Restaurant chains typically use one of four tactics to deal with vendor product price management to control their food costs.
The restaurant food distribution industry is hyper-competitive with prices ebbing and flowing to the current market conditions. Food service vendors, just like the restaurant businesses they supply, are operating on very slim profit margins. So, when every dollar counts toward your bottom line, it’s a daunting task to monitor all your vendor’s prices when they seem to be constantly changing. When it’s very common for an invoice to show a price that’s above (or below) the contracted price, a restaurant operation has to have a vendor management strategy in place to keep costs in line with expectations.
Tactics: Take Action
Multi-unit restaurant chains commonly deploy one of four tactics to deal with their vendor product price management strategy. Here they are:
- The accounting team will routinely manually compare actual invoice prices to contracted prices
- Individual restaurant managers will routinely double-check invoice prices against a current vendor price sheet
- An electronic system is used to automate contract-to-invoice price comparisons, generate alerts and remediate the cost discrepancies
- Just hope for the best
The first option is probably more common than you think and relies heavily on your office team talent. When there’s enough quality manpower in the office it can work well and though it can be expensive to maintain consistently, the savings reaped from finding significant invoice discrepancies often make it worthwhile. However, this option also leaves a lot of room for human error. Often those errors are repeated over and over again because the people leading the job don’t follow a best practice procedure.
The second option puts a knowledgeable manager to work doing a purely mechanical task. This option will often suffer from human errors, too, and success varies greatly from location to location. Sometimes it works great and sometimes it doesn’t. What’s more, a manager’s time might be better spent circulating through the restaurant, improving food production operations, reducing waste, and training people.
The third option is highly efficient, though it requires an expert implementation of a restaurant back office software system. These restaurant systems drive down food costs materially simply by comparing what the restaurant should be paying for food products and supplies versus what it actually is paying for them. When a discrepancy is found, an alert is generated and both parties are notified for reconciliation. A restaurant back office solution does this with aplomb. While return on investment for an integrated back office system can be outstanding, typically adding 2-5% of food sales to bottom-line profits, this tactic requires a strategy that focuses on a commitment to operational excellence from the entire restaurant chain, top-to-bottom.
Whichever method your company prefers (except #4!), it’s important that it’s performed for every vendor order, every day. Because as with so many things, getting the basics right day after day is the key to better restaurant food cost management.