In addition to food, labor, rent, water and electricity costs, which are the main costs in running a restaurant business, there are other costs that most restaurateurs overlook, and these are hidden costs. Hidden costs are not costs in the form of actual expenses but which still remains as a cost potentially damaging opportunities for generating revenue or potentially increasing costs in other areas without the entrepreneur’s awareness. So, let’s take a look at some of the hidden costs restaurant owners often overlook.
Hidden Stock Costs
What frequently happens during stock management is that the entrepreneur orders more ingredients that actually needed for use each day such as by ordering large quantities of ingredients in exchange for free shipping, thinking that doing so will save on shipping fees. However, what later happens is that some kinds of ingredients such as fresh vegetables are at risk for quickly spoiling, leading to wastage.
Otherwise, the entrepreneur might order ingredients during discount periods by viewing that the ingredients are cheaper than usual and so should be stocked. The problem of doing this, however, is that refrigerators and freezers are stacked full with ingredients, making it difficult for the cold to thoroughly penetrate the bottom of the stack and leading to spoilage. Moreover, overworked refrigerators and freezers might break down early, and, if new refrigerators are purchased, electrical expenses will unnecessarily rise.
These are all examples of hidden stock costs that entrepreneurs frequently overlook, particularly entrepreneurs who neglect regularly and personally inspecting their stocks and kitchens.
Hidden Costs in Things That Don’t Have to Be Shown
In operating a restaurant business, nearly every restaurant owner focuses on selecting only good things for their customers, which is the right thing to do. In many cases, however, it is not necessary to use the best ingredients for some items, provided that recipes and quality won’t change by not using them. For example, if we just want the tanginess of lime, and we don’t want to show the lime itself, we can use lower-grade lime than the more expensive premium-grade lime. Do that, and we will save on costs.
Hidden Costs in Ordering Ingredients Insufficiently for Daily Sales
Another case that frequently causes hidden costs without entrepreneurs realizing it is failing to prepare enough ingredients for daily sales. This lack of preparation can lead to purchases during the day, which create hidden costs such as travel expenses, waste of employee time, lost sales opportunity costs and procurement of ingredients that are not fresh or new. These costs create the risk of failing to maintain quality at your branch, leading to unexpected and negative consequences such as changes in food flavor or appearance.
Hidden Costs in Ingredient Sources
Many restaurant owners overlook the importance of yield or the amount of ingredients that can actually be used after cutting. Yield is one of the factors contributing to incorrect food cost calculations. Entrepreneurs prefer to choose ingredient sources based on cheap prices. However, entrepreneurs frequently discover that their ingredients are indeed cheap, but not provided in full amount or that ingredients are of sub-standard quality. For example, only a small percentage of fresh vegetables might be left for use after cutting. On the other hand, if entrepreneurs purchase from suppliers whose quality is controlled, and ingredients are well dressed or cut, even if they are more expensive, nearly 100% of the ingredients can be used, and receipts prevent corruption, while products can be claimed. The result is that that is more effective in terms of both prices and quality.
Therefore, if you want to summarize where all the hidden costs for SME restaurants come from, the answer is going to be based on the diligence in seeking for ways to control costs, which is a good business practice, but many entrepreneurs overlook the practice of calculating how worthwhile things are in actual use!