In a Restaurant, Only Food Costs Matter
After the initial opening of a restaurant, there are only two things that a restauranteur and their team should focus on to stay in business — increasing revenue and controlling food costs.
There are plenty of different approaches to increasing revenue — get more people through the door, increase the spend per head, or use services like Deliveroo or UberEats to tap into the take-away market. The other side of the equation is to control your food costs. Every other cost associated with a restaurant is very hard to control beyond the restaurant’s opening period. At REKKI, we think the key to better managing food costs is through the relationship you have with your suppliers.
A transparent, trusting relationship with your supplier means that you can better understand how to use the variability of the food market to your advantage when sourcing and ordering ingredients. It is in a supplier’s interest to have restaurant customers that are in business, so it benefits both parties to work together to give restaurants good deals and suppliers consistent business. REKKI works to make that relationship better.
Why do we want to help make restaurants financially sustainable? Because restaurants are where relationships happen. While hungry urbanites can get almost any cuisine delivered right to their door, finding refuge in a restaurant’s hospitality and social setting is still a special act, and one that deserves to endure. Even when dining alone, I personally love the comfort of sliding into a stool at my favourite local spot to share my meal with a good book and a room full of strangers. Restaurants act as social anchors, and in a time when high streets are dying at an alarming rate, it is important to find ways to keep them alive.
The thing is, running a restaurant is fucking hard — I’ve helped open two of them — as a sous and a head chef. I’ve worked as a line cook and a freelance chef. I did a degree in food anthropology to better understand the bigger picture, investigating our contemporary relationship to food history in the UK, and the impact Cuban politics has had on food practices on and off the island. I have spent years as an employee, manager and academic observer living and learning about how food, and its relationship to the world, works.
The day-to-day of a restaurant is a constant act of spinning plates. At any given moment, one (or several) of those plates would drop — a chef calls in sick, a piece of equipment breaks, a delivery is late, a storm hits, the power cuts, the list goes on. The team would quickly adapt, often without customers ever knowing the difference. Financially, it is even more of a challenge to balance — in 2018 in the UK, the average profit margin for restaurants dropped to just 1.5%, and even in a best case scenario, businesses are right on the edge of survival.
The costs involved in a restaurant can, at times, seem endless. Some costs are fixed, some are variable. Some seem like they are variable, when they are actually fixed. It is this last category that is most likely to catch people out.
Why Restaurants Matter
Restaurants are not really about eating. Since their start in the mid-18th Century, they have been powerful public platforms for political and intellectual debate, for protest and for cultural and creative expression. Restaurants have the ability to be part of large scale social movements, while also being very much part of the day-to-day of individuals. They are where the personal and the public intertwine. Restaurants are where we go to talk, to people watch, and to interact with others.
“When you go to a restaurant, you can’t just sit there watching the telly and eat your dinner. You have to sit round and actually talk… they are a good thing for society.” Russell Tisbury, Chef and Owner Tisbury’s Kitchen, Brighton, UK
The value of restaurants lies not just in their importance as social spaces, but as employers. In the UK, the hospitality industry employs around 1.75 million people, or about 5.5% of the overall workforce, and in the US that number reaches 13.37 million employees, or 9.2% of those in work. And that is just the part of the industry that counts as ‘hospitality’ — those numbers do not include the suppliers, the farmers, the delivery drivers, the accountants, the inspectors and all the other workers who help keep the hospitality industry functioning. Without a healthy restaurant industry, the people in these establishments and along the rest of the supply chain are at risk.
“If you are breaking even, you are doing incredibly well.” Jessie Dunford-Wood, Parlour, London, UK
Crunching the Numbers
Restaurant margins are not great right now. You can blame it on a lot of things—rising rents, changes to consumer habits, struggling economies, climate change, Brexit — but the end result is that the way restaurants have worked in the past isn’t working as well as it used to.
When the giants and the independents alike are struggling to keep their doors open, it becomes evident that it will take a different way of thinking to make the restaurant industry sustainable going forward. As most people working in restaurants are already aware, the breakdown of your costs usually look something like this:
The Fixed Costs
The costs that can generally be predicted and planned for, and are unlikely to change suddenly without some kind of forewarning:
- Brick and mortar (rent/mortgage)
- Business rates and taxes
- Equipment (general maintenance and upkeep, not emergencies)
They make up a big chunk of the budget, especially for those operating in urban areas where square footage comes at a premium. They make up the fundamental physical, operational and legally required necessities to run a restaurant, and there is not a whole lot you can do to change them.
The Variable Costs
The parts of the business that are reactive and subject to unpredictability. They are most likely to change as a result of shifts in customer numbers, staff turnover, and changing seasons. They mainly fall into two categories:
- Staff costs (wages, recruitment, training)
- Food costs (raw ingredients, wastage)
Many people look at staffing as a key way to reduce costs, but there is a danger when trying to squeeze staff to improve margins. There is a minimum number of people and hours of labour per day required in each restaurant to run it well. Try to push that line and the hidden costs of an understaffed restaurant soon become evident.
Overworked and burnt out staff lead to higher turnover and unhappy employees. More money is spent on recruitment and training, not to mention pricey agency workers to fill the gaps during staff shortages. While shorter shifts might appear to save on hourly wages, it can easily result in staff staying late to finish off tasks that fall by the wayside due to lack of time. While salaried employees might be relied on to stay late, that inevitably brings us back to point one. Which leaves us with food costs…
Understanding and controlling your food costs is the key to creating a real impact on profit margins. The best way to do that is by building mutual trust and respect with your suppliers. Restaurants order dozens of ingredients every day, and need to be able to adapt their ordering based a whole host of variables like the day of the week, sales from the previous day, the weather forecast or if someone forgot to close the fridge door properly the night before (true story). There is no cookie cutter, standardised approach to supplying restaurants that will give you the best outcome for your kitchen, nor should you want one.
Many assume that to reduce food costs you have to compromise on quality, but that doesn’t have to be the case. With such a variety of sources and products available, there is more flexibility in prices than one might think, if you know where to look and what to ask of your supplier.
“We humans all eat, but we do not all share the same ideas about what or how we should eat — or, for that matter, about how food should be produced and distributed, how much it should cost, or even how much time and effort we should devote to procuring, preparing, and eating food relative to other pursuits.” Susanne Freidberg
Suppliers are in a far better position than restaurants to understand what factors affect the price and quality of your food. The tomatoes you order on a Monday are a completely different product to the ones you order on Tuesday, let alone those that will get delivered in two week’s time.
If a vegetable supplier knows that the tomatoes you order will be going into your best selling pasta sauce that is served year round, they might also know that slight imperfections, variable size and place of origin are less important for this particular dish than flavour, ripeness and consistent volume of stock. They will know that a bad case of blight in Italy means the tomatoes that survive will be priced at a premium, but that Turkey’s harvest has been particularly good and the resulting glut will mean more competitive prices. They will know when one country’s season is winding down and another is starting up. They can let you know if a new source or variety appears on the market that might suit your needs at a better price.
A good supplier can advise on the best tomatoes to source at any given time of the year for the best price with all those variables in mind.
A good relationship with your supplier results in a mutual passion and knowledge about the minute details of the supply chain and offers insight into the right products for your kitchen. Replicate that across your entire order list, and strategic ordering and suggestions from your supplier can lead to better value, better margins and a better relationship.
Society uses restaurants as places to build social movements and personal connections. It is important that restaurants remain anchors of the community. However, in order for restaurants to stay in business, the numbers have to be right. Along with increasing revenue, controlling food costs is the key way to improve margins. No other costs are truly under a restaurant’s control. For REKKI, the way to do this is by creating the best possible relationship between restaurants and suppliers. Better communication, better accountability and better transparency leads to more informed ordering and a supplier that seeks out the best value ingredients for your kitchen. Good relationships are how society thrives, so let’s do the same for restaurants.