Do’s and don’ts for startup restaurants – vol. 3

Make vendors compete for your business. If you chose a vendor without making them outbid other vendors, you didn’t get their best price. Competition is the most effective tool you have to keep your purchase costs down. When choosing a vendor, make a list of the top 20-50 items that make up the bulk of your dollar purchases. Send a list of these items to all the vendors in your area that deliver those items, along with a cover letter informing them that you are taking bids from all local vendors that provide these items. The cover letter should also let them know approximately how much dollar sales volume you do, and any issues pertaining to the supply of those products that you have. This bidding process needs to happen every year so whoever you choose to go with has to continue to compete on price to get your business. You should also require them to verify their prices on your inventory every 3-4 months.

Depreciate all build out costs at 30 years. Some capital purchases in your buildout, like wiring, finishes and equipment can be amoratized to depreciate at 5, 7 or 10 years. A faster depreciation schedule means better cash flow for your business.

Investigate buying groups. Through group purchasing organizations (GPO’s), a smaller chain or individual restaurant may be able to receive discounts on purchases of all types, such as food, paper goods, chemicals, linen, uniforms, equipment, maintenance supplies and more. Two of the larger buying groups out there are Avendra, Marriott’s buying group, and Foodbuy, the buying group for Compass. While a well negotiated individual purchasing contract can yield just as good, or better, prices than a buying group, many operators don’t have the experience to successfully negotiate such a contract.

Blame a particular advertising medium for the failure of an ad campaign. In most cases, advertising mediums don’t fail restaurants, restaurants fail their ad campaign. I’ll explain. The success of an ad campaign doesn’t depend on a particular marketing medium. Saying that “Radio/TV/billboards/direct mail/internet doesn’t work for us” is a cop out. Marketing mediums don’t fail. Marketing messages fail. While radio, for example, isn’t the ideal medium for every ad campaign, it does work for certain promotions if the message is formed right. All the advertising dollars in the world aren’t going to make a bad message effective on any medium. You can’t just pay to have your business’ name plastered on a TV ad every 10 minutes and expect it to bring people in. That’s not how advertising works.

Take a physical inventory weekly. Knowing your cost of goods sold on a weekly basis allows you to catch major problems sooner. It doesn’t do you any good to find out you had a cost control problem 4 weeks earlier. By then, there’s nothing you can do about it. The steps to figuring your cost of goods sold include; (1) create an inventory spreadsheet with all your current purchase prices for your inventory items, (2) count all your inventory items after the end of business on Sunday, and before the beginning of business on Monday, (3) enter your counts into your inventory spreadsheet to calculate how many dollars of each inventory item you have on hand, (4) add your purchases for the week in review to the beginning inventory for that week, which is the count you took the prior week, (5) subtract your ending inventory, which is the count you took this week, from this amount. The remaining number is your cost of goods sold.

Operate under the assumption that fired employees qualify for unemployment benefits. This is a common misnomer in every industry of business, perpetuated by uninformed employees and managers. If you keep accurate records of disciplinary actions taken against an employee, give that employee an opportunity to correct that action, then accurately record their failure to do so, you have enough evidence to avoid having your unemployment insurance being charged for that employee’s unemployment benefits. In most states, a terminated employee will not qualify for unemployment benefits, but the business has to show accurate records for this to happen.

Find some way to reward employees. Playing games with staff, and making them compete against each other is not only fun for the employees, but also profitable for your business. Have selling competitions with service staff. Have speed competitions with kitchen staff. Any issue your restaurant or food service is experience can be improved through the implementation of some sort of game or competition to improve that situation. 

Underestimate the impact of a clean bathroom. Your bathroom in your business is a reflection of the overall cleanliness of your business. A clean bathroom will make your guests confident that your kitchen, and the rest of your restaurant, is also clean and sanitary.

4 thoughts on “Do’s and don’ts for startup restaurants – vol. 3

  1. You are giving new restaurant owners bad advice suggesting that they start a bid process with their vendors. The vendors will “bid” on their lesser quality items resulting in poor quality and poor yields. Schools, prisons and other institutions put out bids. Quality and yield is not important here. Better advice, would to partner with your vendors holding them accountable for a fair cost of goods (allow them to make a profit) while maintaning a good quality and yield level. Most good vendors also offer value added services that a good restaurant operator should take advantage of. Restaurant operators should not fall into the “bid” trap. Their patrons want a quality product at a fair price. Not school fare.

  2. I appreciate your input on my advice Mike, but from years of experience negotiating purchasing contracts for not only operations that I’ve run, but also my client’s operations, I can assure you that the lowest purchasing costs, whether on quality products or cheap products, is achieved through competitive bidding.

    Just as in the “real world”, without competition, prices don’t come down. There is no incentive for a company to keep pricing competitive if they are not being made to compete.

    I’ve heard your same arguement from salesmen before. Not to jump to conclusions, but I would assume that is your profession. Naturally it’s in your best interest that your accounts don’t make you bid for their business every year in order to keep it. Without a process to keep salespersons honest, a business cannot expect to get their best price. Without competition, why should they?

    There are certainly considerations as to what quality of product the pricing pertains to, but what quality of product the restaurant needs is not up to the salesperson. It is up to the restaurant, and it is the restaurant owner or the chef’s responsibility to monitor the quality of the product coming in, just as they do the product that goes out to a table.

    I don’t suggest to my clients that quality isn’t a consideration. Neither do I assume that they are too ignorant to factor quality into the bidding process, or to police the quality of the products they are getting bids for. That’s part of their job. Once again, if they are leaving that just to the salesperson, they are setting themselves up for failure.

    A good relationship between vendors and restaurants does include both making money. After all, that’s what we’re all in business for. Not making a vendor compete for your business though usually results in paying too much. Sure, there are some honest salesmen, and women, out there that will give you their best price just to help keep you in business, but they are the exception.

    If you are one of these type of salespersons, I can see how you think it’s better and easier for a customer to just trust you. Unfortunately, in the real world, restaurants have to have systems in place to eliminate the need to trust their sales people. Most salespersons, and most purveyors in general, are simply not looking out for the best interest of their clients.

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