A Recipe to Save Thousands of $$

As an industry, we find ourselves in a challenging environment. The cost of goods sold (COGS) has been steadily increasing, and we've reached a price ceiling that's threatening to reduce our cover count. Facing this unprecedented crunch, it's easy to consider compromising on food standards by reducing the quality of our ingredients or increasing or menu prices. But neither is desirable or sustainable. The focus needs to shift towards another strategy that can have a significant impact - COGS Management. More specifically, the management of COGS variance for food and beverage in your restaurant.

Understanding COGS Variance

COGS variance refers to the difference between your expected cost of goods sold (theoretical) and the actual cost. The larger the variance, the greater the inefficiency, the lower the profit. The unfortunate part of COGS variance is that it is positively correlated to the cost of your ingredients. Therefore, if your COGS are increasing (which they are at an historic rate), your variance will increase at the equivalent rate.

Harnessing Technology to Manage COGS Variance

The introduction of technology to manage COGS variance can have a transformative impact on your bottom line. Here are a few examples:

1. Inventory Management Systems: Automated inventory management systems can be a game-changer. They not only provide real-time data about the stock on hand but also predict future needs based on consumption patterns. This prevents over-purchasing and waste, reducing the overall food cost variance.

On the bar side, Sculpture Hospitality has franchisees that can help you count your bar inventory while providing a useful inventory management application. Their team will keep your management team in the know when it comes to wastage and poor recipe design.

On the food side, there are several solutions including Optimum Control, MarginEdge and Galley.

2. Vendor Management Software: This helps negotiate better prices with suppliers and streamline the ordering process. By consolidating purchases and leveraging volume discounts, it reduces the COGS.

There are several group purchasing organizations (GPO's) that can help small restaurants compete on the cost-of-sale front. GPO's such as Dining Alliance and Foodbuy help smaller restaurants leverage the purchasing power of a group to receive better discounts and rebates.

3. AI-Driven Forecasting: Leveraging artificial intelligence for demand forecasting can drastically reduce food cost variances. By accurately predicting the demand for different menu items, you can order and prepare just what is needed, minimizing waste and lowering costs.

ClearCOGS has a very powerful backend that can help your team plan your prep sheets and minimize waste at the end of the night. If you have closed in a restaurant before, you have likely had some 2am chicken strips due to poor par planning. ClearCOGS aims to solve this wastage (apologies to the next generation).

4. Digital Ordering and POS Systems: Modern POS systems track each transaction in real-time, providing critical insights into sales data. This can be used to optimize the menu, discontinue less popular items, and promote those with higher profit margins.

The quickest way to optimize your POS system to sell items with higher contribution is to color-code your POS screens. If you have 10 items on your burger screen, try changing the top three contributors to a bright green color. You can then encourage your team to sell the green items when possible. This small change can help your team increase profit without having to make any significant changes to their process.

The Bottom Line

Every restaurant operator should pay close attention to the management of COGS variance. It's a powerful tool to drive profitability in today's tough market conditions. The need to adapt and implement technology to optimize costs is not just a strategy anymore; it's a necessity.

The opportunities for cost reduction and increased efficiency are significant. By reducing your food cost variance, you can maintain your food quality, keep your prices competitive, and increase your profit margins. And in these trying times, that could be the key to not just surviving, but thriving.

Remember, instead of cutting corners or raising prices, effective COGS management through smart technology usage can keep your restaurant's doors open, patrons happy, and your bottom line healthy. So, don't wait for the perfect time to begin; start implementing these tools and strategies today!

COGS Variance is my specialty so let's connect to start making more profit!

You can find me here:

> LinkedIn Derek Smith

> www.canopymetrics.ca

Have a great week!