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Keeping an eye on price creep

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Question:

Great reply on the prime vendor question (about partnering with a single vendor). I couldn’t agree with you more! Any prime vendor contract any of my peers ever entered into turned sour pretty quickly. Most of the time, it ended up with price creep, and there are a lot of folks in our business that don’t track the cost of what they’re paying for stuff as well as they should. I was at a conference this past March and one of the presenters started off with a question: How many of us knew what our plate cost was for everything on our menu?

– Mark Brooks, Purchasing Manager, Bavarian Inn Lodge, Frankenmuth, Mich.

Answer:

I am not used to much mail from readers—of either the hate- or fan-mail variety—so I’m glad to see this question about the merits of using a sole or prime vendor over multiple vendors brought so much commentary and yielded both. To reemphasize, I am all for positive and mutually beneficial vendor relationships and have enjoyed many of them over the years—but my experience with sole vendor agreements has been closer to yours.

Your response raises a good question about price creep and the need to consistently monitor and adjust calculated food costs. Regardless of the type of agreement you have with your vendors, it is important to track prices over time. Operators often make the mistake of calculating their plate cost for each menu item as one big project but then fail to revisit it and update it, even as prices change. Problems in meeting food cost targets may be as simple as outdated costing information and a need to revisit menu pricing.

Some good practices for monitoring prices include:

  • Tracking: Keep records of prices for each item you buy invoice-to-invoice on a spreadsheet. If you are doing this manually, it is a great job for a hospitality or culinary school intern.
  • Software: Using purchasing software like Chouxbox can automate price monitoring for you.
  • Vendor communication: A good vendor will give you a heads up in advance on unexpected price changes. For example, if prices of an item are high due to weather, disease or other shortages, your vendor should suggest alternatives. That kind of communication can build confidence that increases are due to broader economic factors and not price creep.
  • Trade mags and price reports: Keeping up on national and global trends in the marketplace can help put your costs in context and also help you strategize to get ahead of rising prices. For example, if beef prices jump, you can quickly menu other more affordable proteins.

Keep in mind that food prices fluctuate daily on the commodity markets, so frequent changes in prices are not unusual, unless you’ve locked in contracted prices. Further, food prices are trending upwards as nearly all costs are. But there is a difference between regular fluctuation with a slow upwards trend (that’s life in the food biz) and a regular and consistent rise (price creep). Consistent and open communication with vendors and monitoring of each invoice—whether manual or electronic—is key.

More on monitoring prices here.

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