Many chains will try to lure customers with various promotions and limited-time specials, accepting the risk that they will condition diners to lower prices. In the meantime, finance chiefs are stepping up to the stove. “If my marketing people are telling me sales are going to be bad, what can I do with the rest of the P&L to combat that?” asks Andrew Green. “How can I keep our stock price up?” Restaurant CFOs “have to look creatively at the expense side, purchase food products more effectively, and be more efficient with their labor,” he says.
The challenge is to take costs out without affecting the customer experience. Chains might increase the pack size of restaurant goods and make fewer deliveries, for example. Or they might install utility-management programs that can cut energy costs by, for instance, monitoring when deep fryers and hood vents are left on after hours.
As restaurants wrestle with food prices, societal concerns about health and weight control could help them out. Chains are leery of reducing portion sizes; offering “healthy” menu items may give them a way to do so without alienating customers. “Health and wellness is certainly going to give our industry an opportunity to evaluate how we construct a meal,” says Sonsteby. “To offer more vegetables, perhaps less protein, but highlight it as such. I’d be reluctant to reduce portions on standard menu items, but I’d look for additional offerings that would appeal to folks along health and wellness lines that do have smaller portions and maybe carry a lower price as well. We are definitely evaluating those kinds of things.”
Most large restaurant chains have sophisticated purchasing organizations and use forward buying to control their food prices. Brinker has done so for years and currently contracts for about 85 percent of its goods, says Sonsteby. Not that money is always saved: the recent escalation and sudden fall in prices for items like wheat, corn, and soybean oil resulted in spot prices being lower than contracted prices, he says.
Uno Chicago Grill, owned by privately held Uno Restaurant Holdings Corp., uses forward contracts for about 80 percent of its cheese and 50 percent of its wheat, says senior vice president and CFO Louie Psallidas. “We don’t buy all at once; you never know all the facts on any given day,” he says. “There are more forecasts out there than you can shake a stick at.” Psallidas is unperturbed if forward buying should wind up costing more than spot purchases. “It gives you certainty,” he says. “At the end of the year, nobody ever criticizes you for buying insurance when the building doesn’t burn down.”
There are other ways to keep tabs on food costs while finding opportunities to generate more revenue. For example, restaurants hire consulting firms like Technomic to make sure their prices are in line with their competitors’. The restaurant business is still a penny business, says Paul, because of the huge number of transactions: “An extra dime on a cup of coffee can add up over the year.”