A five-point procurement plan for every hospitality business

by | Jul 8, 2019

In recent months, the press has issued stark warnings to businesses within the hospitality industry – from inflationary pressures to rising labour costs, sinking margins and profits. The British Retail Consortium (BRC) reported in April that food inflation is at a six-year high. According to UHY Hacker Young, total pre-tax profits at the UK’s Top 100 restaurants have plunged 80% in the last year.

To stay competitive and thrive, you need to take action and put in place a five-point plan that will help minimise the impact from the many challenges the hospitality sector is experiencing in today’s economic uncertainties.

1. Negotiate with suppliers

It’s critical that your procurement team understand what is happening in the market and is aware of current and forecasted market pricing so that you always know what you should be paying. If you rely on a single supplier you won’t have insight into what competitors are offering nor will you be in a position to negotiate a better price. It’s also important that you establish relationships with both local and national suppliers to help leverage the best pricing.

2. Cost your menus

Operators need to check their menus routinely to ensure they are being profitable. Most businesses strive to have their food cost at or below 30%. There are many tools on the market to help calculate food costs so that you can make any adjustment to the menu if and when required.

3. Drive performance based on theoretical food costs

To fully understand your margins, you need to know the theoretical food margin for each cost centre. To calculate it, you need an accurate tally of what and how much of each ingredient goes into a menu item. Once you have this figure you can assess the difference between your actual and theoretical margin. This can be a very difficult calculation to do manually, but it should be run every time you calculate your actual food cost in order to compare margins and make necessary adjustments.

4. Look for additional revenue generation opportunities

There are always new and creative ways to increase revenues and profitability. For example, as more consumers seek out sustainable products, you may want to capitalize on this trend by serving a selection of organic, locally sourced foods. Many customers value these options and will pay a premium for them. Also, running promotions on challenging days or times of the year can help fill seats and bring in new streams of revenue.

5. Outsource procurement to reduce labour costs

According to online job site CV-Library, average salaries for hospitality workers will rise more than 7 percent in 2019. And with Brexit on the horizon, access to EU-migrant low-skilled labour in the UK will push up costs even more. Outsourcing your procurement activities to a team of professionals may make financial sense – and companies like Enhance don’t charge clients for their service. By offloading these specialised tasks, you can reduce the amount of stress so that your staff can be more productive and focused on the core business.

Implementing this five-point plan may take some upfront preparation and time to put into practice, but the results will have positive impacts. In these uncertain economic times, doing nothing will cost you. Now is the time to be proactive by ensuring you control costs, increase your margins and improve overall profitability.