Being prepared for rising food costs

Stabilising your Food and Beverage Procurement during uncertain times

By Mark Bennett, Procure4

With times currently uncertain, does your business have a plan in place for monitoring and managing rising food costs?  

Food inflation throughout 2017 certainly made an impact on the hospitality and casual dining industries. Product shortages due to poor harvests or rising global demand, in addition to currency exchange rate implications, pushed prices to, in some cases, unreachable limits. Paying over £2.00 for an iceberg lettuce seems unbelievable but throughout 2017 many products including avocado, squid and especially dairy saw prices hit record levels. With food inflation expected to ease towards the end of 2018, the end may be in sight, however we still have some uncertain months ahead.

Over the last ten years margin has gradually been eroded from the supply chain, which has typically left little slack for importers, suppliers and distributors. As a result, this has left them unable to swallow price increases and therefore forced to pass them on. Couple this with other cost pressures, including staff costs, high rents and rising business rates, together with consumers increasingly tightening their belts in an increasingly saturated market space, means many hospitality and casual dining establishments are in an uncomfortable position.

However, it’s not all doom and gloom. With a lifetime of procurement expertise Mark shares his advice, highlighting ten areas your business can focus on to ensure you manage these rising costs appropriately and offset any EBITDA slippage.

1. Communicate, Communicate, Communicate!

Talk to your suppliers, get a forecast from them. Make sure they give you plenty of notice should prices need to rise.  Increase the frequency of your commercial discussions, ensuring you know what is going on so you can prepare yourself and your business.

2. And Stretch

Make sure your supply chain is flexible, with the ability to change direction quickly. Build a network of suppliers and know their capabilities so that if you need to switch quickly you can.

3. Value Engineering

Adaptable menus and product offerings allow you to withstand product shortages or sudden price increases. Work with suppliers to find alternative products that mitigate cost increase but don’t adversely affect the consumer proposition.

4. Exchange Rate

Monitor prices against currency fluctuations. By understanding the exchange rate at the point a deal is done you can be sure your costs reflects the change in currency as well as global demand. Don’t end up supplementing your supplier’s margin! Top Tip: If you do nothing else; monitor your top 20 spend items.

5. Knowledge is Power

Be aware of global market trends, and how these translates into risks and opportunities for your business. This will help predictions for budget and forecasting purposes. Having the knowledge of change helps prepare for it.

6. Timing is Everything

Buy specific products at the right time, when harvests predictions are known.  Your suppliers can help you with this, so it is crucial to build and maintain good relationships with them.

7. Do a Deal

Now might be the time to take out a shorter or longer-term supplier contract. Depending on the commodity and pricing available, make sure you secure good deals but go short on poor deals.

8. Upsell

Promote and raise the profile of high margin items on your menu and specials board. Ensure your staff are trained and incentivised to upsell high margin extras. This sales tactic can help improve GP if it has been eroded on meal centres.

9. Stay Seasonal

Make the most of seasonal produce by introducing more frequent menu cycles. Use fruit and veg on your menu at the height of the season when there is excess supply as this is when product is both at its best and cheapest.

10. Fact versus Fiction

Track theoretical usage versus actual usage. Having the facts, rather than assumptions or estimations will help reduce waste across both food and bar items.

Mark Bennett is a Senior Procurement Consultant at Procure4, specialising in Food & Beverage. For more information on Procure4 and how their team of Procurement Consultants can support cost efficiencies across your business.

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