Punxsutawney, PA

Tuesday, August 26, 2008

Climbing commodities, fewer diners, eroding economy: Does it spell d-o-o-m for your pizzeria? Not if you take control of your crucial costs – those which we can control on a daily basis. The total of these controllable costs are termed 'Prime Cost'. Simply put prime cost = food cost + labor cost, and these expenses need to be monitored with the vigilance of Scrooge McDuck. Prime cost is usually expressed as a percentage; ideally 60% or lower. This percentage is found by adding our total food cost and labor cost together then dividing by sales.

FOOD COSTS

Your total food cost is the entire sum of all ingredients used to create your product; most of us include the packaging of our pizzas. Manage from the front door, not the back door. Cutting quality is a sure way to cut customer counts. That being said how can I control food costs?

Buy smart. Secure a prime vendor agreement instead of using your time & money to 'shop' around for that quintessential price. In this kind of agreement the distributor seeks to obtain a high percentage (90%) of the operator's purchasing, in exchange for better or preferred pricing for key menu items. "I have monitored almost every client I assisted in negotiating their Prime Vendor Agreement. The majority of them see an instant 5% reduction. When the numbers are in at the end of the year the client's realize more like an 8% improvement in food purchases" – Dave Ostrander.

An operator should also weigh the benefits of having an exclusive contract with minor vendors, such as your beverage or produce provider. This tactic has been termed 'recession partnering'. For example by exclusively carrying Pepsi products I can save dollars per case, benefit from rebates, signage and free point of sale materials. I not only lower my food cost but increase my sales thus lowering my prime cost percentage. I have now also lowered my inventory by carrying only one brand of beverage rather than two thus freeing up some dollars. My 'recession partner' benefits too, as I become a higher volume customer.

Our next recommended step is to create recipe costing cards for every item on your menu. David Scott Peters of TheRestaurantExpert.com adds, "Include everything down to the single piece of lettuce. Making these cards and training everyone to religiously use them eliminates waste (Pizza Today Oct 2007 pg 20) and over-portioning. Plus it provides a great training tool"

Take a long hard look at your menu. Run a few reports through your POS system. Combine your recipe costing cards with your POS reports. Examine closely to see item by item to what items are ordered most often and how much they cost you to make vs. what your profit margin on them is. You'll see the poor performers on your menu. These are the ones that don't sell, or the ones that do sell, but cost you money to sell. These need to go! You want popular, high-profit menu items.

Highlight these menu VIP's. Encourage people to purchase the higher priced items on your menu. As this may not be our forte, working with a professional design company can help you accomplish just that. Menu Designer Lesley Greenberg stresses, "Specialized photography, product placement, font…all has to do with the customer's impulse as to what to purchase" Peters agrees, "Menu engineering is a key factor in your long-term success"

LABOR COSTS

Cutting customer service is a sure way to cut traffic, so how do I control labor costs? The first step according to Jim Laube, president of RestaurantOwner.com is to hire and effectively train the right people. Laube recommends a series of interview questions that give insight.

Question: Do you enjoy serving and taking care of other people? Of course they'll answer affirmatively. A discerning follow-up would be: 'Describe one or two instances in which you served or cared for someone else that were particularly gratifying and how did doing that make you feel?

If the response was genuine, the applicant should be able to provide you with specifics, and the more enthusiastic they are the better. Listen for positive feelings created through the act of caring for and doing something special for others. Hiring people who love to take care of others helps create positive experiences and gives their guests another reason to come back again and again. Increasing numbers of loyal customers makes for a successful restaurant.

It is estimated that training an employee costs upwards of $1500! Can we really afford turnover? Make using the recipe cards mandatory. Train with an eye to developing key people, who will stand out as superstars. Like grooming a child to eventually take over the family business, we need to set clear guidelines and expectations for our key employees. While we don't have to open up the books for them we need to explain how and why things are done as this has a direct effect on whether you have any cash in the bank to pay bills, make payroll or to take home.

Can I cut some payroll hours? Possibly we can do some trimming. Measure productivity. Compare sales / hour vs. labor spent / hour by the day of the week & the hour of the day.

Scenario 1: Supper rush on Friday starts around 4 pm, but really kicks in at 5 – 6 pm. Staggering your schedule is a great way to trim the payroll. Bring key personnel in at 4 pm, others at 5:00, more at 6:00 instead of everyone at 4:00 just waiting for something to happen.

Scenario 2: Times during the week when you have few orders but prep needs done, a superstar can manage the "flow" and doesn't get solely focused on one task.

Once I have identified a superstar, I need to compensate him accordingly. Yes, give him a raise. It is hard to reach into those pockets, so do the math first. If Cheri can competently work alone at $12 / hour, is that not more economical for me than to have Joey and Tim work at a rate of $7 / hour? Make this position worthwhile for them and reap the rewards of a productive compensated employee.

Your total labor costs are made up of all wages PLUS we factor in taxes, benefits and payroll insurances. While taxes and insurances are under some regulations there are ways to lower your costs. Ohio Restaurant Association member Ann Reichle encourages operators to belong to trade communities. Why? Reichle exclaimed 'It saves me over $1000 annually on worker's compensation alone.' Trade and state restaurant associations with group buying power can bring many benefits to members.

Prime Cost Percentage is absolutely the one number every operator must pay attention to. Daily monitoring of costs equals catching a problem before it turns into a major revenue loss. This figure is computed by dividing our above costs by sales. Did you realize that your current employees are capable of handling 10% more volume? Controlling crucial numbers is not all about negotiating, trimming, training…it is about selling too. Yes, marketing can lower that Prime Cost Percentage, but that is another article.

Scott Anthony

Fox's Pizza Den

Punxsutawney, PA

814-591-1489

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