Taming the rhino with cost-cutting measures

Red Rhino is a very fine microbrewery, situated in Whitefield-Hostoke Road, Bangalore. The first thing that will strike you about this place is the location, if Whitefield is outskirts, this location is further apart. As you step inside, you see opulence and grandeur, a breathtaking view of surrounding greenery from the ample open space decks.

Red Rhino was founded and established by Kishore Reddy, a techie, and co-founder at ZapCom, a boutique software house with offices in US and India, boasting of clients such as Zappos. Normally, I am wary of owners running multiple businesses, with a bar or a restaurant as a side-kick. At times, the focus gets diluted and you aren’t all-in. I was in for some surprise, though. Below is a case study of how we worked with their team to control their costs, we focused only on food. We would like to convey our gratitude to Kishore for allowing us to use his data for this blog.

Owners play a pivotal role:

In Nov’19 Kishore called up and asked that we help with cost control. I am of the opinion that the owner sets the tone on successful implementation, that has been the pattern so far. If there is less or no monitoring, there is no incentive for staff to put in more effort to achieve desired results. COGS didn’t look good, business could live with better margins.

Note that the difference between expected and actual expense was INR 6.5 lakhs. System hygiene wasn’t the best then, mainly due to suboptimal effort from staff. During our first meeting, we highlighted all the issues and put a 2-week plan that had to be adhered to. Abhijit Saha, a well-revered celebrity chef was consulting with them and was part of our meetings. I had never seen Kishore so agitated, he literally told the involved parties to do whatever it takes to streamline the operations and bring down costs. There were recipe corrections to do, wrong ingredients were used, wastage wasn’t recorded, physical inventory count was in excel and not in the software. There were many such issues, apart from variances in the dairy and meat category.

Nov’ top SKU variances — adding to 3.44 lakhs excess.

It was pleasing to see the team working very hard towards their goal of getting to 30% COGS for Dec’19, quite ambitious considering the past and there was a lot of ground to cover. Recipes were corrected, portions were weighed and cross-checked with recipes, regular stocks were recorded, variance tracked, buffet more carefully planned. December is a very busy month for most restaurants and for a brewery, even more so. We did highlight that the above items need to be tracked more closely, particularly the top consumed ones. We were eager to see if their efforts would result in improved costing. Chef Saha and the entire team took a serious note of it and were confident of achieving the desired target.

Date: Dec’9, 2019

Thank you for your mail. Based on the reports we are taking the following steps to reduce the food cost of Red Rhino:

– Track procurement of 12 to 15 high consumption and high cost items

– Reduction of consumption
– Reduction of portion sizes by 10% to 15% in appropriate dishes
– Correction of recipes and recipe costings
– Reduction of wastage

With the above I am confident we will be able to bring down the food cost at Red Rhino.

Bests
Abhijit Saha

This is how the numbers looked in Dec’19. Sales were up by around 9.25% compared to Nov, at INR 52.74 lakhs, whereas purchase dropped by INR 70,128, leading to COGS of 33.2%, still not what it had to be, but a significant change compared to the previous month. Had the food cost remained the same as the previous month at 37.8%, they would have spent an additional INR 2,41,498. Money saved is, money earned. More than that, the team became more alert, followed better practices and processes.

Let us see how some of the top SKU’s showed up in the variance report for Dec. As we can see all of these items have shown considerable improvement, even the ones that are still -ve are not as high compared to Nov.

One time wonder:

As you can see consumption and variance percentage dropped across almost all items significantly, leading to optimal levels. Variances of all of the above were INR 10,000 and above, but here they are under control, many even trending into positive values. What if the above happened just by chance? How do you ensure this trend of control continues? What if sales drop but purchase cost remains high? By the way, there is this asinine school of thought in some quarters, “ If the sale is high, my food cost will be low; if it drops, it will go up.” How on earth can you reason with such puerile arguments?

Chef Saha didn’t want Dec to be an anomaly and wanted to ensure this trend continued. Let’s dive right into January numbers. Jan sale is typically muted and it was a good acid test for Red Rhino and those low sales-high cost theorists.

Ideally, this is how the numbers should be, aligned close to the expected COGS. This was possible due to focussed efforts from RR team — Kishore, Chef Abhijit Saha, Naveen, Imran and the entire staff in the kitchen.

Make them succeed:

A lot of people say, “ Why would you help clients so much, is it scalable?” Well, what is the point in building and selling a product if it doesn’t generate enough value for your customers, by solving their problem? Secondly, one needs to read this, by Paul Graham. He quips, “ I have never once seen a startup lured down a blind alley by trying too hard to make their initial users happy.

Over time, your customers become your evangelists, your best salespersons. One of the reasons for churn and non-adoption of tech (particularly BOH) in this space is due to lack of adequate support and training. If you cross that hurdle, the chances of customer churn are negligible.

In Dec’19, Chef Saha wrote, “ Thank you for helping us to bring down the costing. I will convey your word of appreciation to the Kitchen and Procurement Teams. We will do our best to reduce the costs further in the coming months.

Also, as a company, it is extremely gratifying for us to see such efforts leading to great results for our customers. Why is why you exist. After all, you built it keeping your customers’ needs in mind, over time your hypothesis is just getting validated.

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