Top 10 Ways NOT to Cut Costs at Your Restaurant

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This is the second of a two-part series on restaurant cost cutting tips – the first article was the Top 10 Ways to Cut Costs at Your Restaurant. Here, we’ll explore some examples of what NOT to do when looking to cut costs.

Especially in this economy, every restaurateur is looking for ways to cut costs. But there’s a right way and a wrong way to go about the cost cutting – if you do the wrong things to reduce costs, you can create problems and even incur hidden costs in the long run. Sometimes when you’re trying to solve a problem, it helps to consider what not to do.

So here are 10 things you shouldn’t do when looking for restaurant cost-cutting ideas.

1. Lower Quality

Whatever you do, don’t trade your reputation for a short-term and incremental decrease in your costs. Customers can tell when a restaurant lowers quality. One restaurant I used to love stopped putting pancetta and fresh parmesan on their Caesar Salad. The Caesar used to be the best I’d had in the U.S., but it wasn’t the same without the original ingredients. They may have saved a few pennies, but the end result was a lower quality option. I used to spend $200 a week or more at that restaurant – I’ll bet that the money they saved on that ingredient switch didn’t make up for losing even one customer who visited as frequently as I did.

2. Skimp

Another trick we see implemented in hard times is to skimp on ingredients. Let’s say you have a pizza restaurant and the manager gets a bonus for maintaining a 32% food cost. What happens next week if he misses his bonus because he ran a 34% food cost? Yep, you guessed it, the next week he comes in at 30%. Now, the owner may be happy at first because the food cost balanced out, and the manager is happy because he got the bonus, but the reality is there were customers last week that got fewer mushrooms and less cheese on their pizza. They notice the skimping and go to a competitor. When customers defect, you lose more in lifetime customer value than you ever gained by cheating them with skimping.

3. Overstock

When the recession hit, manufacturing took a dive as businesses began depleting existing inventory rather than ordering new inventory. Par levels were reduced to get more in line with reduced demand. When you get your inventory levels in check with demand, you perform at a healthier level in terms of cash flow and liquidity. Of course, this is a balancing act: if you run inventory down too low, you run the risk of running out. Your inventory levels are important to keep an eye on when you’re cutting costs – be mindful, but don’t cut back too far.

4. Close Too Early

When you close early, it can become a self-fulfilling prophecy. No matter what, your last hour will be slower than your peak hour. When you close earlier and earlier, you will start to notice a shorter peak period. You may think that you’re saving a few hundred dollars by closing early, but you will probably come out worse-off in the long run. As I write this I am in Seaside, Florida. A local restaurant keeps closing before 9 p.m. Last night the kitchen closed at 8:25 and earlier this week the restaurant closed by 7:30 (they don’t even open for dinner until 5:30 p.m.). The overhead of having a sprawling restaurant on the Gulf of Mexico is fixed – you already are paying rent, utilities, taxes and a bunch of other costs just to plant your flag in the sand each day, and those costs are not diminished by closing a few hours early. The other problem with closing early is that you start to train your customers to expect you to be closed, and so they decide to avoid your place altogether the next time they go out. A lot of these customers will end up converting to your competitors and, for the few hundred dollars you “saved” by closing early, you lose untold thousands in real “lifetime value” from the customers who defected to your competitors that were open while you were closed.

5. Destroy Morale

It is impossible for you alone to cut your costs – every restaurant is connected to a network of people, from vendors to employees, and you need their support if you’re going to make meaningful cost reductions. If you beat up on your vendors too hard, if you push your staff too far, you may get your short-term results – but at the cost of your long-term partners. No one wants to work for a tyrant, and your vendors and staff are even less likely to go out of their way to save you money if they feel stepped on or disrespected for the sake of corporate profit.

6. Cut Maintenance

Maintenance seems to be another of those areas that gets cut when times are lean. Don’t do it. Even if it means borrowing money, you can’t cut maintenance. When maintenance gets cut, lights start to get burned out without being replaced, bathrooms fall into disrepair, hood systems get clogged, fryer oil is replaced less often, and ultimately you run the risk of causing long-term and expensive damage to your equipment, your staff and your customer perceptions. There’s nothing more depressing than a dim, poorly maintained restaurant.

7. Carry Dead Weight

Cull through your ranks. Make a clear-headed, unsentimental evaluation of who is with you based on tenure, seniority or nepotism and who is there because they are actually loyal, committed and high-performance contributors. Turnover of staff is costly, but keeping bad employees and dead weight can be even more costly.

8. Fragment or Splinter

You can find a cheaper price on nearly any individual item you stock or service you hire…but there are hidden costs to being cheap. When you start fragmenting your purchasing across several vendors, you lose leverage and often get hit with costs you weren’t expecting (such as delivery costs, accounting work, unredeemed rebates, etc). Long-standing deep relationships with vendors are often more valuable when you need to cut costs, rather than fly-by-night vendors who you only work with to save a buck.

9. Be Penny-Wise and Pound-Foolish

This goes hand in hand with many of the other suggestions above, but keep in mind the negative impact that can happen in terms of reduced focus or decreased morale with penny-wise approaches. For instance, getting rid of free coffee for staff may save a bit of money each week, but it can have a demoralizing effect on the staff – especially in a recession, people don’t like to feel nickel-and-dimed in the workplace all the time. Some small things like free coffee are highly valued by your staff – more than you may realize. Don’t let the pressure to cut costs lead you astray from your core values and the moral principles your brand stands on.

10. Spend More Time in the Back Office than Front of House

A downturn can cause stress, depression, anxiety and frustration for everyone involved, especially restaurant owners. These emotions can wear you down and sap your happiness and passion. If you feel this starting to happen, take a break. When you worry and get run down, it will invariably impact staff morale and the levels of hospitality your restaurant delivers, which will only make matters worse. Remember, you’re in the hospitality business – you’re in the business of delivering a joyful and pleasant and relaxing customer experience. Yes, it’s a business and that means tending to the numbers, but it can’t be done at the cost of the customer experience and levels of passion, professionalism and hospitality you deliver.

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