How to cut your restaurant's overhead costs

The hospitality industry in New Zealand is changing. All the costs involved in operating a restaurant are rising across the board. It’s because of this that we’re seeing more and more cheaper eateries opening. All of this is indicative of where we’re seeing dining and hospitality head in the future.

There are plenty of overhead costs in a hospitality business that you’re unable to change. At the end of the day, the major overhead cost for most restaurants is the lease. It’s essential to negotiate a solid lease arrangement right from the beginning of your venture and to not over commit. When you sign a lease, you’re stuck with that lease. That’s fixed. Just because you’ve signed a great lease smack bang in the middle of the city doesn’t mean you’re going to have thousands of people walking through the door.

However, there are two big areas chefs and business owners need to be flexible and clever with: produce costs and staff wages. Thankfully, you can attack these right now.

Dealing with Growing Overhead Costs

You’re not imagining the rising cost of living in New Zealand. Everything from the price of bread to the cost of a house has blown out in the past half-a-century. Since 1965, the nominal house prices in New Zealand have doubled on average every 12 years, whilst the average wage is only growing at about half the speed. Little wonder we are feeling the pinch. When you consider inflation (across everything else), the cost of dining has almost become cheaper. Why? Because the prices on the menus haven’t changed that much in the last 15 years, despite everything else changing. Businesses cannot simply ‘absorb’ the costs of these changes, but instead must begin changing every part of their business plan to become more efficient.

1. Minimise Staff

As we all know, staff labour is one of the largest and hardest overhead cost to manage. New Zealand has one of the highest minimum wages in the world, making trying to keep your wages on an operating level a struggle, and that’s a real indicator of how hard it is to run a business. Keeping the cost of wages low all comes down to the service structure: a business needs to learn operate on its bare minimum.

For example, if you need one person that makes coffee and at any given moment in your venue they’re busy making coffee for at least one customer – that’s your bare minimum requirement. As your revenue increases, then you will have the need for more staff. But start with the minimum.

The problem lies in that many businesses overstaff out of concern for a customer experience that isn’t completely necessary. Casual eateries have now become popular enough that customers are comfortable with the level of speed and service available with small teams. This casual service style is also being reflected in casual eateries ingredients. Already we’ve seen the rise of cheaper eateries with simple kitchens, less staff, and price points at $10 or less.

2. Negotiate Produce

Fresh food has also ballooned, with prices swelling even just year on year - the cost of fresh fruit and vegetables increased 14% from May 2016 to May of this year. The same goes for meat. While a decade or two ago, chefs could rely on cheaper cuts, these days, there’s no such thing as a cheaper cut! Cheaper cuts are ‘fashionable,’ so the trends have moved towards using them, and prices have gone up. And while produce costs keep increasing, it seems restaurant owners don’t want to risk turning that cost onto the customer – the price of New Zealand restaurant meals only rose 0.3% from May last year!

So, in terms of your produce, shop around, and make sure you’re getting the best deal. A lot of chefs get stuck on using the same suppliers, but, if you have any kind of volume, you can always negotiate the given prices. Your supplier will generally be happy to negotiate. You can also see if it’s better to have multiple suppliers; for example, one supplier might have oils and flours cheaper, and other suppliers might have sugars and vinegars cheaper. It really pays to do your homework.

3. Review Your Menu

While you can try to pass some of the costs on to the customer, it doesn’t always keep everyone happy. Instead, learn to make your menu work smarter, not harder. From the food side of things, we’re seeing chefs utilising cheaper ingredients, especially in vegetables. They’re no longer relying on the prime cuts of meat – they’re slow cooking, and using pickling, which maintains lower costs.

Make sure to ensure you’re using the same items or ingredients across multiple dishes to get the most out of your cheaper produce from suppliers. Customers are unlikely to even notice, and it saves you from buying unnecessary and potentially more expensive produce. It’s just about being clever with how you save on the overhead costs you can control.

An important thing to remember is that there are overhead costs that are manageable, and there are costs that aren’t. All your gas and electricity, they don’t really change either. The only things you can really manage are your costs of goods and your wages and so these need to occupy your constant attention. Plan, save on overhead costs where you can, and you’re on your way to running a successful kitchen.