How to lower your overheads and save more

There are plenty of overheads in a hospitality business – such as rental costs – that you're unable to change. But there are two big areas you can attack immediately: produce costs and staff wages.

In terms of your produce, shop around, and make sure you're getting the best deal. A lot of chefs get stuck on using the same suppliers? Always negotiate the given prices. If you have any kind of volume, your supplier will always be happy to negotiate.

When it comes to wages, it's all about service structure: a business needs to learn to operate on its bare minimum.

Growing costs.

No you're not just imagining it: the cost of living in Australia is indeed skyrocketing.

Everything from the price of bread to the cost of a house has blown out in the last few decades. Since 1975, the average cost of a suburban property has grown 30 times in value, whilst the average wage has only grown 10 times.[1]

Little wonder we are feeling the pinch.

Fresh food has also ballooned, with prices swelling even in just the last ten years alone – in Sydney, a 1 kg loaf of bread cost $5.03 on average in 2013, compared with $3.33 in 008, and $1.97 in 2003.[2]

One sector feeling the cost of inflation – particularly in the realms of food and rent – is the hospitality industry. In fact, the shifts in business overheads and produce costs are creating tangible changes in not lonely how our country's restaurants are run, but also what they look like.

Expert's opinion.

We sat down with chef and hospitality expert, Stefan Blee, to find out what's happening in the industry, and how you can work to keep your business costs down.

Stefan Blee has worked in the hospitality industry for over 20 years. During his time he has worked as a successful chef, managing high-end restaurants around Australia. For the last 21 years, he has worked in senior management, managing many businesses simultaneously. Stefan now lives in Brisbane and has opened coffee shop and eatery 'Project 41'. Stefan is well-known as an industry expert in the management of hospitality businesses, and works as a consultant for a variety of Australian restaurants and hospitality businesses.

With 20 years' experience in the industry, has the cost of overheads and produce become dramatically worse?

Absolutely. It's a lot harder now to control and maintain costs, and it's only going to get worse.

Why is that?

There is a rising cost of operating across the board. There is the rising cost of leases, and also loans. The cost of foods are double what they were 12 years ago, such as fruit, vegetables, and meat.

Back when I started cooking, you could rely on your cheaper cuts, but these days, there's no such thing as a cheaper cut! Cheaper cuts are 'fashionable', so the trends have moved towards using them, and prices have gone up.

And as we know, labour is the hardest cost to manage. Staff are the largest expense, so trying to keep your wages to an operating level is a struggle. We (Australia) famously have the highest minimum wage in the world, and that's a real indicator of how hard it is to run a business – hence the decline of fine dining restaurants.

Apart from the fine dining, what other areas of the hospitality industry are showing signs of change due to these rising costs?

There is a move to casual eating, with really simple staffing structures; fine dining takes a lot of staff. When you consider inflation (across everything else), the cost of dining has almost become cheaper. Why? Because the prices on the menus haven't changed that much in the last 15 years, despite everything else changing.

Then you look at the added costs of running a business, I mean gas and electricity have doubled in costs over the last eight years! So just to operate, it's so expensive. I've seen electricity costs go upwards of $25,000/quarter for a large restaurant.

Businesses cannot 'absorb' the costs of these changes, but it's more changing everything you do. We've all had to become a little more efficient.

You will see the rise of cheaper eateries, therefore, with simple kitchens and less staff, and price points at $10 or less. There's more repetition on menus: using the same items, or ingredients… just being clever.

What are some starting points for small business owners looking to reduce their overhead and production costs?

It's important to remember that there are costs that are manageable, and there are costs that aren't.

For example, when you sign a lease, you're stuck with that lease. That's fixed. All of your gas and electricity, they don't really change either.

The only things you can really manage are your costs of goods, and your wages. These are two things that need constant attention.

Ok, so what are your tips on reducing the costs of goods?

Shopping around, and making sure you're getting the best deal. A lot of chefs get stuck on using the same suppliers without looking around. I'm an advocate for having multiple suppliers; for example, one supplier might have oils and flours cheaper, and other suppliers might have sugars and vinegar's cheaper. It really pays to do your homework.

And the other thing is always to negotiate these prices. If you have any kind of volume, your supplier will always be happy to negotiate.

You also mentioned managing your wage costs. This is a topic that is over the news, as Australia has increased our minimum wage to $17.70 per hour. What's your advice on keeping wage costs low?

It's all about the service structure: a business needs to learn operate on its bare minimum.

If you need one person that makes coffee, and they're busy making coffee, and their costs are relevant to one person making coffee – then that's fine.

You can't change that. That's your bare minimum requirement.

And as your revenue increases, then you will have the need for more staff. But start with the minimum.

However, I think many businesses overstaff. They get concerned with whether the 'experience' for the customer is complete. It's just not necessary.

Are there any big trends emerging that business owners can take advantage of to reduce costs?

Yes: the service style. That is, so many places are opting for a more casual style. I think it works really well, and I think people are used to it now. I think people are used to the casual style eatery.

From the food side of things, we're seeing chefs utilising cheaper ingredients, especially in vegetables. They're no longer relying on the prime cuts of meat – they're slow cooking, and using pickling, which maintains lower costs.

But the biggest trend I'm seeing is the abundance of cheaper eateries opening up. There's burger places everywhere, little bars popping up with cheaper dishes, and little kitchens that are relying on less chefs. It's very rare that you see large restaurant openings anymore.

What advice do you have for those looking to open a restaurant?

It's all about the lease. You need to negotiate a really good lease arrangement, and don't over commit yourself. You might think that because you've signed a really great lease smack bang in the middle of the city, you're going to have thousands of people walking through the door, but that's not always the case.

Also, design is everything, of both the kitchen and the dining floor. I've just spent time with a restaurant that was doomed from the start. The architects came up with a beautiful space, but it was one that needed too many staff to control it. There were lots of nooks and crannies and it became a nightmare. The kitchen was too spread out, and it needed three chefs to make it work.

[1] http://www.news.com.au/finance/money/costs/40-years-of-change-what-were-paying-way-more-for/news-story/3a9cc7dbc1ec5394c3dbe8ba9365b064
[2] https://www.allianz.com.au/life-insurance/news/the-rising-cost-of-living-in-australia