It’s no secret that the current economy is tough. Businesses of all types are feeling the pinch as consumers tighten their belts and cut back on spending. In these difficult times, it’s more important than ever for food and beverage businesses to find ways to reduce costs and sustain profitability.

Of course, cutting costs is easier said than done and it’s important that you don’t hack away at your budget so severely that you end up damaging your business in the long run. It’s important to take a measured approach and always keep your long-term goals in mind.

It may feel like the short-term is all that matters right now, but this is not just about surviving for now. On the other side of the recession, you want your business to be in good stead for growth and expansion.

So with all of this in mind, let’s take a closer look at how food and beverage businesses can reduce costs and sustain profitability during a recession.

1. Perform a Business MRI

In order to not only identify where you can cut costs but also understand how these changes will impact your F&B business, you need to essentially perform a full-body scan of your business. Think of it as a diagnostic test, like an MRI scan.

You need to gain a detailed understanding of every expenditure within your business so that you can understand where cuts can be made without damaging the quality or reputation of your product. You need to carefully assess:

  • The ROI of the expenditure
  • The impact of the expenditure on the customer experience
  • The impact on your business overall, both now and in the future

2. Keep Checking Inventory Levels

One of the most important ways to reduce costs as a F&B business is to keep a close eye on your inventory levels. It’s important to find the sweet spot where you have enough stock to meet customer demand but not so much that you’re tying up valuable cash in inventory.

It can be tempting to overstock during a recession, but this is often a mistake. It’s important to remember that customer demand can change rapidly during a recession and you don’t want to be stuck with excess inventory that you can’t sell.

This is especially true for F&B businesses because much of your stock is perishable and so this capital is effectively being wasted.

Monitoring your inventory levels closely will help you to avoid this trap and save money in the long run.

It can also help you to understand which ingredients are being used more frequently and which ones can be cut back on without affecting the quality of your dishes, further helping to shave costs.

3. Review Subscriptions

Subscription costs are one of the biggest creeping costs in any business, and during a recession you simply may just be too stressed to remember to keep an eye on them. However, reviewing your subscriptions on a regular basis can help you to save significant amounts of money, especially if you’re no longer using a service enough to justify it. By cancelling any subscriptions that are no longer providing value, you can reduce costs without impacting your business too severely.

A good way to keep an eye on your subscriptions is to schedule a set time each month to sit down and review them. This way, you can make sure that you’re not spending money on services that you no longer need and ensuring that any new subscriptions are providing good value for money.

4. Understand What Drives the Business

Knowing which costs drive your business and which ones are simply nice-to-haves is essential for making informed decisions about where to cut costs. When you’re clear about your priorities, it becomes much easier to make decisions about where cuts can be made without damaging the business.

5. Build Supplier Relationships

Creating strong relationships with your suppliers can make an enormous difference to your F&B business. When times are tough, we all need a little extra support and so building supplier relationships is a great way to ensure that you’re getting the best possible deals and terms.

Good supplier relationships can also enable you to renegotiate contracts and payment terms, which can free up much-needed cash flow during a recession. In addition, having good supplier relationships means that you’re more likely to be able to weather any supply chain disruptions that may occur during a recession.

Good purchase ledger management is ultimately the key to positive supplier relationships. This means having a system in place to track all of your spend, as well as maintaining accurate records of what you owe each supplier. This will give you the information you need to effectively manage your cash flow and keep on top of payments.

6. Automation

Automating processes within your business can help you to make your operations far less labour intensive, thus saving you a lot of time and money. In this day and age, effective use of automation is the key to a lean business and even though the F&B industry has traditionally been resistant to automation, there are a number of solutions available that can help you to streamline your operations.

From automatic stock management systems to intelligent point of sale systems, there are a number of ways that you can automate your business and save money.

Investing in automation may require an upfront cost, but it will quickly pay for itself by freeing up time and resources that can be better spent elsewhere.

7. Reallocation and Reorganisation

Sometimes, a little reorganisation is all that’s needed to save costs and become more efficient. Reviewing your processes and determining where savings can be made is a great way to cut costs without holding your business back. 

Creating new standard operating procedures, re-delegating duties or reallocating space can all help you to leverage your existing resources and make every penny go further.

8. Play to Your Employees’ Strengths

If you were coaching a sports team, you would put each player in the position that they are best suited to, in order to maximise their strengths and create a winning team. The same principles should be applied to your cafe or restaurant business.

By playing to your employees’ strengths, you can create a more efficient and productive workforce. This will save you time and money, as well as ensuring that your customers receive the best possible service.

And Just like a sports team, you need to invest in training and development. By ensuring that your employees have the skills and knowledge they need to excel in their roles, you can further improve efficiency and cut costs.

Training your staff and demonstrating that you care about their development will also help to lower your employee turnover rate, which can really make a difference to your bottom line. 

The hiring and recruitment process can be very time-consuming and expensive, and therefore eat into your profits. A strong and happy team that sticks around will save you a lot of time and money in the long run.

9. Assess Marketing Channels

A recession doesn’t mean that you should stop marketing your business – in fact, if anything, the opposite is true. However, it is important to reassess your marketing strategy and make sure that you’re getting the best value for money.

During a recession, people are more likely to be choosy about where they spend their money, so it’s important to make sure that your marketing is targeting the right audience and getting results.

There’s no point in pouring money into a marketing channel that isn’t working, so be prepared to try something new or invest more heavily in a channel that is proving to be effective.

A well-designed marketing strategy will help you to weather the storm during a recession and come out the other side stronger than ever.

10. Assess Your Customer Retention Metrics

Customer retention is vital for any business, but it becomes even more important during a recession. If you’re not monitoring your customer retention metrics, now is the time to do so.

Some of the most important customer retention metrics for cafes and restaurants to assess include:

  • Repeat order rate
  • Average order value
  • Customer lifetime value
  • Churn rate
  • Existing customer revenue growth rate
  • Net promoter score

Getting to grips with these metrics will help you to understand not only how you’re faring in terms of customer retention, but also which customers are most valuable to your business and how you can keep them coming back.

Final Thoughts

Recessions can be tough times for businesses, but with careful planning and a focus on efficiency, it is possible to reduce costs and sustain profitability. It’s important to invest your capital wisely and make well thought-out, purposeful decisions rather than letting anxiety get the better of you. Take action now and your business will be well positioned to weather the storm.

Finances are what make or break a business. We help your cafe, restaurant or cloud kitchen grow more by providing financial management solutions. Follow us on Instagram to get an idea of what we can do for you. Follow us here: @gainsaccountants_