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Offset labor costs with menu, purchasing and inventory excellence

Photograph: Shutterstock

Your people are the face, heart, and soul of your restaurant—but the cost of labor is on the rise. With higher minimum wage laws, increased competition for workers and the rising cost of healthcare, it can be a challenge for restaurants to get—and stay—profitable.

To counterbalance higher labor costs, many restaurants have started focusing on optimization opportunities within their organizations. As you work to increase your profitability, two areas to explore are recipe and menu engineering, and purchasing and inventory optimization.

Menu Engineering

What it is: Menu engineering is the study of the profitability and popularity of menu items and how these factors influence the placement of items on a menu. The goal is to increase profitability per guest.

Why you need it: By fully understanding the performance of your menu, you can look at where to make improvements to increase profitability. Popular but costly dishes can be tweaked to reduce the cost of ingredients, while less popular dishes can be removed.

Steps to take:

  • Know your sales trends. Gain visibility into what is selling and what isn't. Combined with the profitability of your dishes, this will help you determine which items to keep on your menu, which to remove and where tweaks can be made.
  • Develop a single set of master data. This should include vendor catalogs and pricing, so you can stay on top of exactly what each recipe will cost—and adjust accordingly.
  • Perform quick analysis. See the impact of your actions. For example, if one ingredient in a recipe is swapped for a cheaper alternative, how does that impact the popularity of the menu item? With a fully-integrated solution that brings all data together in one place, you’ll be able to see exactly how these changes affect performance—and you’ll know where you need to make further changes.
  • Look at technology that can help you manage the process. One of the biggest challenges with recipe and menu engineering is trying to manage it using tools like Excel. Errors in formulas, out-of-date prices and large, unwieldy spreadsheets will impact the effectiveness of the entire exercise, as well as the results. Also consider analytics platforms that can help you quickly see the results of the changes you’re making.

Optimized Purchasing and Inventory

What it is: There are many ways to streamline the purchasing and inventory process. Stopping rogue purchasing, eliminating paper from the entire purchase-to-pay process and tackling waste are great places to start.

Why you need it: The goods you purchase are a direct reflection of your business–your purchases should be high-quality items with timely delivery. You’ll also want them to be ordered according to need and within pricing agreements. Plus, the more paper you can remove from the process and the more waste you can eliminate, the more you’ll save.

Steps to take:

  • Trade electronically. Information can be automatically extracted from your purchasing documents to populate your system, and everything is stored in the right place.  
  • Enforce supplier lists. Lock down supplier lists, ensuring that all sites can only purchase from approved vendors.
  • Set delivery schedules. You can establish routine delivery schedules in the ordering system so that any order placed outside the schedule is rejected. You can allow for some flexibility in case of emergencies but formalizing the process will ensure that costly ad-hoc purchases are kept to a minimum.
  • Enact 3-way invoice matching. Checking that the details on the invoice match the original order and the goods-received note is essential. With technology, this process can be automated to eliminate paper-based manual processes and to make sure you’re only paying for what you’ve ordered and has actually been delivered.
  • Start tracking waste. By gaining a good understanding of exactly what food is being wasted and why, you can identify the issues and see where savings can be made. For example, if a dish on your menu is regularly unfinished by customers, maybe the portion size is too large. And if an ingredient is frequently being thrown away because it’s going past its expiration date, then you’re probably ordering too much.


Leveraging technology to power your menu engineering and purchasing optimization is a smart decision that helps increase your efficiencyand your profitability.

Download Fourth’s Restaurant Profitability GuideIf you’d like to talk about how Fourth can help increase your restaurant’s profitability, give us a call at 203-838-3700.

This post is sponsored by Fourth

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