Omar Al-Massalkhi, CEO of Talkin’ Tacos.

With inflation and worker shortages still rampaging across the small business landscape, it’s time to take a step back and consider what worked in 2023 and find new ways to continue leveraging those tactics. Evaluate which strategies haven’t supported the business and put them aside. While I’ll be looking at the example of restaurants, many of the same strategies can be deployed across numerous small business operations.

Although cost containment is the biggest challenge many businesses face, there are four basic, actionable strategies to optimize costs without compromising quality.

1. Conduct a thorough cost analysis.

2. Negotiate with suppliers for better deals.

3. Implement portion control measures.

4. Introduce energy-saving practices.

Cost Analysis

Start by scrutinizing every aspect of your business’ expenses. For restaurants, that’s everything from ingredients to labor costs. Identify areas where expenses can be reduced or optimized without sacrificing quality.

Take, for example, the oft-overlooked aspect of service items. When ordering items like servingware, consider your table turnover rate, the types, sizes and number of service items you really need and what aligns with popular dishes. A deep dive might reveal a reduction in the amounts of each type of item you actually need.

I’ve found the government program Energy Star publishes excellent guidance for restaurants; they note, “Restaurants use about five to seven times more energy per square foot than other commercial buildings.” My number one rule is to scrutinize the electric, heating and water bills for the business with an eye toward cutting back. Consider whether you are doing all you can to decrease usage during non-peak hours.

Supplier Negotiation

If your business is struggling with high costs, chances are, so are your suppliers. That puts you in the driver’s seat when negotiating prices. The key is to forge strong relationships with your suppliers and negotiate for better deals on ingredients and other essentials.

Even if you’ve relied on a particular vendor for a long time, I suggest researching their competitors’ pricing and even playing one supplier against another to get the best price. Be aware that there is sometimes added value beyond pricing between suppliers, such as favorable credit terms, better quality, faster delivery and other factors.

Additionally, consolidating orders or committing to larger volumes can often lead to cost savings. Compare the cost of renting a storage unit for non-perishable items or seek out a non-competitive local partner that might want to join in an order of certain items.

Portion Control

This strategy is obviously specifically for restauranteurs, but even with large-scale CPG (consumer packaged goods) companies, consumers have been getting used to shrinking sizes for stable prices.

Called “shrinkflation,” this is “a trend among producers to mask inflation by quietly downsizing product sizes without adjusting prices.” While decried by consumer organizations, it is nonetheless a feasible strategy for small businesses, especially those without the resources of multinational CPG corporations.

Don’t think of controlling portions as corporate evil—it can be an impactful strategy that need not affect consumer satisfaction. Just take a look at the amount of food that goes uneaten at the venue. Are people not finishing most of their rice? Leaving a half-full breadbasket? Tracking customer trends will help in implementing portion control measures to minimize food waste and ensure consistency in serving sizes. That way, you can help maintain quality and consumer goodwill while controlling costs by reducing over-portioning.

Menu Engineering

Analyze your menu to identify high-cost items with low profit margins. There are likely ways to adjust menu offerings or pricing strategies to optimize profitability while still offering value to customers.

Menu engineering can require complex computations (there is a reason it is called “engineering”), but I’ve found it’s essential. According to Menu Cover Depot, menu engineering allows you to boost profitability by as much as 10% to 15%. First, look at the restaurant’s menu (or, for a retailer, product assortment), then consider a “menu engineering quadrant” with four sections.

• High-profit, high-popularity items.

• High-profit, low-popularity items.

• Low-profit, high-popularity items.

• Low-profit, low-popularity items.

You’ll want to focus on high-profit, high-popularity items and consider eliminating low-profit, low-popularity items. But what do you do about the middle sector: those fan favorites that just don’t make money? Consider whether less expensive ingredients can be swapped out, or consider pairing them with higher-profit items like drinks.

Staff Training

Staff training goes beyond performance and efficiency. Ensure that your staff is well-trained in cost-conscious practices, such as minimizing food waste, efficient use of equipment and portion control. According to a 2023 restaurant training review conducted by Open Table, “When all team members fully understand how to execute their roles and responsibilities at the restaurant, they are more confident and engaged on the job.”

Consider rewarding staff for successfully saving costs to foster a culture of responsibility. For instance, when there is an uptick in profits, reward staff monthly with awards or take-home meals to show their importance.

Technology Integration

Technology integration is at the heart of any cost reduction strategy. Explore technology solutions that streamline operations and reduce costs, such as inventory management systems, POS analytics and online ordering platforms. These tools can provide valuable insights.

There are several areas where technology can support cost reduction. One major area of benefit is automating manual processes. In a restaurant, for example, an automated ordering platform frees up employees to focus on more essential “human-only” tasks like providing customer service.

Inventory management is another opportunity to implement cost-reduction strategies. Tracking how much product you use, rotating and using perishables based on expiry dates and accurate forecasting can be accomplished with software solutions.

Continuous Monitoring And Adaptation

Regularly review your cost-saving strategies and performance metrics to identify areas for improvement. As noted by StrongDM, “The key components of continuous monitoring include automated data collection, analysis, reporting and response.”

Again, technology is an asset in monitoring. Data collected through POS systems can directly offer the business owner an opportunity to analyze key operational aspects and make necessary pivots.

All of these strategies boil down to one piece of essential advice: The best way to control costs is to stay agile and be willing to adapt.

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