June 28, 2023
Lauren Platero

7 Best Cost Reduction Strategies for Restaurants

Cost reduction strategies are vital for long-term restaurant success. If you’re a business owner or want to open an eatery, you’ll find that there are so many restaurant expenses. Whether you’re budgeting for labor or innovative restaurant technology, you’ll notice the costs add up fast.

It might feel like the ultimate challenge to stay within the restaurant budget. However, there are many cost reduction strategies you can use. But before jumping into seven options, let’s discuss the importance of cost reduction strategies.

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The Importance of Cost Reduction

It’s crucial that restaurants implement cost reduction strategies if they want to thrive and survive. Long-term profits begin with a balance of revenue management and smart spending habits. If not, the business will frequently be at risk of heaping debt, bankruptcy, or closing completely. 

Cost reduction strategies also help businesses invest their funds in other areas. For instance, instead of struggling to keep one restaurant afloat, the owner(s) might open new locations. Or, they can put more money into marketing resources to further grow their brand. 

Now that we have an understanding of the importance of cost reduction strategies, let’s go over some helpful options. See below:

8 Cost Reduction Strategies for Restaurants 

Reducing costs within a business is vital for strong financial health and longevity. Though it might seem like a daunting feat, there are many options you can implement. At any given point, consider adopting one of the following cost reduction strategies for your restaurant:

1. Limit the Labor Cost 

Labor is likely the highest expense your restaurant incurs. Bear in mind that labor costs are more than just wages. They also include benefits, insurance, and staff development resources. Luckily, there are various labor solutions that can help you balance these costs. 

One of the best things you can do for high labor costs is to invest in labor saving devices. Solutions like self ordering kiosks and tabletop tablets reduce the amount of labor needed from the wait staff. Consequently, restaurants can get away with employing fewer workers. Then, the cost of labor will drop significantly.

2. Waste Management 

Food spoilage can increase restaurant expenses far more than you might think. If food is going to waste, it’s a sign of one of two things, if not both. First, it might mean that you’re buying too much of particular ingredients. Or, it means that customers aren’t ordering the dishes that some ingredients go into. 

Inventory control is the first step toward stocking just the right amount of each ingredient. Purchasing what you need rather than what you anticipate is the rule of thumb. So what can you do? We suggest investing in a restaurant inventory management tool. 

An app like BlueCart can help you out quite a bit. Features like inventory forecasting and automatic shipments allow you to waste as few ingredients as possible. Want to learn about it and then some? Book a demo today!

3. Menu Engineering 

Do you ever come to the realization that some of your menu items just don’t sell too often? Or more importantly, some don’t sell at all? If so, this might signal the need to conduct menu engineering. In simple terms, this practice refers to the process of strategically removing items from the various menu types

Chances are, you’re probably stocking ingredients for items that rarely sell. Doing so can drive costs at the reorder point. It’ll also bump up the amount of food waste you encounter. In the event that the ingredients for a particular item cannot be useful to others, then you’re guaranteed to waste money.

4. Technology Adoption 

Many restaurant technology solutions allow staff members to multitask. So much so, they’re able to do significantly more with much less. And when you’re able to tackle more tasks in a given period, it’s not necessary to have an extensive team. So, this can help reduce the cost of labor.

Food tech solutions can also speed up processes in the kitchen. When you consider that people prefer quick service, this can help boost table turnover rates and customer satisfaction. Consequently, the profits will drastically outweigh the costs.

5. Compare Ingredient Pricing 

Use a wholesale directory to compare prices of the ingredients you need. There could be one wholesale distributor that will charge you significantly less for certain items. Or, you’ll be able to cut back due to shipping costs. For instance, shipping frozen meat will likely cost more than wholesale candy. In this case, it may be worth your time to shop around when conducting recipe costing.

Having a clear overview of various wholesale retailers is one of BlueCart’s major strengths. It completely takes the guesswork out of where to source ingredients. And if you need a place where you can pay all your wholesale distributors, BlueCart Pay can do that for you, too.

6. Marketing and Promotion

Restaurant marketing tactics can aid a cost reduction strategy. Though it’ll likely warrant an initial investment, it can generate more money over time. As exposure for the restaurant business grows, more customers will choose your restaurant over others. So, it will pay for itself in the end.

A few examples of marketing ideas include restaurant SEO, social media efforts, and an email marketing strategy. Just ensure that you’re keeping up with the marketing ROI. And remember, the ROI meaning refers to the money you make from your investments.

7. Energy Conservation

Opt for restaurant equipment that is energy efficient. Utility bills can cost a small fortune. This is especially true for restaurants, as there are so many gas-fueled appliances and electricity running in an eatery. The energy needed to run a kitchen is substantial, let alone the rest of the facility. 

Energy-efficient refrigeration, stoves, and other gadgets can save quite a bit of money. You can also opt for more ambient restaurant lighting to reduce expenses. Plus, it'll help create a better mood for customers.

Frequently Asked Questions About Cost Reduction 

Cost reduction strategies are ideal for restaurants. This is a business model with numerous working parts, which means that there are a ton of expenses involved. Still looking for ways to implement such plans? Or, are you still indecisive about whether it would be beneficial for your restaurant business? See below for more information:

Why Is Cost Reduction Important for Restaurants?

Cost reduction is important for restaurants, as such strategies allow the business to scale up. It can increase profits and competitiveness. In turn, it can help the restaurant achieve a healthy financial standing.

How Can I Identify Areas Where Cost Reduction Would Be Beneficial In My Business?

You will need to conduct a financial analysis to determine areas for cost reduction. This will consist of all the expenses the business incurs and the revenue you bring in. Then, you will be able to find areas that could operate just as well with lesser investments.

Should I Focus More On Reducing Fixed or Variable Costs?

When considering cost reduction strategies, you should see about reducing fixed and variable costs. However, it may be easier initially to lower variable costs. It's more likely that variable costs are negotiable. On the other hand, fixed costs aren't likely to fluctuate. It all depends on where you're willing to cut back and spend the most money. 

How Can I Involve My Employees In Cost Reduction Efforts?

There are different initiatives for reducing costs that employees can participate in. For example, you can make the most with the ingredients you have to enhance waste management. Or, the use of technology can allow them to serve tables quicker and boost the table turnover rate. As with anything, it all depends on the business’ goals and challenges.

What Role Does Technology Play In Cost Reduction Strategies?

Technology plays a role in cost reduction strategies by reducing labor expenses. Manual labor requires quite a few staff members to be present. So, the use of tech solutions can reduce the amount of people working each shift. Therefore, much less money is spent on employee-related expenses.

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Key Takeaways 

Cost reduction strategies can completely transform a business for the better. Did you know that Revolution Ordering can do so from a technological perspective? That’s right–our innovative suite of solutions can keep your business profitable, while allowing you to incur fewer expenses. Does this sound like something you’re looking for? If so, book a demo with us today!