Operations

Raising menu prices is not the only way to make a profit

Optimizing menu performance and working with group purchasing organizations can boost profitability, according to a session at the National Restaurant Show.
Restaurant dining room
There are other options besides raising menu prices to boost profitability. | Photo: Shutterstock

Restaurant operators are hungry for ideas on how to protect margins amid rising costs—without necessarily raising menu prices.

One way to save money is to use a group purchasing organization (GPO), or a co-op, said Ray Villaman, CEO of Tahoe Restaurant Group, who led an education session on Saturday called “Raising Menu Prices or Lower Food Costs? Do Both Optimally with These 5 Tools.”

Villaman’s group operates four concepts and licenses a fifth, including brands like Fireside Pizza, Rubicon Pizza and Base Camp. His company employs about 400 team members and generates about $27 million in revenue.

His session walked through some basic tools for drilling down into menu performance. Operators should regularly use year-ago sales data to make projections, for example. But the key to menu efficiency is taking a hard look at the sales mix and developing prime cost targets.

The first step is classifying  each menu item into certain categories. High volume/high profit dishes are “gold,” high volume/low profit are “silver,” low volume/high profit are “bronze,” and low volume/low profit are “dogs.”

Suggestion: Get rid of the dogs.

Then he recommends developing recipe cost cards for each item, so you know exactly what the profit margin is. That information can inform any decision to highlight that dish, remove it, increase the price or adjust the portion size, for example.

But another cost-saving technique is working with vendors, and Villaman is an advocate of using a GPO to negotiate better pricing—like Entegra Procurement Services or Leverage Buying Group, for example.

He said the move gave his restaurants more buying power. In their case, they were able to work with distributor US Foods to help lower their costs. Villaman’s group, for example, orders online so they don’t have to send a sales rep. The restaurant group pays every two weeks, instead of once a month, and supply drops come no more than two days each week.

The first year, Villaman said his company saved more than $300,000 using a GPO.

According to Entegra, fewer than 8% of restaurants in the U.S. currently take advantage of using a GPO, based on data from Restaurant Business sister brand Technomic.

 

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