Food Cost Incentives

In the last issue of La Trattoria, I wrote about “The Power of Employee Incentives.” In my experience, they can be a powerful way to help your team embrace the types of behavior which enhance your success.

In that column, I explained that to be successful, employee incentives must have four characteristics. They must be understandable, achievable, measurable, and balanced. (If you happened to miss my last column, call La Trattoria Editor Steve Rouse at (800) 328-8667 and he will be happy to send you another copy.)

In response to my comments about employee incentives in general, a number of you specifically asked about employee incentives to manage food costs. Since we buy many ingredients for our annual tomato pack, I can explain our thoughts on how to deal with this issue. So here goes.

When someone other than the owner, like a chef or manager, is responsible for purchasing and/or handling of food ingredients, it is not uncommon for the business to pay that person a bonus based on controlling food costs.

The ultimate goal of this type of incentive is to reduce costly waste and inefficiency in the kitchen. However, there are two specific challenges with this type of incentive.

1) Protecting quality. The first challenge with incenting employees to control ingredient costs is protecting your finished food quality.

As I mentioned last time, employee incentives aimed at reducing costs (or increasing efficiency) must be counter balanced with measurable quality standards. That is because the fastest way, whether in a kitchen or in food processing, to reduce costs is to sacrifice finished product quality. (Examples: switching to a cheaper, lesser quality sausage or reducing the amount of cheese used in a recipe.)

Since compromising food quality (and therefore your ability to attract loyal repeat customers) is an unacceptable outcome, whatever incentive you place upon reducing costs/increasing efficiency must become null and void if quality/consistency of your finished dishes is reduced, even a little.

That requires regularly monitoring and providing prompt feedback to your team regarding the finished quality of your food.

2) Don’t ignore rising prices. The second challenge occurs during times of commodity cost inflation. For example, in recent years, the cost of food commodities, like proteins (cheese, meats) and starches (flour, pasta, etc.) has steadily risen over time.

The problem with rising ingredient prices is that they are out of your team’s control. That means, even if your “food cost” management incentives (properly balanced with quality measurement) have been very effective at getting your team to avoid waste, rising ingredient costs will eventually ruin your incentive system by making their cost targets harder and harder to achieve. And once a goal is pushed out of reach, that incentive can no longer encourage the beneficial employee behavior.

One way to solve the problem is to periodically adjust the “food cost” targets upward, to keep pace with inflation. (And vice versa.)

A side benefit to paying close attention to your incentive program and adjusting your “food cost” targets in accordance with inflation is that it forces the discipline of regularly determining whether your menu prices are also set properly.

In summary, employee incentives to manage food costs can be effective as long as the incentives account for quality and are adjusted for inflation.

Managing costs and efficiency helps successful businesses operate profitably. Still, no one ever “saved their way to prosperity.”

In other words, never forget that, ultimately, maximizing food quality and consistency is what attracts loyal repeat customers and keeps them coming back to your business (and ours).