Cost management is nowhere more critical than in F&B. Five chefs share their experiences in managing the fine line between profitability and quality.
What is your interpretation of the term ‘cost management’?
Abhijit Saha: For me, money saved is money earned. Managing costs is one of the most important factors that leads to success. It is most relevant today where we are expected to provide value to customers and is best done when we keep costs under control.
Sudhakar N Rao: Cost management should be an interpretation of the number purely based on facts that may or might affect the results of an organisation. However assumptions, estimates and forecasting cannot be ruled out, but a cautious realistic approach will always go a long way.
Sudhir Pai: For me it is a process of constantly monitoring and measuring costs of running the business in order to effectively plan and control decisions that increase value for customers and lower costs of products and services.
Gregory Lobo: It means saving costs everywhere without disturbing quality and safety, be it rooms, food production, service, buffets, maintenance, fuel, manpower and so on.
How have you addressed cost management in this economic environment? What are your biggest cost heads?
AS: Our biggest cost heads are F&B, manpower and rental.
We have started giving more value to our customers rather than going in for big marketing activities which are also being restructured to make them more cost effective. We are also trying to renegotiate prices with our vendors.
On the team front, we are promoting multi-tasking rather than hiring new employees. In the wine list we are also featuring a number of low cost wines of good quality from the new world besides the expensive ones.
SNR: By using effective cost cutting tools such as meeting the necessities and avoiding luxury without shifting the focus on quality of the end product. Priority is in ‘continuing’ rather than in the ‘returns’, at least for a year. Proper and optimum use of all available resources has helped in reducing the running cost.
Our biggest cost heads are real estate rent, salaries, raw material and maintaining the brand.
SP: In these times, every cost has to be dealt with seriously and monitored closely. The big cost heads are energy, payroll and food.
GL: For us it is food cost, labour saving and high productivity from the same manpower and facilities. Our biggest costs come from buying proteins which are going through the roof. Seer fish slices have become exorbitant, hence we suggest other variants of fish which sound exotic but cost much less.
We have successfully weathered economic slowdowns before where costs were tightened. So do you think the current talk of ‘going back to the basics’ and pruning the excesses is justified? Why?
AS: Whether the economic situation is good or bad, it is always prudent to be in touch with basics. Excess expenditure is never beneficial for an organisation.
A good cost management system even during the good times comes in very handy when the times are not so good as you do not have to take drastic measures or make knee jerk reactions. Consistent policies are good for all organisations.
SNR: Going back to basics sounds good but there are other hurdles which should be addressed without the demoralising effect. Cutting costs makes people less productive and enthusiasm takes a beating.
Plus people instead of helping the organisation start hunting for new employment. With all these factors, one should strike a balance between cost cutting and the organisation’s goals.
SP: Yes going back to basics is important by pruning excess costs but not compromising on quality or experience. The cost cutting measures undertaken should be justifiable so that the end customer is not cheated and he gets the expected quality and value for his money.
GL: While it may sound logic at times like these, there are other ways to handle the excesses. If we cut down on staff, the word spreads and people will remember it for a long time to come.
It may be an issue when we really need the staff. But, using them wisely will not only help staff morale it will also help them talk positive about your company.
Food service is more competitive now than ever. Will survival/success be a factor of cost reduction or service/experience?
AS: Both. They have to work in tandem to succeed. Customer expectation of service and experience is going up. Good or bad economic situations cannot justify any downgrade of these factors.
So the challenge is to keep costs under control while providing even better customer experiences through knowledge, innovation and service excellence.
SNR: If you are talking of the luxury class, I feel that recession has not affected it at all. It is only the middle category which has been affected. They need to work out better prices, survival should be the mantra rather than success.
SP: To sustain this situation of low volumes and lower spending, we have to keep operating costs low. Success is to create a unique experience, to be different from the others.
GL: Yes, in today’s world restaurants cater to the different segments. However all of us need to keep costs under control to make profits. Look at QSRs which are going all out to cut down their entry prices to drive in footfalls.
If you look around, theme restaurants do better than multi-cuisine ones as people do not mind spending for the experience.
Does the current situation require some radical thinking or can you still afford to be measured? What solutions have you implemented?
AS: It calls for innovation rather than radical thinking. Be quality conscious and consistent which will infuse confidence in customers on your product. It also helps to be in touch with the market pulse.
At Caperberry, we started with a good value four course lunch for Rs500 plus taxes, but it was the only option. So after a month and a half, we launched the three course lunch for Rs400 plus taxes to bring in the element of flexibility. The foot falls doubled in a week and now we have a very successful lunch.
SNR: Frankly speaking the situation is not very encouraging, but neither is it so bad that one should take very radical control measures, at least for the near future.
One solution which we have successfully implemented is streamlining our purchasing patterns and also improving accuracy to save 12%, which is big in these challenging times.
SP: Yes, radical thinking is necessary. Getting footfall at this crucial time is important. Once in, well trained incentives and staff can up sell to reduce the margin impact.
GL: Having seen most hotels cut down the costs of buffets, one wonders how low can the buffet pricing be? But wise decisions like having the main course made live instead of having it sit around on the buffet for a long time makes it look good as well as cost effective.
We have asked our suppliers to pitch in with extra freebies for our staff food, where we save money on the meats.
Can some of the kitchen work be outsourced (pre-mixes, central kitchens)? How and which areas?
AS: This may not be applicable at Caperberry because of quality and detailing. However, for larger operations, they could definitely be outsourced. The quality control of such products and services will always require close attention.
SNR: Outsourcing and vendor based operations are always big questions in this business. Though it saves on one front, you are always paying some extra money at the other end. The only area which I feel can be outsourced is the stewarding but this does not have much effect on overall costs.
SP: Yes lot of kitchen work can be outsourced especially those which will not hamper the final quality of your product. In such a scenario, convenience food can play a major role in ensuring that food costs are not only kept under control but can deliver on other important parameters like taste, consistency and reduce wastages.
GL: Definitely yes. Today what was conceived as convenience foods have become the need of the hour. Things are changing, manpower has become expensive and also wastage which we could afford earlier is not possible be anymore.
In fact we do a lot of backend work for some of the super markets who finish the products in their outlets. Tomato paste and seasonings for stocks have made life easier.
Will reworking the menu to streamline and/or reduce expensive ingredients help? What are your views?
AS: Judicious menu planning and menu engineering is always helpful. But make sure not to compromise on the quality front while trying to use less expensive ingredients.
Material management is very in cost control. Often different vendors charge different prices for the same ingredient, so sourcing the right quality ingredient at the best price is the key.
SNR: It is a myth that altering the recipe or not making the dish with all the required ingredients will reduce cost. In today’s world, the customer knows what he is eating and how much he is paying and what he is supposed to get.
It is not a professional practice to alter the recipe in order to save on cost. I do not support this for the simple reason that short-term gains do not help the business however difficult the times may be.
SP: Yes, reworking the menu is important because creative catering can create a competitive edge. Successful trading in a tough environment is not only about saving money, growing the top line is still important.
Developing a unique selling point or generating incredible word of mouth publicity may not be easy, but it is essential. Protein is the largest cost in an average dish, so small reductions in protein can result in a big saving.
If managed properly, it is possible to reduce the most significant cost in a dish without reducing the consumer perception of value.
GL: Yes, it does help to rework the menu. Not only will it takes away the non-moving items but we can be customer specific for the region we are in.
Today, there are ingredients which are easily available and need not be imported. Most expat chefs who wanted things from their countries have started looking for local alternatives.
In supplier negotiations, how much lower do you start when discussing price?
AS: Market research on prices is a useful tool for supplier negotiations. Also getting quotation from multiple suppliers is important. Negotiations have to be based on these two factors and will vary from supplier to supplier.
SNR: Of course pricing is very important, but it cannot be irrational and unreasonable. It is just not bargaining for a rupee or two, other factors such as quality, delivery packaging service and payment terms play a very vital role while negotiating price.
One must always remember that the supplier is a vital link in our operations and his interests should also be addressed.
SP: A great supplier is a vitally important asset to your business. I feel a rock bottom price is sometimes reflective of poor quality and may end up costing you more in the long run.
The quality of your product is what differentiates your establishment from competitors. Using the right products will help control cost and protect value. When times are tight, you need to depend on tried and tested quality and flavours.
Explicit value from suppliers is absolutely essential. Convenience foods play an important role here as these products offer time saving properties and deskilling solutions.
GL: Remember, that the supplier also has his business costs. Just because we want a special rate does not mean that he will lose money. But involving him in the process of costing will help us. Look at big restaurant chains who do open costing with their suppliers, it has worked for them and there is no reason it should not work here as well.
Is there a secret weapon to cost management? If so, what is it and how does it work?
AS: The secret is to train all employees to be cost conscious. Constant vigilance and reinforcement of cost management through training is the key.
SNR: It is proper training of the personnel involved in handling raw materials during processing. A specialised system should in place to control wastage, pilferage and spoilage.
SP: There is no secret weapon in cost management. The only way forward is to protect your profit by efficiently cutting energy costs, using efficient and effective equipment, controlling waste, managing portion control, managing protein and putting your ingredients to work.
GL: There is no such thing as a secret weapon in cost saving. Wise decisions make the product look good, cost less and fly off your shelves. Look at burger fillers and toppings to charge your customer that extra rupee. If we make it look worthwhile for the customer to spend, then we have won the case.
