KEY POINTS:
* Don’t make the mistake of placing too much emphasis on ingredients costs while not paying enough consideration to ‘big ticket’ items
* Your rental agreement is often your biggest ‘make or break’ factor — rent should be less than 10 per cent of turnover
* Negotiating a good rental deal gives you the ability to absorb other cost fluctuations, as opposed to compromising on ingredients quality
* When using quality ingredients you often don’t need to use as much per serve to get the same flavour — you might even end up saving money over what seems at first to be a ‘cheaper’ alternative

TO RUN A successful foodservice operation, it’s imperative that you keep a tight rein on costs. This is essential to ensuring profitability — for many inexperienced foodservice operators, the inability to keep costs under control has spelt the end for their business.
Club Perfect Ambassador and master pizzamaker Theo Kalogeracos, owner of two highly successful pizzerias, Little Caesar’s in Mundaring and Theo & Co Pizzeria in Victoria Park in WA, says some foodservice operators make the mistake of placing too much emphasis on the cost of ingredients while not paying enough consideration to the ‘big ticket’ operating costs.
He argues that ensuring your ‘big ticket’ areas are under control gives you more flexibility in managing ingredients price fluctuations brought on by outside factors such as supply issues.
“I can buy tomatoes for most of the year at around $10 per box,” he offers as an example. “Now it might go up to $40 or $50 per box if there have been heavy rains. By the same token, prawns might go up a dollar or two per kilo at certain times of the year. Sometimes you can pass those costs on to the customer, and sometimes you have to absorb them. But they’re not huge increases and you can wear them.”
On the other hand, he argues, without a good rent deal, your business is not going to survive. Theo’s rule of thumb is always that your rent cost should be less than 10 per cent of your turnover, but acknowledges that for many foodservice businesses, the cost is much higher — perhaps they have gotten in over their heads in order to secure a position in a high-traffic area. But if you can’t afford to stay in business over time, then this is obviously not a good move.
“When you’re running a pizza restaurant or other foodservice business, you know that certain costs are fixed — wages, insurance, energy. And if you pass too much on to the customer, you won’t stay in business very long. A lot of restaurants are closing down all the time and often it’s due to bad rent deals.”
He says that when looking at a property to lease, if the asking price is higher than 10 per cent of your projected turnover, you need to make a counter-offer that works for you.
That’s Theo’s approach and, he says, “If they don’t accept it, then I walk.” He adds that taking over an existing lease is also not a good idea: “As much as I might want a certain location, I’m not going to do that … because the terms of their lease might well be the reason they’re closing down.”
In contrast, when you have a cost-effective rental agreement in place, you are in a better position to absorb variations in costs of goods — thus ensuring you can maintain your customer base, which after all is essential to the viability of your business.
By being able to respond to ingredients cost increases in this manner, you can avoid going down the path of choosing cheaper, lower quality ingredients to reduce your operating expenses — a move that is actually false economy, because when your food quality is compromised, your customers will often go elsewhere.
Theo’s philosophy is that when it comes to ingredients, ‘less is more’ — as long as you’re using quality ingredients.
“When you have a pizza with just three ingredients then you can taste each one — the cheese, the prawns, the prosciutto,” he says. “I make a pizza with just those three toppings but I use great prawns, local tomatoes, local mushrooms, a quality Australian-made prosciutto … some people think, I’ll buy the overseas product because it’s cheap, but you know what? It tastes cheap too.”
Theo says that by choosing better quality ingredients, you don’t need to use as much per serve to get the same flavour — which means you might even end up saving money over choosing what might seem at first to be a ‘cheaper’ alternative.
For example, Theo uses Perfect Italiano Mozzarella, but he only puts 90g on a small pizza. “Most pizza shops will use more, and they might think it’s an expensive cheese, but 90g of Perfect Italiano has such good stretch and melting coverage that I’m actually using less cheese than my competitors,” he points out.
“Once that 90g serve melts and spreads, it totally covers the pizza and you have that beautiful stretch — it’s perfect. So my one box of Perfect Italiano enables me to make more pizzas than what my competitors are doing. Meanwhile, they are blending cheese, thinking that’s going to extend it — but it doesn’t work that way.”
In fact, Theo argues, when he costs out his use of Perfect Italiano Mozzarella, it turns out that the cheese is one of the cheapest products that goes on his pizzas.
“It’s essential to cost everything out properly and work out where your real expenses are,” he emphasises. “We put lamb on a few of our pizzas and it costs me more than $15 per kilo. When you factor in how much has to be trimmed and how much is lost in cooking, the actual price in usable meat is more like $30 per kilo.”
Theo didn’t start out in business with his present focus on keeping a lid on costs — awareness of its importance was a hard-won lesson he learnt over time. But today, as a successful businessman, he’s happy to share his insights with up and coming foodservice operators.
“When I started I didn’t have the systems in place that I do today,” he admits. “Now I’ve got a great electronic POS system that draws down our stock as each pizza is sold and it can tell me at the end of the day what stock I have, what I need to order and so on. When you’re dealing with perishable goods as we are in foodservice, it’s imperative to be able to keep track of what ingredients you need to order in each week.”
Theo Kalogeracos
Theo Kalogeracos
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