E-conomy

With food margins tightening, a new Web service helps Wendy's franchisees manage food costs.

Chain Leader

Christine Zimmerman, Contributing Editor

Steve Socrates is a big believer in the power of the Web. It has helped save $1,000 in food costs per month at two of his Wendy's franchises.

Socrates credits the savings to Web Inventory Manager (WIM), which he has been using for the past seven months. He says the Web service has significantly helped him manage food costs—and even to do so remotely.

"I can dial into one of the restaurants from the road and see what inventory issues they have. I can drill down to an item, the time of day, the management schedule," says Socrates, division vice president at Trident Foods, which operates 21 Wendy's franchises in northern Indianapolis.

WIM, hosted by Columbus, Ohio-based Syrus Restaurant Information Services, costs him $250 per month, per store. As return on his investment, Socrates figures he has improved his overall food costs .7 percent for his whole market. "That represents almost $17,000 a month in food-management savings. That is not a small number," he says. He adds that his market will improve another .5 percent as he brings more stores online. "Before WIM, we basically guessed at how the restaurants ran in terms of food costs," Socrates says. "Theoretical food costs are a moving target, with market prices changing all the time. Syrus takes those numbers into account."

"Inventory management is more critical than ever before because commodity costs are up significantly across the board," says Joe Buckley, senior managing director and research analyst at Bear Stearns.

While Buckley does not follow Syrus or its software-based competitors closely, he says the Web can be a useful tool in managing food costs and reduce the complexity of back-of-the-house technology. "As is the case with most technology, the Web can help streamline the management process," Buckley says. "This is particularly useful for multiunit operations, since they can manage operations remotely."

Pulling Pieces Together

WIM is a Web-based application built specifically for QSRs. The application gives individual units, as well as entire chains, one place to get relevant information for food costs.

"They accumulate data from different sources, including in-store point-of-sale systems, recipes, distributors' lists, what is actually sold in stores. At any time of the day, they can look at the system and say, ‘We should have used this much of each ingredient based on what has been sold today,'" says Jim Karam, president of Syrus.

"The service gives us the ability to track item by item what we are using. We keep a close watch, in particular, on our top usage items like meat, bacon and chicken," says Socrates. "We can even look at intraday targets."

He adds, "Syrus allows us to see negative sales like manager deletes and canceled items...and ensure that money gets into the register. It flags anything strange."

Socrates notes that the two stores that use WIM improved food costs by more than 1.26 percent combined in four months. "These two stores far outperform the rest of my market," he says.

The Web service tracks the activity of a restaurant's vendors and approves electronic invoices, as well, Karam points out. Say, for instance, a restaurant receives its beef shipped in 40-pound cases, in four sleeves of 10 pounds each. If the distributor changes the number of sleeves shipped to five sleeves of 8 pounds each, that information has to be factored into daily usage.

"If that information is not remapped automatically, then all data on beef usage will be inaccurate," says Karam. "But a manager might not notice that subtle change in distribution or have time to enter it manually."

Tracking food usage is not new, of course, but in the past it has been manually intensive, often done by hand or by disparate software applications. The Web also allows users to automatically receive updates, added features or bug repairs every time they log on.

Another plus of the Web is that information that used to be tracked weekly can now be accessed daily or even midday.

Such a benefit is well worth the $250 monthly cost, according to Greg Smith, vice president of operations at Restaurant Profit Systems and Restaurant Strategies Group, which owns 10 Wendy's stores. Eight are using the Syrus Web service.

"The key benefit is a much faster response time on reports," says Smith. "Syrus gives us the power to correct operational deficiencies. Our industry is in a margins crunch. But our company has seen an increase in cash flow using this tool."

The Wendy's Connection

Syrus' parent company is a large Wendy's franchisee, Cedar Enterprises Inc. According to Karam, "That gives us a great advantage. We can prove our value. We saved a half percent of sales and showed it in our own store."

Developed and released at the end of July, Syrus has just under 1,000 customers, predominantly Wendy's franchisees. Two hundred of those units now use WIM.

Karam says Wendy's is a good example of how chains can use Web tracking as a tool to share best practices.

"The culture in the Wendy's organization is one of support. When any unit has an issue, it's common to ask for help from one another," adds Socrates. He says the system has had an unexpected benefit for his stores: "This has become the best tool for developing our people into businesspeople, learning to evaluate these results. We have grown some really talented people."

The system has also shown Socrates the bad side of some employees. "We were seeing an overall problem with loss of beef, bacon and buns in one particular store. With the Web inventory manager, we were able to pinpoint that the loss was actually greater on Saturdays and Sundays three weeks in a row," Socrates says.

He compared this information with his crew and manager schedules, and was able to targets suspicious, unrecorded sales at specific hours. Socrates ended up terminating two employees and has not had loss problems since.

"If you let information lead you, it's amazing what you'll find," he says.