Effective Cost Controls Need to be in Place
Now more than ever it is important for owner/operators to have effective cost controls in place at their restaurants. Food costs have been steadily rising, and short-term beef costs are expected to remain high due to the limited supply and availability of beef. In addition, labor costs are also rising. In some states, including Ohio, minimum wage increases went into effect at the start of 2012.
Food and labor costs are obviously the two largest controllable expenses that appear on your income statement. It is essential to implement the proper cost controls in conjunction with possible menu price increases to weather the storm in 2012. For every 1 percent that costs increase as a percentage of sales, the typical restaurant will lose $25,000 in cash flow. The message here is to be proactive in controlling rising food and labor costs before these expenses present a cash-flow problem for your organization.
The good news is that the “Food Away From Home” Consumer Price Index (CPI) shows an increase of only 3.1 percent for the 12 months ending February 2012. By comparison, the “Food At Home” CPI shows an increase of 4.5 percent for the same period. The higher percentage increase in home food costs should help to continue to drive restaurant sales. This enthusiasm may be tempered, however, by a 12.6 percent increase in gasoline prices for the same period, which could negatively impact restaurant sales.
Restaurant groups provide numerous tools to help owner/operators control food and labor costs. Your CPA firm may also be of assistance. For more information on finding ways to control these costs, contact Bruce Berry.