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GP on the Plate – Increasing Profits with Every Bite

GP on the Plate – Increasing Profits with Every Bite

Anyone who has worked in a food service pub for any length of time will know the constant battle to improve Gross Profit (GP). Food is the easiest place to increase GP, but not through simply increasing prices and not, as you may believe, by decreasing costs.

In fact, decreasing your cost could reduce your GP. That may seem an odd statement, but let me explain: the key to increasing GP is value, and that is not a simple or fixed idea.

Dynamic Value

Peoples’ perception of value changes over time and depending on the situation; the process by which people make value decisions is known as the value dynamic. Take house prices for example: on a street where the average price is £350k, a recently renovated house at £375k will seem ‘good value’. £500k will seem ‘expensive’ and £150k will seem ‘cheap’. Your brain has just done the same as mine: what’s wrong with it? Maybe the previous owner was a DIY “have-a-go-hero”, and your bargain house might catch fire every time you turn on a light.

This is the “dynamic” part of the dynamic value, and it applies to a lot of situations. For instance, our expectation of a meal out has changed even in my lifetime (I’m younger than I look). When I was a Saturday lad at an ironmongers I decided to end my first shift with slap-up feed at the local café across the road – a full cooked breakfast for under £5! I thought I was Alan Sugar dining at the Dorchester. Unfortunately, the bacon could have been made by Goodyear and the sausages had a lower meat content than the cutlery. They can’t have been making much margin at that price, once you consider staff and other costs, and the place was half full. After my first few mouthfuls, I decided I’d save up and go somewhere decent once a month, rather than make it my regular place. My perception of value had shifted, a fiver is no longer ‘value’ it’s ‘cheap’, and in this case, it felt like a rip-off. I finished it though, I’m not proud.

Balance

Before you start feeling sorry for me though, I have been fortunate enough in my years in hospitality to eat in some incredible restaurants around the world, and enjoyed some fantastic meals. However there has been the odd occasion when paying the bill, I nearly choked on the after-dinner mint. The food was good, but not good enough to re-mortgage the house, and was it really better than that great little pub down the road which does a Ham Hock you would die for?

There is the sweet spot. The pub down the road that’s just brilliant: good food, great service, nice ambience, not cheap, but worth every penny. They’ve got the balance right and it’s good value.

People may not be able to afford to eat there every night but would happily eat there once a month and have an amazing night of food, wine and beer. In fact, increasingly, spending £120 a month on eating out once, but really enjoying it, is seen as better value than spending less money on more frequent unsatisfying meals.

Loyalty

Would you rather have someone come in four times a month and spend a total of £80, or once and spend £120?

Moreover, that £120 could creep up with each visit. Perhaps the first visit is just the main and a bottle of wine for two, but the main was so good they just had to have the sticky toffee pudding, and another glass of wine or two. The next time, one they expect quality and value, they will order a starter, or maybe come for a beer first. The time after that they may bring friends, not to mention the people they tell about the experience they enjoyed.

Four Pillars of Value

How do you achieve this? I know the retort of every pub or restaurant owner that I have worked with over the years, long before I owned idc and launched Menu Fresh: “How can I compete with the pub company down the road that does a £7 steak?” Easy: Don’t.

They can do food incredibly cheaply because they buy in massive bulk, but that also means the quality isn’t there and the food is, at best, fine. They’ve cornered the market for customers sawing away at a steak with dirty cutlery…let them have it.

Remember how I said at the beginning decreasing food costs will cost you money? That’s because you need to have good quality ingredients to make good quality food. That’s one of the four pillars of value: Good ingredients, good Chef, good clean restaurant and good service. All of which costs money. But if the balance is right, customers are happy to pay £28 for a Steak meal because it tastes so good, and therefore it is good value.

Once you improve one area the others follow. Good ingredients make for a happier chef, who is more creative and engaged in their work, staff care more, and you can attract better recruits. All of this builds value for the customer and means they keep coming back.

Margin

The cost of your ingredients and wages may increase by 6 to 8%, but by being able to charge more, to more regular customers, the GP increases by 15 to 20%. You make far more profit from increasing your spending than you ever could by decreasing: a 5% saving on a steak is around 30p and a 5% increase on GP is £1.10. The average cost of the menu £10 Steak is £5.80 (£4.20 GP) the cost of the menu £22 steak is £9.29 (£13.71 GP!!!). And that’s before you factor in a full restaurant, and the wet that flows when people eat more and are enjoying themselves!

Savings

Now, I’m not against saving money on food, far from it, and there are plenty of other places you can save money. A really simple way is to reduce the number of items on your menu. Three or four excellent mains means the need for fewer ingredients, it reduces waste and means more of your cost gets converted to profit. Equally, reducing the number of items on the plate does the same. That really good steak we mentioned doesn’t need to hide amongst 30 other ingredients to get flavour, this also reduces your prep time, further reducing costs. Protein is where your money goes shortly followed by your ‘image veg’ (Natoora carrots, for example, look great when served), if you have them on your plate you can perhaps cut costs with your potato.

You’ve read this far and the guy who owns a company that supplies quality produce reckons you should spend more money on quality produce. But that is exactly why my advice makes sense, because companies like mine have to offer that same value balance, to reach new, and retain existing, customers. We don’t compete on price, we compete on value.

We always look to local suppliers, and we encourage our customers to celebrate the local. Even when they are a large national customer, we make sure their outlets are supplied locally. The quality is better, and the cost is comparable, mainly because we don’t have to spend a fortune shipping it all over the country. Our customers can then celebrate the fact that their suppliers come from the community. Which, on top of the quality, is another aspect that increases value for the end customer.

I’ve carried the lesson from my local café a long way (perhaps I should have left a tip), and once you start cutting costs it’s really hard to put prices up, and in turn increase GP.

So don’t race to the bottom, there are too many there already.

Chris Edwards

Chris Edwards

Chief Executive Officer