Managing rising food and labor costs
Inflation is at roughly seven percent, a rate not seen since 1982. This will hit you where it hurts, your prime costs. And then while you are down on the ground bleeding profits, inflation will kick you repeatedly through 2022, until you give up and close your pizzeria or adapt and thrive while your competitors shut their doors.
Food and labor costs are called prime costs because they are the two costs you must manage in your pizzeria business to survive. What weapons do you have to fight the inflation of your food and labor costs? Here are six of the most important for your arms cache.
• Ideal Food Cost
• Single Vendor Contract
• Vendor Allowances
• Scheduling Techniques
Food Cost: Ideal Food Cost
Do you know how many pounds of pepperoni you used last week? Second question: Do you know how many pounds of pepperoni you should have used last week? This is the essence of Ideal Food Cost. Your POS system has this ability. It requires setup work. You will need to put recipes into your POS system and then each week post purchases and input an ending inventory. Start with your meats and cheeses to keep it simple. For example, if your large pepperoni pizza has 10.5 ounces of mozzarella and 55 slices of pepperoni at 14-16 count (the number of slices of pepperoni per ounce) and you sold 100 large pepperoni pizzas, you would know how much you should have used, aka your ‘ideal usage’.
100 x 10.5 ounces / 16 ounces per pound = 65.63 pounds of mozzarella
55 x 100 / 15 slices per ounce / 16 ounces per pound = 22.92 pounds of pepperoni
When compared against your actual usage (beginning inventory + purchases – ending inventory) you will discover your over or short on pepperoni and mozzarella.
Food Cost: Single Vendor Contract
Help me help you. Jerry Maguire said it best. Simply put, get all your food and supplies from one vendor. Sign a contract with this vendor in return for cost-plus pricing. If your vendor makes a profit, they can help you to make a profit. Stop chasing the deal-of-the-week and manage one vendor. Monitor their pricing and audit them once per year. Stick with them for two to three years before asking for other vendors to bid for your business as a single vendor provider.
Food Cost: Vendor Allowances
There are two methods to receiving a discount on the food you purchase. A ‘rebate’ is money given back to you by the food manufacturer after you have purchased their food. This is no longer the preferred method. Better is a discount applied to the product as you purchase it. This is known as a ‘vendor allowance’. For example, the ‘street price’ for pepperoni may be over $5.00 per pound. You, or even better, your new partner the Single Vendor Provider, contact the manufacturer directly and ask for a discount. This may bring the price down by over $1.00 per pound! By having your Single Vendor Provider contact all the manufacturers of all the products you purchase, you will save thousands of dollars per year.
Labor Cost: Scheduling Techniques
Reduction of hours paid is the best way to control your labor cost. However, the challenge is to do this while still providing a level of customer service that is acceptable to your customers. This means you are constantly looking at your POS system to determine your sales for each half hour of each day and schedule the appropriate number of bodies to handle the expected business. Two weapons to add: schedule by the 15 minutes and schedule a maximum of 7.5 hours per shift with maximum 38 hour work weeks.
By scheduling by the 15 minutes (for example, 5:15 p.m.- 8:45 p.m.) you will accomplish two things. First, your employees will realize how important the timing of their shift is related to customer service. Second, you will more efficiently bring bodies to work at the time the work needs to be done.
We all know that slippage happens. An employee who should clock out at 8:00 stays until 8:15. If your state requires paying overtime after eight hours per day or over 40 hours per week, by scheduling maximum 7.5 hour shifts and 38 hour weeks, you will avoid overtime. Paying an employee time and a half is not an affordable way to do business.
Labor Cost: Technology
Let’s get the customer placing their own orders. This will reduce the labor cost needed to take their order. It costs $1 to $2 per order in labor cost to take a customer’s order. POS systems today offer kiosks, apps and online ordering to eliminate this cost. Your ROI (return on investment) of implementing these technologies could be less than one year. The benefits are astounding. Lower labor costs, higher average tickets, less mistakes and remakes and better customer service.
Labor Cost: Equipment
Every time minimum wage goes up, that is our government funding the purchase of more efficient equipment for our pizzerias. A $400 cheese grater attachment on a mixer has worked fine for 35 years. It takes one hour to grate 90 pounds of cheese. When minimum wage goes from $10/hour to $15/hour, the cost of grating cheese per week for an average pizzeria goes from $70/week to $105/week. A commercial cheese grater that can do the job in 30 minutes may cost $5,000. The ROI on the purchase of a $5,000 cheese grater is 22 months. That is a good investment.
Look at all your prep tasks and research equipment that will do it faster. Look at your production and do the same. More efficient equipment will reduce your labor costs and pay for itself.
You may have experienced seven percent inflation as a consumer if you are old enough. But not many of us have experienced that level of inflation as a business owner. It will not be over quickly, and you will not enjoy it. Sorry, sometimes movie quotes are so apropos that I can’t resist. Fight or perish. These are the weapons you will need for the fight.
DAN COLLIER is the founder of Pizza Man Dan’s in California and a speaker at International Pizza Expo.