A Surprisingly Large Number of Consumers Say They Care More About Restaurant Food Quality Than the Price Tag…
&amp;amp;amp;amp;amp;amp;lt;div&amp;amp;amp;amp;amp;amp;gt; &amp;amp;amp;amp;amp;amp;lt;a href=”//ad.doubleclick.net/N3834/jump/resthosp.home/trends/eat_beat;pos=180_1;ptype=article;page=/consumer-trends/quality-trumps-price-value-equation;sz=180×150;tile=1;ord=123456789?” target=”_blank”&amp;amp;amp;amp;amp;amp;gt; &amp;amp;amp;amp;amp;amp;lt;img src=”//ad.doubleclick.net/N3834/ad/resthosp.home/trends/eat_beat;pos=180_1;ptype=article;page=/consumer-trends/quality-trumps-price-value-equation;sz=180×150;tile=1;ord=123456789?” border=”0″ alt=”” /&amp;amp;amp;amp;amp;amp;gt; &amp;amp;amp;amp;amp;amp;lt;/a&amp;amp;amp;amp;amp;amp;gt; &amp;amp;amp;amp;amp;amp;lt;/Quality, freshness and choiceâ€”in that orderâ€”trump price as key indicators of value for many restaurant customers, according to research by the NPD Group.
Two of the largest consumer segmentsâ€”which NPD designates as â€œfoodiesâ€ (34 percent of consumers) and â€œrestaurant regularsâ€ (24 percent) are more concerned about quality and freshness than about price and deals. Those priorities are a big factor driving demand in the fast-casual segment.
â€œFast-casual (concepts) get such high ratings in terms of customer satisfaction and quality and freshness of food,â€ says Bonnie Riggs, NPDâ€™s restaurant industry analyst. â€œThatâ€™s because customers go to the counter and know something is being prepared for them and not sitting under a heat lamp.â€
â€œPeople say, â€˜I want to see it being prepared or know itâ€™s being prepared now,â€™â€ Riggs adds.
NPD research into the ebbing demand for combo meals also suggests that diners from all demographic groups prefer to create their own combos, not stick to a predetermined package of menu items. â€œConsumers want more options. Some want a two-item meal, some want three items, some want other options besides fries.â€
Riggs says choice is the key. â€œConsumers are in the driverâ€™s seat, and what is in the marketplace positioned as a deal is no longer perceived as a deal.â€ While many value menus still appeal to consumers on a budget, she adds, â€œfor most itâ€™s not about the cheapest price. Their definition of value is quality first and foremost, then freshness. They want good-tasting food at reasonable and affordable prices.
â€œYou could have something thatâ€™s $1, but if it doesnâ€™t taste good, itâ€™s not worth a dollar,â€ Riggs adds. Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â How Can Restaurants Convey the Quality/Fresh Message?
Itâ€™s all about positioning, Riggs says. A menu that mentions fresh ingredients that resonate with consumers is a start. But Riggs advises caution.
â€œRestaurants have to be careful about how they position items and the words they use. If they use too many words, like â€˜organic,â€™ â€˜free rangeâ€™ and other buzzwords, consumers are going to think that itâ€™s not going to taste good. It goes back to the low-fat craze of the 1980s, when everybody was eating low-fat and still putting on weight.â€
NPD Divides Restaurant Customers into Five Groups:
â€¢ Deal Hunters (13 percent) are driven by low prices and regularly use coupons.
â€¢ Budget-Conscious Explorers (12 percent) choose restaurants based on deals and are leastÂ loyal; they value BOGO and other promotions over quality.
â€¢ Big Eaters (17 percent) look for large portions, buffet-style and platters.
â€¢ Foodies (34 percent) look for amenities such as a pleasant atmosphere, good service, healthy offerings and fresh foods.
â€¢ Restaurant Regulars (24 percent) always go to the same affordable restaurants and are the least interested in new or exotic foods.
In any new business venture good decision-making is vital. Opening a new restaurant requires so many decisions that it’s not hard to make some bloopers along the way.
The key is not totally missing the mark on the really important issues that can make or break your chances for success. Here are some of the more important common missteps new owners make in areas that play a big role in how well a new restaurant is likely to do.
Underestimating capital needs. There are many good new restaurants with excellent prospects for success that simply run out of money. It’s common for first time owners in particular, to leave out or inadequately project all the startup costs involved in opening the restaurant. Some of the reasons include construction overruns, change orders, delays, and to be blind-sided by additional costs mandated from local inspectors and building authorities.Also, soft costs like permits, liquor licenses, insurance binders and pre-opening payroll are often missed completely or grossly under-budgeted. Unless you’ve done it before, it’s usually advisable to seek some experienced, professional help in identifying and estimating, in detail, startup capital you’ll need. Even then, many pros still add a 10%-15% contingency for the host of things that can (and often do) happen to add more cost to the project than you plan on.
Believing you’ll start making money on opening day. The odds are stacked against this happening. Even the best run chain restaurants, who open restaurants for a living, factor into their startup budgets, an allowance for funding operating deficits for up to 2 to 3 months after the restaurant opens.It usually takes time to build sales volume to an adequate level. Even if your sales are strong from day 1, food and labor costs are usually sky high for the first several weeks as your managers and staff get acclimated, productive and have the time and energy to focus on anything other than just taking care of who’s at the table. In time, most things can be fixed. Run out of money and you’re done. Not factoring in an adequate reserve for initial operating deficits is another cause of undercapitalization (see #1 above).
Lack of a clear vision and purpose. This may sound somewhat vague and intangible but a successful startup requires the coordinated effort of a dedicated staff pulling together in the same direction, united by a common goal. Getting this accomplished requires some leadership skills.New operators who either don’t have or can’t communicate an underlying mission that the staff can rally around will find it difficult to create the kind of climate that supports teamwork, hard work and dedication to excellence that endures through the long hours and sometime chaotic conditions that take place during the startup phase of any new restaurant.
Lack of documented systems, procedures and training manuals. Restaurant operations involves the ongoing repetition of hundreds and even thousands of divergent tasks by many individuals and groups of individuals. Organization and consistent execution is key to creating a successful restaurant. Franchised restaurants start out with detailed recipes, checklists and procedures to do everything from prepping the lettuce, to cleaning the restrooms to closing out the cashier. In new independent restaurants, it’s often make it up as you go.There may be nothing to go by other than what’s in the owner’s head. This makes it more challenging to train employees and execute consistently so customers get a consistent level of service and food quality regardless of who the server is or who’s in the kitchen. The longer the restaurant operates without a documented way of doing business, the longer the restaurant stays stuck in the often unorganized and do-what-it-takes and difficult startup phase.
Owner fails to function like an owner. Instead, the owner functions like just another employee and ends up bussing tables, cooking in the kitchen and doing the books. Obviously this is often a necessity during the startup phase but eventually someone has to manage the business, not just run the restaurant.Managing the business includes activities like monitoring cash flow, analyzing the P&L, deciding about next month’s marketing activities, evaluating what’s working on the menu and other “strategic” functions to position the restaurant for future success. If the owner is constantly training employees or working the line, guess who’s managing the business? Nobody.
Having the grand opening on opening day. You only have to do this once and you learn to wait a month or 2 to declare your grand opening. There are few things worse than getting slammed with more business that you can possibly handle on day one. With so many restaurants, the public’s first impression can easily be their last.Blow it on opening day and chances are you won’t see most of those people again, ever. And they’ll tell their friends to stay away too. Soft, quiet openings are the way to go. Get your act together before you tell the world.
Focusing too much on what you like. What you like doesn’t matter, because you are not the customer. What matters is what your customers like. Find out what people in your area want and the price they’re willing to pay for it. Go to existing restaurants and find out what people are buying. Take formal or informal surveys, conduct focus groups, anything to get a sense of what people in your area are hungry for that they currently can’t get in your market area and what they’re willing to pay for it. Too many new restaurant concepts miss the mark by not analyzing what people want in their local market.
Deciding on a concept, then finding a location. Restaurant industry legend Phil Romono, whose biggest creations are Fuddruckers and Macaroni Grill (both national chains now) says that’s a mistake. Don’t marry yourself to a concept. Find a location in a good market with adequate parking, access, visibility and other positive traits, then determine what the local market wants that it can’t get and find a way to satisfy that unfilled desire.
Accepting a secondary location to save on rent. Don’t be too sure that your restaurant is going to be so exceptional that customers will go out of their way to find you. With all the restaurants there are today, chances are they won’t. High visibility and convenient access are more critical today than ever. Saving money on rent in a poor location often results in spending all that and more on advertising in an attempt to get noticed and bring in more business.
Trying to appeal to everyone. You can’t and if you try you’ll end up with too may items on the menu, an overly complicated kitchen, confused customers and no unique identity in the marketplace. The key to success for today’s independents is to identify an unfilled niche in your local market and being laser-beam focused on filling that particular slice of the market. This will give you a much better chance to become really good at whatever it is you do.
Marty Bombenger…Key West Restaurant Consulting 305.310.1982
While there are few absolutes in this business this is one – “Engaging in ongoing competitive bidding practices to get the lowest prices actually leads to higher food costs, not lower.”
That’s right. Contrary to what most of us, who have grown up in this business have been taught, having an ongoing purchasing process that revolves around using lots of vendors, comparing bids, price shopping and buying from the lowest bidder NOT only doesn’t save you any money but ends up costing you in several ways.
To prove my point, how many professionally managed, large chain operators employ ongoing competitive bidding practices? ZERO, NONE, NADA! Every large chain uses one primary purveyor to supply 80% – 100% of it’s food products. How many independent operators do this? Probably less than 10%, easily less than 20%.
And who makes more money at the restaurant level, the typical chain or independent restaurant? According to industry averages published by NRA the average independent nets about a nickel or 5% of sales before federal and state income taxes. Having worked with several chain operators and from perusing the annual reports and 10-Ks of many publicly held chains, the average restaurant level net income before corporate overhead and income taxes is around 12% – 15% of net sales.
The fact that chain restaurants are 2 to 3 times more profitable than independent operations may not be entirely due to purchasing practices but I’m sure it’s a factor, possibly a big one.
Distraction from High-Return Activities
Another factor to consider is the amount of time it takes to constantly evaluate bids, deal with lots of vendors and put away lots of deliveries, lots of small deliveries, that is. Using a prime vendor frees up management time that can be better spent on high return activities like taking better care of your customers and developing your people. In my mind, trying to save 25 cents on a case of green beans is hardly a high return activity worthy of much owner or management time.
What Determines Supplier Prices?
There are four basic elements that go into the pricing formula of most suppliers.
Product Costs: What it costs the vendor to purchase the products from their suppliers such as manufacturers, growers and other wholesalers. The more they buy, the lower their costs are so there’s a built-in incentive for suppliers to move lots of product.
Administrative & Selling Costs: Includes the cost of servicing the account and processing the orders. Factors that can affect these costs include order processing time, lead time, order frequency, number of invoices processed, specialty products needed and credit terms. Another point is that these costs are basically fixed and suppliers want to spread these costs over as many sales dollars as possible.
Delivery & Handling Costs: This boils down to cost per drop. The drop cost to deliver 1 case to your back door is about the same as it costs to deliver 100 cases. To a supplier, bigger orders mean less delivery cost per dollar of product delivered. Number of deliveries per week and the time of the day you will accept deliveries can also affect these costs.
Profit on the Account: This is the percentage mark-up or gross profit in dollars the supplier needs to make an account profitable after considering all the factors discussed above and the potential volume on the account.
The key point is that if you find ways to lower the vendor’s cost of servicing your account and give them the opportunity to make more profit “dollars”, they are usually willing to work on a lower “mark-up.” As a result, you get lower overall prices and other important benefits too, which I’ll discuss further below.
Give Suppliers the Opportunity to Make More Money on Your Account
Yes, you read that right. It’s in everyone’s best interest to position a supplier to make more money on your account in return for something . . . LOWER PRICES! Here’s how it works . . .
Smart suppliers don’t just look at the percentage mark-up on an account. What’s more important is the potential total gross profit in dollars they can make. For example . .
Assume you buy around $600,000 of food a year. You currently spread your purchases around to 2 or 3 broadline distributors and several specialty suppliers. You spend about $100,000 a year with Distributor A and Distributor A is adding a 20% markup to everything they sell you (Case 1). Do you think Distributor A might be willing to work on a smaller margin percent if they could get more, a lot more of your business?
As you see, it makes economic sense for Distributor A to work on a smaller margin % IF it means converting you from a $100,000 account into a $500,000 account. You can see in Case 2, Distributor A has the opportunity to more than double their gross profit dollars on the account even though they gave up a large slice of their average markup % to get more of your business.
A Case In Point
When I took over as the Food & Beverage Director of the U.S. Olympic Training Center (OTC) in Colorado Springs they were using lots of suppliers. As many as 15 to 20 vendors a week.
Sensing the need to do something different, I invited the major vendors in the area to submit a proposal if they were interested in being considered as a prime vendor. In short, the program would be a year-long, non-contractual agreement whereby the OTC would agree to purchase a major portion of its total food purchases (50% to 70%) from one supplier in exchange for a fixed “mark-up” (not price) on their products.
In a notice to the prime vendor candidates, I included a quote sheet (called the Prime Vendor Quote Sheet below) outlining the products and specification of the OTC’s principle products and the quantities purchased in a typical week. Each vendor was asked to quote their current prices on those products and how they would determine their mark-up on each product (cost plus a percentage or cost plus a fixed amount per unit) over the term of the prime vendor program, which in this case was 1 year.
We noticed these benefits as a result of going on the prime vendor program:
1. Reduction in food cost: Immediately after implementing the prime vendor program, the OTC’s food cost per meal dropped 10% while maintaining the same menu using the same ingredients.
2. Fewer vendors and invoices to deal with. Instead of dealing with nearly 20 vendors and lots of deliveries and invoices, the number of vendors dropped to 5 or 6. Fewer people and paperwork to deal with.
3. Less purchasing activities: Prior to the prime vendor program, the OTC had a full time purchasing clerk. That position was no longer needed and was phased out.
4. Better vendor service. The prime vendor became much more responsive to special requests and to situations that required immediate action.
5. Improved product consistency. Food was now coming from one source, not the low-bidder of the week. This meant better food quality and consistency.
6. Closer vendor relationship. There was now the incentive for the sales rep to provide more attention, and to maintain a good working relationship.
“Yeah, But . . . “
One common response to a prime vendor arrangement is that the vendor will ratchet the prices up once they know you’re not watching them like a hawk. Sure that’s possible, but now we’re talking about being a sizeable account which the supplier knows will be put out to bid again within a year. If they do play games with the pricing, chances are you’ll find out sooner or later.
There is an element of trust involved in a prime vendor relationship. The question you need to answer is, “will a supplier intentionally inflate prices if it puts them in jeopardy of losing a big customer?” Sure it’s possible but it’s hardly a smart business move on the part of any supplier who wants you as a customer over the long term.
Speaking of trust, in this type of arrangement trust goes both ways. You’ll always have another supplier come to you with a better price on a case of tomato sauce today or box of ribs tomorrow, but the point is sticking with the prime vendor as much as possible to get the lowest “overall” prices day after day (and spend your time in more productive activities). Once you start cherry-picking the best deals out there product by product you defeat the purpose of a having prime vendor and it probably won’t work.
Does Prime Vendor Make Sense For Your Restaurant?
There’s really only one way to find out, try it! While not a panacea, virtually every operator I’ve met who has tried prime vendor, say they’d never go back to competitive bidding again.
RestaurantOwner.com members can download the following forms and templates to make the prime vendor evaluation process faster, easier and enhance your changes of getting the best possible deal:
Cover Letter Template – Use this to describe, to each prime vendor candidate, the prime vendor program your are proposing, how they can submit a proposal to you, and the basis you’re going to use to select your prime vendor.
Prime Vendor Spec Sheet – To get the best deal, you need to be aware of all the important factors to consider in structuring your prime vendor arrangement. Includes delivery frequency and time, order lead time, method of ordering, credit terms and other key factors you can negotiate on to improve your bargaining position and lower your prices.
Prime Vendor Quote Sheet – Here’s where you list the product specifications and average weekly usage of your principal products. The vendor candidates use this to fill in their current price quote for each product and the formula used to determine each product’s price (the vendor’s cost plus a percentage or the vendor’s cost plus a fixed amount per unit).
Prime Vendor Summary Sheet – This is a summary sheet to collect and summarize all the candidates’ quotes and pricing formulas. Makes it easy to compare each candidate’s bid in total and product by product.
Attention sports fans! Baseball season is on its way and starting this Monday there’ll be plenty of ballgames to attend throughout the month of April. If you are watching any games at Marlins Park, there are a bunch of dining options while you’re there. In honor of the 2013 opening day, we’ve compiled a guide to all the spots as well as our recommendations. Check out what the stadium has to offer, from A Taste of Miami to Sir Pizza and more.
Marlins Park’s Five Standouts
The Clevelander: Say what you will about the South Beach watering hole, but it will no doubt be the talk of the games thanks to the actual pool built out in left field. Signature items include Tater Tacos, The Magnum hotdog and the Mahi Mahi sandwich. And of course, lots and lots of cocktails. [left field]
Burger 305: Although the Mets’ park Citi Field has a Shake Shack, the Marlins’ Burger 305 has some pretty fancy offerings, including a Miami Marlins Shrimp Burger ($13) with lime aioli on torta bread or a Buffalo and Blue Chicken sandwich with hot sauce, blue cheese and ranch dressing. [Section 113
Metro Grill: Signature items here include a Lime ‘n’ Lobster Roll ($17) –Florida lobster salad on a toasted split bun with chives or a Tenderloin BLT with seared beef, bacon and blue cheese signature steak sauce. [Section 202]
Fan Feast: Here’s where you get your hot dogs. The Sobe Hot Dog has mango slaw, chipotle mayo and potato sticks on it. You can also get yours plain if you’re not the Sobe type of baseball fan. [Section 123]
A Taste of Miami: Here’s where you get your Latin kick. This food court will be offering food from Papa Llega y Pon, Cuban sandwiches from Latin American Grill and fish ceviche from Don Camaron. [Section 27]