Does loss prevention play a role in menu pricing?

It's tough to run a restaurant. We've taught customers to be value driven in their selections in eating out. The rising commodity prices continue to challenge restaurant operators providing the value customers seek balanced with profitability. The article, "Study: Restaurants avoiding menu price increases" on this very site, quoted Brad Moore of SpenDifference that commodity prices, on average, topped 2 percent in 2012. In 2013 commodity price increases are expected to top 3 percent and some proteins going up more than 15 percent. The article notes strategies that operators are taking to counter higher costs. They include:
Promoting items with lower food costs

Renegotiating contracts

Changing suppliers

Increasing use of third-party purchasing groups

Reducing portion sizes

Eliminating high cost items

All should be quite effective in reducing food cost and expenses. One important element missing from the strategies is preventing and mitigating losses. Loss prevention experts agree that profitability margins can be expanded by preventing losses. Comprehensive loss prevention programs have proven to add 3 to 5 percent to top line sales, perhaps even more depending upon the lack of loss prevention disciplines within the restaurant. The revenue may already be realized, but not captured as it slips away through the vulnerabilities within operations.

Price increases may be mitigated by integrating a few simple security measures and training principles.

Food Cost Awareness – Educate every employee on what food items cost and how profit is made. Establish food cost goals and make the staff part of achieving them. Teach them the importance of documenting waste, proper portions, rotating stock and the principles of first in–first out to avoid out-dated product. Empower your staff to be part of the solution in minimizing mistakes that negatively affect food cost. Create a sense of ownership with them in the success of the restaurant.

Communication – Establish what you want done with ordering, checking in, and handling the inventory. Show them the proper way of storing food in compliance with health codes. Let your employees know how exceptional customer service and a profitable restaurant affect them personally. They have to know what's in it for them.

Security Controls – Unfortunately dishonesty poses a threat to profitability. Under the right circumstances even dependable, loyal employees may succumb to theft. There are many opportunities to lose cash and inventory by not controlling the areas with the most vulnerability. Products can easily be hidden during trash removal and retrieved later or in collusion with a friend. The management staff must understand the relationship of poor cash control and its negative effect on food cost. Excessive losses can occur by dishonest cashiers, servers and bartenders not ringing sales and pocketing money, or voiding, refunding, price reductions, or comping legitimate transactions and stealing the cash. The food goes out, but the profit is lost by deceptive cash handling. Review cashier performance and POS reports daily for excessive or peculiar activity. Take the appropriate disciplinary action for unacceptable performance. If you have security cameras, review late night activity and closing procedures. Check for employees leaving with bags of food. First thing in the morning, check the trash for competitor food containers for evidence of late night food exchanges that aren't documented — or authorized. Loss prevention experts advise the use of clear trash bags and the breakdown of all cardboard boxes before being removed as part of the security program.

Safety – Many restaurants have great sales and trends year over year yet struggle with profitability. One of the main issues that may affect profitability, in addition to theft, is the increasing rates of insurance premiums due to high rates of accident claims. Train employees on the proper cleaning of floors, handling of knives, use of personal protection equipment, and lifting techniques. Know the types of worker's comp and general liability claims that are occurring and aggressively address preventative measures. High cost and high frequency claims will negatively affect your insurance rates for years. Eliminate them now!

Policies and Procedures — Establish rules to be followed regarding cash and food handling. Cashiers should not be granted access to manager functions on the POS. Excess cash should be removed from the register and placed in the safe. Back door security controls should be established, including never being opened after dark, as a protection against theft and armed robbery. Make sure all employees know the rules and are in compliance. Most importantly, the policies and procedures must be practiced and supported by the management staff.

Audit for Compliance — Audit written policies and procedures that are important in maintaining the discipline needed to keep employees safe and secure, and decrease vulnerabilities to profitability. For these reasons, loss prevention audits have different goals and objectives than operational audits. Score them to establish grades of performance. Develop action plans to correct issues that are not in compliance.

Reward and Recognize — Employees love to hear praise and be rewarded for a job well done. So, do it. Set individual and team goals designed to decrease losses and increase sales and profitability. They can be measured in cash handling performance, inventory control, food cost targets, audit scores, etc. Reward them handsomely when the goals are achieved.

Mitigating and preventing losses has proven to help restaurants boost profitability. Three to 5 percent added to top line sales without serving one additional customer may be the silver bullet you're looking for. Include loss prevention in your strategies to counter higher costs and it just may give you a competitive advantage in your marketplace.