The International Network of Hospitality Consulting Professionals

The Challenges Restaurants Face in Going Green and What to Do

In the fast changing dynamics of the restaurant industry today, the mission of food service entrepreneurs is going through a significant transformation.  Not only is there more pressure than ever to deliver a high quality consistent product in a hospitable and attentive atmosphere, operators have begun to realize they have a greater responsibility to give back to their local community and in particular become proactive stewards of our precious environment.

Over the past decade, the call to adopt restaurant sustainable practices has continued to grow.  These practices in many cases have become integral parts of the restaurants vision and contribution to their community.  In particular, there’s been a significant increase in an understanding of strategies restaurants could utilize in the areas of energy and water efficiency, the use of low or non-toxic cleaning and pest control products and the utilization of waste management practices to counter the enormous waste that occurs in restaurant operations. These strategies have often proven to also be a profit bonus to operators who use them intelligently.

Innovative technologies in the area of monitoring waste have become as easy to use as pressing a few buttons on a smart phone. Chefs have become more motivated to come up with creative uses for once thrown away product.  Local governments and utility companies have provided financial and equipment incentives to restaurant operators who agree to install energy or water efficient equipment or incorporate other sustainable practices.  Surveys have shown that the consumer looks more favorably upon restaurants who promote green practices.  (Effects of Restaurant Green Practices, Jeong and Jang, 2010).

In addition it has been found, that a business that adopts sustainable practices is more likely to retain staff and have staff operate at a higher level of productivity.  So with all this positive reinforcement to go green, why is it that restaurants have been so slow as an industry to more fully incorporate green practices in their day to day operations?

There are several key reasons for restaurants resisting restaurant sustainable practices.  For one, most small independent restaurant operators are overwhelmed with the day to day pressures of running their businesses.  To them, the impact of an overdue produce bill, a sudden drop in brunch business or a sump pump seizing up and dying are all problems that appear much more tangible and immediate.

Those challenges are much easier to grasp than the impact of buying energy efficient equipment and seeing savings over time or noticing the impact of non-toxic cleaning chemicals or good waste management practices over time.  Most operators tend to think in terms of short term solutions to short term problems.  Cash flow is invariably a constant daily issue that influences what an operator thinks about as they go through their day.

Secondly, there is a common misconception that restaurant sustainable practices cost more.  This is often due to a lack of understanding.  Again, that understanding takes time which most operators never seem to have and the tangible results from that understanding are not as immediate as the other issues they face.

Thirdly, sustainable practices don’t appear to be what their core restaurant business is supposed to be about which to many of them is just serving good consistent food in a pleasant and friendly atmosphere.

So given the above scenario, how do green organizations looking to make significant inroads into the restaurant sustainable practices break through these challenges?  For the past 5 years, the Green Hospitality Initiative (GHI), a project funded by the EPA to the New York State Restaurant Association Educational Foundation, has faced this issue in attempting to educate and train operators in sustainable green practices.  Here are three conclusions that have been reached as potential roadmaps to achieving success:

  1. The owner and driving force behind the business needs to believe that green practices are a key part of the business model and purpose of the restaurant and not just a side project. They need to see the value and importance of operating sustainably and commit to it over the long term.  Education, consumer demand and the growing awareness of green practices can help support that change in operator thinking.
  2. If the belief is there on the part of the operator, they need to have the ability and commitment to instill that belief throughout the culture of the restaurant. Through educating and training staff and hiring people who already have beliefs in sustainable practices, the culture and actions of the restaurant will begin to reflect these values.
  3. There needs to be a go to green advocate in the restaurant who essentially has green practices as part of their job description. It would be up to them to continually show how green strategies could be used for the benefit of the restaurant and introduce new techniques and technology to the operation.  They would be the catalyst to helping overcome the daily challenges mentioned above that press upon all restaurant operators.

The transformation of the restaurant business model to incorporate sustainable practices has not and will not be an easy one.  Momentum has been building over this past decade but it is clear much more needs to happen.  It is up to committed green organizations and forward thinking restaurant operators to lead the way and demonstrate that it is possible and highly beneficial to the restaurant and community to adopt a more sustainable way of operating a food business.


About the Author:

Alan SomeckAlan is a 30 year operator of high volume restaurants, in which he has managed all facets of the business. In his consulting practice, he has worked with many clients to create and establish their concepts. In addition, Alan has worked on assignments to develop food products for market such as protein bars, cookies and brownies. He has also directed 7 EPA grants to train operators in Green sustainable practices. His experience and expertise has led to him develop a well regarded expert witness practice. He has created an extensive network of industry professional who he works with on a regular basis. Throughout his career, Alan has supported the success of entrepreneurs through executive coaching and training. For the past 10 years, Alan also has taught at the Institute for Culinary Education in NYC and at NYIT where he has taught all aspects of the restaurant business. His students have opened fast casual restaurants, cafes, bakeries and fine dining operations.

 

Concentrating on Restaurant Expense Loss

Restaurant Expense Loss reviews variances between money that is currently unsystematically expensed on product, services, or equipment and the amount expensed upon a review and implementation of practical methods of spending behavior. Expense Loss occurs when behavior is disorganized and money is expensed without regard to the benefits of considering alternatives, along with possible long term repercussions of your decisions.

If you are in any business you are expensing money on equipment, maintenance, repairs, sell-able product, food and beverage, fertilizer, chemicals, water, oil, electricity, and other material goods. Expense Loss occurs for many reasons and often because staff, manager, or owner is busy concentrating on building and running the business and the payment of invoices and doing business as usual becomes routine without a thought to other options. Failure to maintain a constant review and evaluation of expenses will always have a negative effect on profits and result in what I coined as, Expense Loss. I have included ten examples of Expense Loss along with solutions in the coming pages. An evaluation of operations helps alert you to the risks to your business solvency by determining areas causing such risk. With a proper assessment the results can provide a program for reducing and minimizing Expense Loss, and offers improved profits going forward. This is achieved without reducing internal service or product quality, and delivers a higher return on both.

While payroll can be a big contributor to Expense Loss I suggest keeping scheduling and the costs associated with this as a separate review process, for reasons that are manifold. Payroll is a fluctuating cost that can produce more profits even when high, and destroy profits even when low. Managing payroll is not like other costs that can be evaluated by reviewing invoices or comparing costs across a sample of goods or proposals, or by changing simple processes. There is much more to payroll costs than just reducing them. Alongside payroll is competency of each individual, the affect change has on product, service, cleanliness, and other factors, and to evaluate payroll costs properly the ability of each individual versus their performance, return benefits, and other factors must also must be part of the analysis. Therefore, I always recommend keeping this a separate review process.

People have said the following for as long as I can remember, “Get the customers in the door and expenses take care of themselves”. From my perspective if you are more diligent with your expenses your chances of succeeding greatly improve, however a change in mind set may be necessary for this to occur. Even if you are managing a successful business and you are earning good profits there are always overlooked opportunities, and if you think you have achieved all you can, look again. I have met with business owners telling me they are running a tight ship and at the same moment I am observing a 12 count alcohol pour at their bar, or a plate of served food that has an obvious cost close to or higher than the menu price, or signing an invoice for a product delivery that is out back and not inspected upon arrival. Also look to see if an employee has a higher amount of voids over all other employees, as this may be a red flag. Looking at all operations, food and beverage, pool, golf, tennis, facility management, receiving, repair and maintenance, and the accounting department, there are Expense Loss variances to be improved across all departments.

We all want the best price and quality product when we make purchases, but most locations are not doing everything they can to meet this goal, and certainly not across all departments. Very common responses to my encounters are; not having enough time, not having the knowledge, this is the way we have always done it, or I use the same companies to make my job easier. These are all excuses that will shorten the lifespan of your company.

Try and argue that it does not make any sense to learn new ways of lowering expenses. If you think about it, you could certainly have someone randomly watch over expenses if the results were continually positive. Having a weekly or bi-monthly review should be an acceptable method to consider, and a great way to maintain cost versus results on a long range plan. No one likes to spend money without assurance, although the carelessness that occurs in many business operations is much more devastating than spending money on someone to help you. Having a professional review your business can offer long term results, as long as the evaluation turns up a scenario of positive changes(s) that offer the return of the professional’s expenses, and an ongoing additional profit to the business going forward. A solid evaluation will provide a positive result because there are always ways to improve. Additionally, a proper evaluation should be performed by someone not associated directly with the business. Family members helping to run the business are great, but an outsider evaluating operations offers an impartial assessment with an open mind to differences that can be rewarding.

If you could take all of your expenses for the month, every month, and reduce them by three percent across departments, the decision to have someone evaluate your business is made easier. Most businesses achieve this modest result without any difficulty, and I have evidenced much greater results with only a little effort. On $30,000 of purchases per month (product, equipment repairs, and maintenance cost reductions) or procedures that reduce waste (receiving, storage, and inventory) this translates to $10,800/year in additional profits when achieving a 3% Expense Loss reduction.

Stop paying for something just because you have been handed an invoice, told an amount, or this is how you learned how to operate. Every dollar that you do not spend on expenses is profits, because if you did not spend it, the money is still in your bank account.

Here are some examples of where Expense Loss can occur, with an example solution on each topic. A short list, but it provides a range of what businesses encounter and some of the reasons why they may have burdening costs or even fail over time. A proper evaluation and training is always the best method for results.

  1. Equipment Expense Loss
    Equipment breaks down and a quick call to the mainstay vendor for repairs to get this off your mind. Not including emergencies, an immediate acceptance on costs, therefore not taking the time to research the part(s) and labor to determine if there is an alternative option. In many cases the invoice for repairs is received one to three months after the work is performed, hindering your recollection of what transpired.
    Reducing Equipment Expense Loss
    Take the time to evaluate the reasons for the breakdown before you call for repairs, ie: preventative maintenance or staff not keeping equipment clean, obstruction from other equipment or airflow, abuse, review of maintenance vendor performance over time. Review internal training procedures to determine if repair can be performed in house. Check if equipment remains under warranty. Request signatures and an invoice at the time the repair is made. Initiate an internal and external Repair & Maintenance Log to support repair or replacement decisions, and to document the occurrence.
  2. Delivery Expense Loss
    Deliveries are not properly received, weights not verified, product not opened and checked, and signatures and shorts or variances not provided on receiving invoice, therefore you are unable to determine if you are losing money on the product you purchased, who checked it in, or what was ordered actually arrived. If you are not following effective receiving procedures, you will experience significant Expense Loss.
    Reducing Delivery Expense Loss
    Have a verifiable receiving procedure on all goods. Open all boxes and containers, count and weigh all products, record all deficiencies directly on the invoice. Maintain a significant communication practice between receiving and accounts payable, and build a reliable set of procedures that communicate damage, shorts, and other variances to reduce and eliminate costly accounts payable processing.
  3. Food Purchase Expense Loss
    Individual cuts of protein are purchased for portion control (steaks, fish, & chicken) and the quoted or purchased price per lb. is used in the menu price calculation creating a miscalculation in the figures.
    Reducing Food Purchase Expense Loss
    Calculate cuts of protein using individual product cost extensions off invoice divided by number of portions received to achieve actual portion cost. Using quoted price per pound results in an incorrect price per piece assumption because the weights of each portion vary slightly.
  4. Cooking Yields Expense Loss
    Cooking yields are not taken into account when calculating menu costs for items that are cooked in their bulk weights and portioned after cooking. ie: Prime Rib, Roast Sirloin, and Roast Turkey as examples. This is especially true for caterers, and cuts of meat with the fat cover in place, or when the bones are removed.
    Reducing Cooking Yields Expense Loss
    Dividing uncooked bulk weight into purchase price or using the quoted price per pound delivers a false assumption of cost. Weigh bulk product before and after cooking for recording yields (the yield is the variance between the uncooked weight and the cooked weight) and apply to purchase costs for correct cost analysis. A 20lb Prime Rib can lose 10%-15% or more in its’ initial weight during cooking, thus delivering less portions than anticipated if assumed using the full bulk raw weight. Over time an average assumption can be used in forecasting costs.
  5. Low Menu Price Expense Loss
    A menu price on an item is too low because you did not assume all costs, so you are not earning the amount of profit expected. This is not about loss leaders and pricing decided specifically for specials or on purpose, however if you create arbitrary menu pricing the results are always undesirable.
    Reducing Low Menu Price Expense Loss
    Evaluate all ingredients into the menu mix by weight, yield or portion, and current price. Maintain an ongoing review of pricing fluctuations in ingredient costs and adjust menu costs and prices accordingly. Adjust for substitution of ingredients into menu mix with unavailable product, as this can have negative effects on results if not accounted for.
  6. High Menu Price Expense Loss
    A menu price on an item is too high, or is not selling, and you are experiencing product spoilage.
    Reducing High Expense Loss
    Evaluate why a product may not be selling to determine price adjustment or removal off menu. Change recipe based on customer requests to revive the item.
  7. Same Vendor Expense Loss
    There is a practice to use the same vendor for a particular product, piece of equipment, chemicals or fertilizer, a service or goods, or due to proprietary reasons, and you do not question their price, or you have never researched market pricing for the product, goods, or service.
    Reducing Same Vendor Expense Loss
    Initiate procedures for price evaluations on all products, goods, and services from competitive vendors, and associated or like businesses. Evaluate further when the need to purchase a specific product, good, or service from only one vendor due to quality or specialty needs of the item, and/or if available elsewhere ask for price reduction and maintain same vendor relationship. While I support consistency in vendor relationships, the association must be equally beneficial.
  8. Warranty Expense Loss
    A repair is paid for without realizing there remains a warranty on the equipment.
    Reducing Warranty Expense Loss
    Review internal procedures for tracking the accounting of equipment under warranty. Initiate an internal and external Repair & Maintenance Log. Review and determine why the vendor did not alert you to this information.
  9. Inventory Expense Loss
    Inventory is not immediately stored or kept under lock and key with limitations and accountability on access.
    Reducing Inventory Expense Loss
    Immediately remedy inventory control issues when product remains at receiving for too long, is not refrigerated, locked up or guarded, and initiate space allocation and the placement of caging and security measures if available. Being carefree about your inventory translates into early spoilage, breakage, theft, improper HACCP, and can violate Health Department Regulations.
  10. Oil Heating Expense Loss
    You purchase heating oil from the same company that services your boiler. This is common, and while most vendors are reliable and honest, this is a red flag. Heating equipment can be adjusted to burn more fuel than necessary, and running but poorly maintained is not good either.
    Reducing Oil Heating Expense Loss
    Verify nozzle size on oil burners is within manufacturer specs. Have an independent evaluation of your equipment performed to check that nozzles, pumps, pressure and pressure reducing valves, expansion tank, heat exchanger, and all other parts are operating as required. (An outside review allows confidence in a decision to continue using same company for both).

If you are having any similar circumstances, or would like someone to come in and train your team in improved Expense Loss practices, reach out to me. I am in the New York region, but I will travel to your location if you are serious about improving your profits.


About the Author:

Jim LopolitoJim is president of Lopolito Hospitality Consultants and a veteran of the restaurant, country club and catering industries offering expert operational review, club management consulting, foodservice training, and team development. His consulting services include his proprietary “Expense Loss Review” program. The ELR program reviews variances between money that is currently unsystematically expensed on product, services, or equipment and the amount expensed upon our review and implementation of practical methods of spending behavior. Jim has worked in virtually every position in foodservice, from executive chef to general manager in restaurants, country clubs, and catering in well-known organizations throughout New York. His background includes 12 years in restaurants, 19 years in private clubs, and 10 years in high-end catering and concert production.