My friend who owns burger-centric restaurant tells me that one of his non-operating investor partners wants to use a lower quality, less expensive beef in order to shave 2% off of food costs. My buddy pushed back, saying they can measure food costs, but they’d risk losing customers and doing possibly irreparable harm to their reputation for serving high-end burgers.
Why take that risk? Sure, their food costs are a little higher than average, but who cares about averages?!?! Business is good. They are profitable. The restaurant is well-respected and popular. They have a great word of mouth reputation. So, all of these aspects are above average!
Those types of stories baffle me. What would drive this person to want to cut food costs in this situation? I guess it’s greed. Perhaps he mistakenly believes you can build a reputation on serving a quality product, then turn around and cheapen the product yet still maintain your excellent reputation and then pocket more money? I don’t know. It just doesn’t make sense. Seems so myopic.
Yet this stuff happens all of the time in business. We focus on measurables (food costs, overhead, etc.) and forget that while we can tinker with them to show a direct result, we also inevitably alter the immeasurables (reputation, word-of-mouth, etc.) in the process. For my money, I’ll always bet on those things we can’t measure but that are typically the lifeblood of a successful business.