costs, the actions you should take in order to drive down costs aren’t that hard to figure out. Here are 5 paths to managing supply costs.

Increase prices for your menu items.

1. Increase prices for your menu items.
2. Reduce supply use on each order
3. Change your mix 
4. Reduce the prices you pay for the supplies you are buying.
5. Reduce waste

Increase your Prices

While increasing menu prices may not be the most desirable option for your chain it’s the most straightforward way to affect supply spend per sales dollar. While technically raising prices is not directly affecting how much you spend on supplies you will reduce your supply spend per dollar of revenue.

When you increase prices across the board, every item immediately becomes more profitable, and as long as you are producing the same unit sales, or more, you make more money.

A different flavor of this same strategy is to charge for items you might have given away in the past, like up-charging for guacamole.

The obvious drawback to this strategy is the risk that you’ll lose customers and orders if prices climb too high. While increasing prices will improve the variable profit margin for all your menu items, if your overall revenue drops from fewer customers, the fixed costs of your operation (rent, salaries, minimum required staff) will start to eat away at profit.

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Use less supplies on each order

While increasing prices is the most straightforward way to affect supply spend per sales dollar, you can’t raise prices forever without pricing out at least some of your customers. Managing or engineering ways to use less supplies on each order takes more work, but is typically less impactful to customers.

The most heavy handed way to use less supplies is purposely reducing portion sizes or servings on expensive ingredients, like changing from ⅓ lbs burger patties to ¼ lbs burger patties. This is what some people call Shrinkflation; charging the same price for smaller portions sizes.

But there are other ways to reduce the amount of supplies used on each order. Frequently you can reduce supply spend with closer staff and order management. In fact, we frequently help supply chain and operations teams find instances where store staff are over portioning ingredients. For example, we recently helped a chain of acai bowl restaurants save $64,000 per year by helping them identify and stop over-portioning of toppings.

A third way to manage spend per order is to more closely manage the free disposable items given away with orders. For example, on a to-go order, does your staff just throw in a handful of ketchup packets, or do they ask the customer if they would like ketchup when they pick up the order? It can seem hard to care about the cost of ketchup packets, but that small change could drive savings of $0.50 per order, multiplied by thousands of orders.

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Improve your product mix (sell more items that have higher profit margins and lower COGS)

Not every item on your menu delivers the same profit. Some of your mains, like pasta dishes, will have much higher profit margins than others, like steak and seafood. Promoting or encouraging more guests to order higher profit items is one way of changing your mix. If you are a full service restaurant, you can achieve this through waitstaff training, if you are limited service or QSR, you can try making more profitable items more prominent on your menu boards. 

Another way to improve your product mix is to upsell additional items like apps or sides that might increase the profit margin for a total order. For example, in a high-end steak concept, the menu sides typically have a much higher profit margin than the mains, so anything you can do to sell more sides it going to improve your supply spend per sales dollar

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Reduce waste

Waste is a straight profit killer, and it can show its face in many forms. It might be unused food at the end of a shift, over ordering ingredients that later go bad, or even theft.

Whichever form it takes, waste kills profit margins. It’s 100% cost with 0% revenue.

Closely monitoring the usage of supply products like proteins and ordering patterns can help you identify waste events and take corrective action before waste spins out of control.

Your first line of defense is getting a good idea of the individual supply items that drive the majority of your costs and managing them more closely. One restaurant we work with has closing staff take pictures of their unused food at the end of each night and send them to a slack channel. This gives the operations leader immediate visual feedback on decisions being made in-store that can lead to waste.

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Reduce the prices you pay for the supplies you are buying.

Reducing supply prices is part negotiation, part price monitoring, and part vendor management. How you execute on those activities can vary based on the size of your business.

Price negotiation: getting the right price

First, never pay the list price. While your distributor rep might tell you they can only negotiate with more volume, your leverage comes from multiple quotes. Periodically quote out your prices to competitive distributors to keep your distributor honest.

In some cases you can enter a Master Service Agreement (MSA) with your distributor. These agreements will typically require you to hit volume minimums and to buy around 80% of your supply purchases through the distributor.

If you have 20 or more locations, you’ll frequently be buying enough volume that a manufacturer will be willing to negotiate directly with you for reduced invoice pricing, or rebates to lower your bills further. And as you grow, you can typically get a cost plus agreement with a distributor.

If you are a Savor user, you can benchmark your prices against our database of supply prices. Simply type in the product or category you’re purchasing and we’ll show you the prices we’ve seen similar restaurants pay for the same or similar products.

Price monitoring: identify changing prices

Anyone who has ever brought on a new distributor has experienced price creep. Prices initially seem good, then they slowly creep up over time. While some price fluctuations can be expected for certain supply categories, many products should be relatively stable.

Savor helps users track changing prices by allowing users to produce reports of any times that have changed prices over select time periods. This can save users a ton of time analyzing spreadsheets and invoices.

Manage your vendors

If you do see prices changing, don't be afraid to hold your vendors accountable. Ask for justifications for any price changes that seem out of the ordinary, or don't make sense. And you if have explicit price agreements or contracts audit your invoices to make sure you're receiving the agreed upon price. Price contract violations can be a large as 3% of all supply costs, so if you're failing to monitor your prices, you could be costing yourself as much as $10,000 per location per year.

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