Cost reduction

Why is there a myth that most restaurants fail? Its not actually true, indeed studies show that there is marginal difference between restaurant failures and other comparable industries. Setting that aside – the real question is: WHY do restaurants fail?
There are essentially two primary reasons:
1) Management
2) Insufficient capitalization
The capitalization relates to start-up funding which is of course down to forecasting correctly and allowing margin for error.  However the Management is more of a variable.
While the obvious attributes of having the four primary components: Good location, Good  Product, Good Service and Good environment are important – the often overlooked essential is operating with the correct cost ratios.
On the assumption that you will never squeeze more than 100% from 100%, it is always important to recognize that if costs are more than income – the business will not survive!

The Next Idea provides a forward thinking Cost Reduction solutions – these include:
• P&L analysis with automatic identification of specific-area overspend
• Vendor price analysis
• Assistance with waste management through state-of-the-art products
• Purchasing review, with improved supply-chain and cost-reduction recommendations
• Waste management analysis, with strategies to simultaneously reduce waste costs and encourage recycling
• Revenue generation via marketing and enhanced space leveraging
• Vendor negotiation and renegotiation
• Contract review, negotiation, and renegotiation
• Recovery of unclaimed vendor charges
• HR review, with strategies to reduce departmental costs and manage risk
• Inventory management
• Operations and COG improvements
• Telecom cost reduction and management
• Utilities cost reduction
• Insurance cost reduction
• Food-cost management and improvements
• Lease negotiations
• Cost containment strategies and processes
• Liquidation of unused assets

The TNI Reduction Process
While every company necessitates a specific course of action, clients of Innovative Recession Economics can expect the cost-mitigation process to proceed generally as follows:

Preliminary savings analysis - We conduct a confidential, no-cost analysis of your company P&L to quickly establish cost-savings opportunities. We then calculate our savings analysis by benchmarking your expenses with proprietary purchasing data from our extensive database.

Client engagement - We work with our clients to confirm which expense areas to review, identify any supplier sensitivities and constraints, and establish a commencement date and project schedule. At this point, the client is invited to begin utilizing our pre-certified vendors, who offer group pricing, volume incentives, and services that most companies cannot access on their own.

Expense history analysis - We compile and format historical expense data into a customized report. This provides you a categorized account of internal purchasing activities and also enables us to prioritize your savings action plan.

Request for proposal (RFP) management - We work closely with your purchasing department to manage the RFP process for the expense categories within the scope of our engagement. Our RFP process is customized to identify your actual purchasing patterns, service needs, and reporting requirements. We encourage our clients to include non-incumbent vendors in the bidding process.

Group purchasing - We offer an immediate opportunity for clients to realize the benefits of our group purchasing contracts. We contract with leading vendors that offer deep discounts and economic incentives based on The Next Idea’s vast purchasing power.

Final presentation - We document the total cost-savings and efficiency improvements and present a detailed report to your management team.

Implementation - We arrange and facilitate supplier meetings with your key employees, establish performance measures for these suppliers, and implement the reduced pricing schedules for your purchased supplies and services.

Vendor management - We schedule business review meetings with your team at regular intervals to ensure you are benefiting from maximum cost savings and taking advantage of vendor best practices.

Some of our Cost reduction success stories:

Cost Saving Success stories

Company A: Chain of 11 Restaurants – Combined sales: $36m
Reduced costs of Controllable & Non controllable expenses by $500k with another $260k savings identified
Company B:
Chain of Department Stores Combined sales: $1bn
Reduced cost of employee catering by $1.8m and reduced food cost in customer restaurants by 2% ($1.2m) through improved purchasing ergonomics and supply chain integration.
Company C:
Chain of Casual Dining restaurants sales: $86m
Reduced food cost by 4% and labor cost by 2%  through re-engineering menu, transference to on site production, and enhanced operational practices
Company D:
Chain of Grocery stores sales: $9bn (Department sales of $120m)
Reduced departmental administration costs by $27m through detailed review of corporate expenses and issue of 43 cost reduction proposals.
Company E:
Chain of Department Stores Combined sales: $2bn (Department sales of $60m)
Regionalised restaurant purchasing and concession agreements, earning client upfront payment of $3.2m and reduced operating overhead cost by 1% (representing net savings of $600k)

Innovations in Cost Reduction
Generally, cost management is considered one of the less exciting components of day-to-day businesses operations. But in actuality, it can be intensely interesting, deeply creative, and highly rewarding.
The following represent some recent innovations in the marketplace – for further information on any of these products or services please call us at 818.992.6765 or e-mail info@thenextidea.net

A highly innovative product hits the marketplace that naturally increases the shelf life of perishable products
Natural refrigeration dehumidifiers (NRDs) save energy and keep food fresh longer. These small replaceable units absorb up to 55 percent of their weight in humidity, increase the shelf life of food up to 50 percent, decrease the transfer of food odors, and reduce the spread of bacteria and cross contamination.
Equally, this new product reduces refrigeration temperatures three to five degrees, in addition to decreasing refrigeration cycles up to 50 percent, thus extending the life of the compressor and cutting utility costs. This product has validations from the US Department of Energy and the US Army and has been noted in the Townsend Letter for doctors and patients.

For more information, e-mail: info@thenextidea.net

Have you heard of a workers’ compensation carrier that pays you??
Our vendor is California’s largest self-insured workers’ compensation insurance group, attracting over $30m in annualized contributions. They provide first-class training for both managers and employees in preventing job-related accidents, and they diligently work with all claimants to support rehabilitation and facilitate a swift return to work. The vendor’s policy is to return the group’s surplus profits to the members in dividends based on the member’s claim ratio and the group’s overall performance. To this end, in three years, over $18.5m has been refunded to members in dividend payments. This provider insures California restaurants.

For more information, e-mail: info@thenextidea.net

Eco-friendly cost reduction
The level of waste that occurs in business at the environmental level is astonishing. Some of the simplest ideas can result in thousands of saved dollars, not to mention a positive impact on the environment. For example, a company that provides disposable coffee cups to offices is actually generating an extra 45 pounds of annual waste per employee compared to companies that provide reusable china cups.
However, there are many more-sophisticated methods for reducing costs while helping the environment. Our waste management vendor is one of the country’s largest and most successful solid-waste management consulting businesses, specializing in substantially reducing waste disposal and recycling costs for its clients on a risk-free, results-oriented basis. They have served commercial and industrial clients since 1994 and possess demonstrated expertise in the food industry, with 39 percent of total clients being restaurants (both QSR and full service). They are not a waste hauling company, but rather a waste and recycling cost-reduction company. Clients pay nothing for the vendor’s analysis and recommendations, as the vendor is paid only when we produce a direct refund, credit, or savings in clients’ waste and recycling services.

For more information, e-mail: info@thenextidea.net