After years of elevated inflation, restaurants are almost universally facing the pressure of rising costs: 98% of restaurant operators say they’re struggling with labor costs, according to the National Restaurant Association’s 2024 State of the Restaurant Industry report, and 97% say the same about food costs.[1]
What’s more, many restaurant owners predict tough times ahead, with 45% saying they expect to face stiffer competition in 2024 than they did last year.[1]
Faced with a challenging economic environment, some restaurant owners could safeguard their businesses by focusing on the financial fundamentals, and looking for opportunities to cut costs without compromising quality. These four strategies can help.
Find Your Baseline
Creating a financial plan often starts with a firm grasp on your food and labor expenses. A high-level look at these costs can be helpful, but you’ll likely gain the most benefit from a deeper analysis. Which are your most expensive ingredients? Which employees work overtime, and therefore, add disproportionately to your labor costs? The answers might give you a starting point for where to consider cutting.
If you’re not sure, a strategic investment in technology, such as restaurant analytics software, can help you get the insights you need to determine where to cut costs.
Focus on Forecasting for Inventory Management
Accurate sales forecasting is an essential component of inventory management, and having a firm grasp of how many sales will come in — and when they’ll come in — can help you reduce costs. Not only does it help reduce the risk of food waste, but it can also help manage labor expenses by preventing over-staffing.
A point-of-sale solution, particularly one that includes inventory management, might also help. It allows you to pore over your sales trends — by the hour, and by menu item — to gain crucial insights into your busiest times and top-performing items. From there, you likely can forecast how much staffing you truly need, as well as how much to order to meet customer demand while minimizing spoilage.
Revisit Your Supplier Network
As food costs continue to increase, take a close look at your supply chain to identify opportunities to negotiate more favorable prices or payment terms.
In general, you may save money by sourcing more ingredients through a single supplier, since you can leverage buying power to negotiate on prices, as well as save money on delivery costs by getting more ingredients through a single shipment. However, might not want to cut out all alternative suppliers in case your primary source encounters shortages or business difficulties. If you’ve found a supplier you can trust, consider deepening your relationship — or scope out the competition to find a supplier who can provide more of your ingredients.
Engineer a Cost-Effective Menu
Rethinking your supply chain could also be an opportunity to shake up your menu and look for opportunities to cut cuts.
To start, switching out high-cost, but low-demand, ingredients with more affordable options helps reduce food costs overall. But restaurant owners also have plenty of other options to create a cost-effective menu.
Consider appealing to value-conscious customers by adding half-portions to your menu or develop a prix fixe “menu sampler” that allows customers to budget for a night out. Two strategic moves which might help you more predictably manage your inventory. Also consider planing your menu around seasonal ingredients sourced from local suppliers to save on shipping fees and develop menu items that allow you to use the same ingredients across multiple recipes to reduce the risk of waste.
As you map out a cost-conscious menu, consider investing in digital menus that allow you to update menu items — and prices — instantly, without the need for re-printing.
Get Support Managing Your Restaurant’s Financial Health
Whether you’re looking for flexible point-of-sale solutions with inventory management, an all-in-one POS solution[2], trusted advice to help manage your cash flow, or lending solutions to help you invest in your restaurant, we’re here to help. Visit us online to learn more about our solutions for restaurants, or to get in touch with a PNC business banker today.
