The management of ingredient costs tops the list of priorities with the future of commodities pricing still uncertain regarding the recent drought. Although it may not happen with every supplier you use, often vendors will give bakeries the heads-up on current and future pricing trends on the products they sell, but you must communicate with them regularly, and never underestimate the power of networking.
Keeping an open line of communication with all of your suppliers opens the door for information that could be helpful in the event of price increases. While communicating doesn’t guarantee suppliers will offer up information, every little bit of knowledge you can glean will help. “It depends on the philosophy of the vendor,” says Dennis Stanton, owner of Swedish Bakery in Chicago, IL. “It may just depend on whether the salesman is really committed to passing that information along. Some vendors are better at this than others.”
“Out of all our vendors, we only have two that let us know of price increases,” says Vanessa O’Donnell, pastry chef and owner of Ooh La La Desert Boutique with two locations in Katy, TX, and one in Houston. If a vendor will let you know that a price increase is coming in the near future, you have the opportunity to plan accordingly.
Buy in bulk
Stories exist of suppliers locking in the pricing of ingredients for a long-term future commitment to buy, but the risk far outweighs the reward with a contract of this nature. But buying in bulk, usually gives vendors good reason to offer buyers a discount, and if you can couple this with a supplier who notifies you of an impending price increase, money can be saved.
Of the vendors who do offer alerts, they’re accurate, Stanton says. “They’ll say, ‘We’re looking at price stability on this front for this amount of time,’ or they’ll say, ‘Things are volatile, so if you can buy an extra amount of this, now is the time to do it,’” Stanton says.
Buying in bulk represents a classic strategy in receiving discounted prices from suppliers. “We get a 20% discount when we buy in bulk,” O’Donnell says.
“We’re not so tremendously large that we’re buying a freight car full of sugar or flour,” Stanton says, “but we are large enough that we’re generating discounts from our vendors.
Buying in bulk, especially when a vendor alerts you to pricing going up in the future, offers a clear advantage to not only saving money, but also giving you a surplus of ingredient. But proceed with caution and make sure it makes sense. “You have to be judicious in where you spend your money,” Stanton says. “Most small businesses don’t have a bottomless storage facility or the money to buy that stuff.”
Tying up too much money in inventory can set you back when it comes to the day-to-day operational problems that you face. Getting a good price with knowledge of a future increase lends itself to the urge of stocking up, and that makes sense, Stanton says. On the other hand, you need to keep an eye on things so you won’t run out of capital should something come up that necessitates cash on hand.
Check the pricing of ingredients from multiple suppliers to make sure you get the best pricing available. “We always compare prices from three different suppliers before choosing which supplier to buy from,” O’Donnell says. “Sometimes when you let a supplier know you can get a better price from another company, they will consider lowering their price.” When comparing prices you need to make sure you’re comparing equally. “You have to be cautious when doing price comparisons,” O’Donnell says. “Make sure that the quality and pack size are the same. Sometimes the prices might be lower, but you’re getting less or the quality is not to par.”
“It’s basically leverage,” Stanton says. “They know that I can go to any one of numerous other vendors in the Chicago area.” Competition among suppliers works to the favor of the retailer. “Just in terms of being able to say, ‘We’re buying from this company, and we’re buying a lot,’ they’ll give us a better price. That counts for something,” Stanton says.
Sometimes the economy dictates a price increases, product elimination, etc., no matter how well you manage your costs. Knowing where you’re at and where you need to be makes these situations as easy and efficient as possible. “We review our recipe costs every quarter to determine if our food cost percentage has gone up and if we need to raise our prices on certain products,” O’Donnell says. If you cannot compete on pricing, then cutting an entire product from your offerings might be the best solution, but be careful.
“Eliminating products is always an option,” Stanton says. “You’ve got to be careful where you cut. You’ve got to make sure it’s the right thing to do. Even if it’s only temporary, you don’t want to alienate customers who are looking at that.”
O’Donnell uses Cheftec computer software to help with managing ingredient costs at Ooh La La. “Cheftec helps with our costing formulas and keeps us up to date with our latest invoice,” she says. “All we have to do is enter our recipes and invoices manually. One of our suppliers automatically interfaces with the Cheftec software, which saves us a step.”
Look at your invoices daily, make a spreadsheet with the pricing for the commodities you use most and pay close attention to it. “If things are spiking when they’re not supposed to, it sets off alarms for you,” Stanton says. “You need to take a look at the stuff and see how you’re doing things, what you’re doing and where you need to be.”