The Elements of Food Cost & Profit: Raw Product Purchasing

Food is expensive – no doubt about it.

Many operators are constantly concerned about the prices they are paying for the food that they serve in their foodservice business. They should be - but is price the only thing affecting the actual cost of the food they are serving? While there are certainly important measures a diligent operator must take in managing vendor relations to ensure that they are getting the best pricing available, successful operators are equally diligent in managing several other elements that affect what becomes their actual food cost.

Developing good relationships with your suppliers can be beneficial not only to your food cost results but sometimes can be helpful to your operations as well. Many operators feel they need several suppliers to “keep them honest” through competition. Competition is certainly a good thing but thinking you are working multiple suppliers against each other to your advantage may not work as well as planned.

Everybody in business is in business to make money. If you are a customer of many competing suppliers you may actually be paying more than you need to. Major suppliers like commitment and reliable expectations from accounts as well as profit.

Some of the things that make customers attractive to broad line distributors are: consistent, organized ordering practices; consistent on-time payment to terms, reasonable and accurate return practices when mistakes do occur; use of on-line ordering systems; good, clear, and safe access to delivery areas; consistent volume on key items; use of services such as beverage or chemical systems.

You might be thinking “What does it matter what they like? I am the customer- If they don’t want my business, I will go somewhere else.” It will always be true that you are the customer - as long as you are one. Being an attractive customer, however, no matter how large or small your business happens to be, has benefits. We will come back to this.

Being an excellent purchasing agent for your business involves commitment to regular practices including: Use of a regular Ordering and Receiving system; Maintaining Sound Inventory Control; Analysis of Key Item Movement; Price Change Review of both key items (regularly) and slower movement high cost items (sporadic basis); Regular involvement in your Food Cost Calculation Process; Regular communication with your culinary team on product consistency; Sound Invoice Processing; and Maintaining a thorough knowledge of supplier On-Line Ordering and Resource Systems.

Being an organized and knowledgeable purchasing agent will get you respect from suppliers. When suppliers understand that you know your business, this alone can keep them on their toes.

The practices that I mentioned above seem like a lot to keep up with but actually, once systems are in place the activities become routine and not necessarily very time-consuming. When you have the strength of being an attractive customer and the up to date knowledge of your business as a purchasing agent, you are well positioned to get the best prices possible.

Other benefits include a smoother running operation, consistency of products, and a significant contribution to your customers’ satisfaction and loyalty.

Not all businesses are the same. Whether you use large broadline distributors or smaller vendors, we can help you improve your bottom line as part of a Food Cost Consultation where we may also review your current Vendor Relationships to identify hidden opportunities in your purchasing program.