Margin Pressures

I’ve had two really interesting interviews in the past couple weeks. One was with Phil Dei Dolori and Dean Landeche at Manitowoc Foodservice and another with Selim Bassoul at Middleby. While the original topics were totally different—Manitowoc’s manufacturing strategy and Viking’s acquisition of Viking Range—both interviews came around to what operators in the current U.S. foodservice environment are facing. In simplest terms, the problems are sluggish sales and traffic and rising costs. Read: margin pressures. (The full interviews will appear in future issues of FER Fortnightly and the February issue of FER.)

We all know that the two greatest cost inputs for foodservice operators are food and labor. Each usually runs 30% to 40% of total costs. And right now,  both are under pressure. The drought in the U.S. is driving up food costs. Overall prices are forecast to rise 3% to 5% this year, with proteins soaring as much as 15%. Operators have become very clever about menu engineering around rising food prices. But that strategy is limited when prices for all the proteins are spiking at about the same time. And it’s hard to raise menu prices in an environment of flat sales and traffic.

Which brings us to labor. While no one really know what the impact of the Affordable Care and Patient Act will be, it has had a focusing effect: Most operators are worried about the potential impact on their labor costs. Let’s be honest. Foodservice has long benefited from cheap labor. And that means most operators haven’t paid too much attention to it.

But that’s changing. Sophisticated chain operators are beginning to look at how they can change their equipment packages and layouts to streamline processes and reduce labor input, while, at the same time, assuring consistency of product and speed of service. This came up in both interviews.

What are some of the changes that can cut labor inputs?  Dedicated and automated equipment—think conveyors—can reduce the need for monitoring, ensure consistency, and speed service. Better and simpler controls have the same kind of impact. Multipurpose equipment, like combis and fast, multi-technology ovens, can perform many functions, often with precise control. Work-station design can allow a cook or prep worker to perform multiple functions.

One major national chain has used these approaches to completely re-engineer its kitchen. The result: two fewer people in the kitchen at a cost saving of two to three margin points. Implemented over hundreds of units, the impact on profitability is huge.

Reducing labor inputs is not easy or inexpensive. It takes knowledge of technologies, through-put analysis of work flows and deep insight into an operator’s menu and processes. But the benefits can be profound.

As you call on your customers this year, you might explore with them ways to trim labor costs. They will thank you.

Cheers,

Robin Ashton

Publisher

rashton@fermag.com

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