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How to make savings on food costs

19 February 2016 by
How to make savings on food costs

The prices of many foods are hitting record lows, so why are you paying more to your suppliers? Rosalind Mullen discovers how to make some savvy savings when it comes to purchasing

There are many contributing factors. A slump in fuel and energy prices in 2014 led to lower transportation costs, and concerns over China's economic slowdown and Russia's import bans have all played a part. As have bumper crops for wheat, maize and rice and cheaper chemical fertilisers.

According to the UN's Food and Agriculture Organization (FAO), August saw the biggest drop in global prices in seven years, with a 5.2% fall across milk, vegetables, oils, sugar and cereals. During 2015, the FAO says vegetable oil prices came down by 19% in comparison to 2014 prices, while cereal prices fell by 15.4% and meat prices dropped by 15.1%. The biggest fall continues to be in milk prices, as a result of a glut and the Russian ban on EU agricultural goods in August 2014, which has now been extended to August 2016. Perhaps spare a thought for the beleaguered dairy farmers, who have suffered a 20% fall in European wholesale milk prices in the past year.

So what lies ahead? "Coffee in particular is one product that we have seen decreasing in price at the start of 2016, which is a trend that we predict will continue over the next year due to the increase in consumer demand," says Howard Ball, head of purchasing at Beacon.

"However, analysts have predicted that if the imbalance between supply and demand continues, we could see a shortage in coffee beans, which would lead to inflation in price."

Food prices are in a constantly shifting state. For instance, the prices of sugar, salmon, palm oil, beef fillet and eggs have recently increased in price due to a mix of global political, ecological and industry issues.

"The price of salmon, for example, is at a 30-year high," says Simon Numphud, director of sales at procurement company PSL. "The price has been severely hit because of occurrences of sea lice on Norwegian farms as well as bad weather in Scotland." In addition, Russia has now lifted its ban on EU salmon because the Chilean producers it had previously used have also been hit by sea lice.

Switch and save Now is a good time to renegotiate your supplier deals. Let's face it, grocery shoppers are reaping the benefits, so why shouldn't caterers? In January, Morrisons, Britain's fourth-largest supermarket, said it was cutting the price of more than 1,000 products, with an average price drop of 19% across fruit and vegetable lines for three months.

One way to check if you are paying too much is to benchmark your supplier's bill against their competitors, giving you a solid basis from which to negotiate if you are paying over the odds. But be aware that there is usually a trade-off between sticking with a known supplier and switching to get a better price.

"Encourage dual supply," says Numphud. "It keeps the competition healthy and if one supplier has an issue, you are not left high and dry. Also, pay your bills promptly and ask for a discount."

If you don't have the expertise or time to analyse market intelligence, consider employing a purchasing company. Buyers will monitor price changes on a day-to-day basis, while you focus on the other aspects of running a profitable hospitality business.

A good purchasing company will work closely with suppliers to identify trends, analyse market intelligence and set regular reviews to ensure prices reflect the market.

"We negotiate. That's what we do every day. We go out to market to test the business," says Martin Hudson, head of procurement at Pelican Procurement. "But there's a lot more than price that needs to be considered - for instance, customer spend, how many deliveries are involved, the product mix and so forth."

Follow the seasons Whatever the financial climate, all the procurement companies The Caterer talked to emphasised the financial benefits of buying seasonal produce.

"If operators plan menus around produce that has good availability, is at its best quality and its best value, they will not go too far wrong," says Rachel Dobson, managing director at Lynx Purchasing. "Now is a good time to be planning your spring menu. For instance, there should be better availability of fish caught in British waters, and by using specials

boards and working with suppliers to buy the best available cuts of fish and meat, operators can engage customer interest as well as get the benefits of good value produce."

Hudson adds: "Make sure you are not importing products that are more expensive than home-grown. There are many considerations to take into account. Frozen chips are dependent on variables such as the strength of the crops and the strength of the euro versus sterling. It is sometimes best to go for brands that use UK-grown products."

You also need to evaluate how important brand is to your customer, says Ball: "Could you purchase the same product that is

unbranded to save on cost? Or could you charge a premium because you are using branded items on your menus?"

And he adds a cautionary note: "While we have seen a significant decrease in food pricing in the retail sector and a rise in discount brands in supermarkets, this isn't necessarily a trend that has been reflected in the foodservice and hospitality sectors."

A number of other issues are set to have an effect on pricing in the foodservice sector - the most pressing being the introduction of the National Living Wage in April.

"At Beacon, we have been urging the Government to support businesses in this sector to avoid the need for price rises that will inevitably be passed on to the customer," says Ball.

Similarly, fuel has been low, but recent news stories predict it could rise again. And there are the usual weather dramas, too.

"The overall forecast is that inflation will remain low, but the market is always unpredictable," adds Dobson. "For example, we are still waiting to assess the full impact on UK crops of the very wet weather in much of the UK in December and January, and there will undoubtedly be some impact on availability and price."

Nevertheless, Dobson reckons that supply and demand will inevitably rebalance. "On a more global level, producers are taking into account factors such as the Chinese slowdown and the Russian boycott of Western goods and adjusting their output," he says. "So, for example, where there was a glut of premium items, such as smoked salmon and mature Cheddar, when the Russians cancelled orders, producers have cut back, so there won't be the same "bargains" on the market."

So, do you need to do anything to shore up against the inevitable price rises? "The UK catering sector is a hostage to the

supermarket price wars to a significant extent. When retailers buy up available supplies of produce to promote them to customers, caterers have to pay more for what's left. It comes back to the basics of working with suppliers to use alternative cuts and keeping menus flexible to get the best value," says Dobson.

Of course, there is continuous inflation and deflation in global food markets, and ironically in both cases you will want to negotiate lower prices. Ball offers a suggestion to protect your bottom line: "Long-term pricing contracts help operators to avoid falling victim to any sudden changes in pricing."

But he warns that screwing suppliers down on price isn't always worthwhile. "Look at the total yield from a product and not just the headline price. Low cost doesn't always mean good value for money," he says.

How to negotiate the best from your suppliers

•Review your suppliers regularly - even if you work well with them.

•Track prices year on year and month on month and analyse market intelligence - or get a purchasing company to do

the legwork.

•Go out to tender on a basket of goods to get the full market perspective.

•Specify the product and quality you want, but not the brand in order to keep your bargaining power.

•Don't commit just on price - negotiate in all areas, including delivery, quality and so on.

•Buy seasonal produce and make sure you are not importing products that are more expensive than home-grown.

•If you use a purchasing company, make sure it allows you the flexibility to buy from local or speciality suppliers or that you aren't tied into suppliers who fail to supply the right quality.

•Make sure you are communicating regularly and effectively with your supply partners.

•Look at the total yield from a product and not just the headline price. Low cost doesn't always mean good value for money.

•Are there similar products available, potentially from the same supplier, that can be supplied at a lower cost?

•How important is brand to your customer? Could you purchase the same product that is unbranded to save on costs? Or could

you charge a premium because you are using branded items on your menus?

Why Peach Pubs works with a purchasing company

The Peach Pubs model sees the company working with entrepreneurial chefs and restaurateurs who have a share in the business, but they can find it a challenge to maintain good relationships and prices with suppliers, while focusing on guests and staff.

To solve this, co-founder Hamish Stoddart decided to work with Lynx Purchasing. Peach now buys all food at prices negotiated by the purchasing company, as well as staple products, such as cleaning and disposables.

Lynx updates Peach chefs on market trends, new products and menu planning to help each pub manage margins and profitability.

It also monitors the market, flagging up pricing and supply issues to get the best value, and recommending alternative suppliers or products where appropriate.

"This has reduced the number of suppliers we use and means we can plan ahead to meet changing consumer tastes and make effective use of seasonal produce," says Stoddart.

More significantly, he estimates it has meant savings of at least 3%-5% over the best prices he could negotiate, which translates to a substantial sum over the course of a year.

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