Restaurant Chains Look For Creative Ways To Cut Costs

(Tuesday, November 18, 2008) - Franchise restaurants, hit by higher commodities prices and a cutback in consumer spending, are aggressively searching for ways to slash costs.

Many of these businesses can't pass on the higher costs to customers without losing even more business. So, they're trying to find alternative ways to save -- including changing vendors and packaging, altering delivery schedules, cutting serving portions and even prolonging the life of fryer oil.

Restaurants feel they have no choice, as some chains are posting some of their worst monthly sales declines. Ruth's Hospitality Group Inc.'s same-store sales at its company-owned Ruth's Chris Steak House locations fell 15% in October. Ruby Tuesday Inc. experienced a 10.8% drop in same-store sales; California Pizza Kitchen Inc. had a decline of 7.3%; and Red Robin Gourmet Burger Inc. posted an 8% drop.

"These restaurant operators are really operating under a perfect storm, dealing with record [high] commodity prices, higher labor costs with the minimum wage increasing and falling consumer demand," says Robert Marzo, senior analyst of food service for F&D Reports, a retail consulting firm in Great Neck, N.Y. "Many of [them] can no longer offer the same quality ingredients that they have in years past, so they're downgrading in any way that they can."

They're getting "creative with their recipes, using cheaper ingredients and offering smaller portions in an effort to stay afloat," he adds.

Here's a look at a few efforts by chains and their franchisees to save money and draw in customers:

At Marco's Pizza, owned by Marco's Franchising LLC of Toledo, Ohio, restaurants are looking to save money on their purchasing process.

They are ordering larger amounts less frequently, are working with vendors to lock in transportation costs and are choosing manufacturers that are closer to distribution centers to help reduce freight costs. Marco's expects these and other changes to save the company a total of $2 million a year.

For example, scaling down to once-a-week deliveries will save a Marco's franchisee with five stores more than $3,500 per year overall.

The company also is trimming packaging costs. It has eliminated its small pizza boxes at more than 170 stores in 14 states. Instead, it's now using the box for CheezyBread for both products. That will result in a saving of $164,000 a year.

View all Marco's Press Releases

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