ARE WE BEING SCREWED?
By George Carageorge | Torino Food Distributors

Food costs represent up to 30% of total business costs (mind you they should ideally be around 23% to 25 %), and therefore should occupy a critical place in your business management, which is stating the obvious. Sure this is nothing new to most of you, but what may be overlooked is how many ways there are to contain these costs in a crazy market like the one we are experiencing now.

First let’s examine why your wholesaler has had to pass on so many costs increases.The world has changed in a few years in how we conduct business. It’s a global market for everything; food, cars, machinery and such factors as exchange rates, climatic factors, world commodity prices for agricultural products, and many other factors affect the prices of food.

For example, in the case of dairy products our suppliers have told us that we must pay the world price for cheese...a bit like our pricing for petrol and diesel fuel. If we don’t pay it we don’t get it because they will sell to the highest payer.World prices are determined by supply and demand, so in the case of Australia and indeed the rest of the world, supply has been short due to the droughts, and other changes to milk production as well as increased demand from new markets like INDIA and CHINA.World demand has been higher than supply, by about 3%, giving rise to higher prices for the past 2 years.

Similar factors are affecting the supply and prices for all kinds of food stuffs like cooking oils, potato fries, some seafood lines, tomato products and so on. Added to the supply issues are the costs of production. Fuel and energy costs have had the most severe impact on production costs. For example, most of you know that oil was around US $100 per barrel at the time of writing...a year ago it was US $37.THAT”S A 200% INCREASE. Fuel and energy impacts in so many ways on the final costs of products.

For example, a year ago it cost about US. $1,000 to import/ship a container of goods from Italy.That cost is now about US $2,000 and now we are being forced to pay inland freight as well in the exporting nation.Also, don’t forget too, our exchange rate has also deteriorated, further adding the currency conversion costs. Crude oil is used in the production of plastics, so plastic containers of all kinds have been also affected.The multiplier effect of all these costs is not to be underestimated.

Another dangerous trend is the monopolisation of the food industry by big companies.These companies will often buy up smaller companies, who offer better prices and service, just to get them out of the way. I can name many instances where this has happened in Australia.As result competition is reduced, prices are increased and service levels become so poor.

So, what to do to make sure you minimise the effect of these cost increases.The answer is difficult, if you want to maintain the quality and consistency of your food fare. Changing suppliers or brands are short term solutions.As most of you know some less professional distributors will often give you stupid prices to change, and then bang them up slowly so you don’t notice, as long as they don’t go broke in the meantime. You can’t blame your supplier for everything that happens. He is in the same situation as you.At the time of writing we at Torino Food Distributors are waiting on suppliers to supply garbage bags, jasmine rice, and American walnuts to name a few products where supply is short, albeit temporarily.We keep stock for just in case, but sometimes you get caught out it’s not always our fault if supplies are short or prices go up.

Those of us who run professional, food safety audited businesses are subject to all kinds of regulations which cost a lot to implement, monitor and maintain. But it does give you the client a measure of safety and security over quality and integrity of delivery of your goods.

So here are some general tips. Maintain a good relationship with your supplier. Just like your relationship with customers, where they are so important to you and your business so it too with your suppliers.A good supplier will climb over broken glass to look after a good client who pays well and buys a broad range of products.You don’t have to be a big client, you just have to be a good one, as we se it.

Your supplier can or should offer alternatives and if he does not, then ask him. Sometimes name brands are dearer than private label stuff but often the same quality. He should also offer you warnings of pending price increases, where he is so warned by his suppliers. Sometimes, though, they won’t get warnings. Sudden movements of currency exchange rates can often impact immediately on shipments arriving from overseas, especially those that turnover quickly like seafood. In other cases we have seen suppliers put prices up overnight without notice.

Service levels from some major suppliers are also really slack, they don’t advise out of stocks very often. Sometimes we don’t even have contact with supplier representatives. I can’t name them here but it burns us that you may be spending a million bucks a year with a supplier and your rep is a boof head with no experience in the industry. Believe me, some suppliers do that. Here at Torino, we recognise it is also one of our shortcomings, but similarly we just can’t get to everyone regularly, so the squeaky wheel gets the most attention if you get my drift. So sometimes it pays to squeak!

So apart from squeaking you can also ensure that your staff are not wasting product.Wasting product can mean simple things like not replacing lids on jars that causes evaporation.Also mixing foods together in a fridge means cross contamination of smells and flavours. I often see clients using a drink fridge to store cut onions and improperly sealed or unbagged meats... real no, no which leads to waste.At Torino, it has always been our preference to deal with owner managers or professional food managers, be they chefs or FOOD and beverage managers.This is because they have the most knowledge and say in the selection of products and ordering and will listen to suppliers who try to offer alternatives.You should always know what you’re ordering so there is no waste.

ASK FOR SAMPLES, BUT DON’T BE SILLY ABOUT THE SIZES OR QUANTITIES.A good supplier will have a good enough relationship with his manufacturers to get you samples or direct advice from a manufacturer if you’re seeking alternatives.

Portion controlling is a key factor in many food businesses; it sounds trite, but is absolutely essential in controlling costs. It’s a simple easy method, often overlooked by many smaller clients. Preparing ingredients in portion control and pre measured containers is used by all major chains to control costs. Next time you go to a Subway, watch the way they make up a sub then tell yourself what you saw. It may not be to your taste, but each sub gets the same quantity of product every time it’s used, especially at the higher end of the ingredient cost scale, like say cheese slices.

GENERALLY you will know what are your most popular products and the cost scale. Make sure your staff follows these simple rules. Don’t think you can get to your place of business at 4pm and open at 6pm. Our most successful clients usually spend 2 hours of prep for every hour they are open for trade. Prep included portion controls.

So summarising.

1. Look for cheaper alternatives that are non major brands.
2. Ask for samples of new products you want to try.
3. Give your suppliers the same courtesy you give your customers, and you will see how much you will get back in terms of extra service.
4. Speak to your supplier rep frequently about new items, pricing and alternatives.Take advantage of specials.
5. Don’t be an absent owner, watch your staff, and manage the way your staff serve and portion out the food products.
6. Make yourself valuable to the supplier by being an important client. Remember size is not important to a good supplier, it’s the way you conduct your business with them.
7. Don’t chop and change suppliers too frequently like a butterfly. Suppliers talk to each other about customers and reputations tend to stick.
8. Don’t blame your supplier for price increases; he is your best ally to help mitigate the effect of price increases.
9. Sometimes you have to put up prices.Your clients shop at the supermarket, so they know the prices of food are rising. Often the best way to do this is offer black board specials based on the market prices of seasonal local products. For example I have seen clients use the specials offered by suppliers as blackboard offers.This often takes your customers minds off increased prices.