The restaurant business is notoriously tough, with failure rates that would give pause to even the most experienced entrepreneurs. By some accounts, nearly 60 percent of restaurants go under before their first anniversary, and 80 percent close before year five. There are many reasons for this high attrition rate, but one challenge every restaurant faces is high overhead. It takes a lot of money to operate a restaurant, and if the customers stop showing up for dinner, expenses can quickly overwhelm even the best operations. That’s why owners and managers must stay focused on controlling costs without compromising product quality.
After decades spent auditing restaurant vendor contracts, we’ve identified two common areas where businesses often pay too much. By addressing waste and recycling fees, along with uniform and linen fees, restaurant owners and managers can uncover significant savings and improve their chances for long-term success.
Waste and Recycling Fees
The waste and recycling industry looks dramatically different from location to location, which is why it’s so challenging for restaurant owners and managers to know if they’re overpaying. To begin understanding the industry, first learn the difference between the two major types of waste and recycling markets.
In a franchised market, the government has negotiated the waste and recycling rates businesses pay and has contracted collecting services to a private hauler. Under these conditions, the private hauler often has a monopoly over a service area, which means businesses can’t reduce their rates by going to the competition. Unfortunately, this also means that businesses in franchised markets pay higher rates for waste and recycling collection than other parts of the country.
However, restaurants in franchised markets can still find savings due to errors and overcharges, haulers not following the franchise agreements, or options to use alternative and more efficient equipment like compactors, balers, or other types of dumpsters. Only a close review of contracts by a knowledgeable auditor can uncover these savings opportunities.
In open markets, businesses can choose from any number of haulers. That also means haulers can structure their rates however they see fit—often in ways that don’t benefit consumers. Contracts in open markets also frequently permit haulers to tack on additional fees for whatever reasons they want. Without understanding the complexity of waste and recycling contracts or having insight into industry pricing benchmarks, restaurateurs can’t negotiate from positions of strength and either pay fees without questioning them or switch between haulers when costs become unbearable.
While there are valid reasons why a hauler might increase their prices, including labor, fuel, and landfill cost increases, many fees are invalid and result in restaurants being overcharged. Here are a few examples of invalid fees:
Overflow Fees: Haulers add this fee if your lid is propped open too high, even if you only have something small hanging out. Haulers often charge exorbitant amounts for these fees and apply them subjectively.
Container Maintenance Fees: This is a monthly fee haulers charge to keep your trash container looking good. But since the hauler owns the container, this is a pointless fee for the customer to pay.
Overhauling: Some companies will haul waste and recycling to landfills much further away than they have to, incurring more hauling costs for customers. Sometimes haulers do this because they can get a better margin at certain facilities. Other times they do it to pad their bills. Knowing the options for local landfills is critical for controlling waste costs.
An experienced auditor can dig into a restaurant’s waste and recycling bills to uncover opportunities for savings along with invalid fees. With that evidence in hand, the auditor can renegotiate hauling contracts, often recovering refunds for overcharges. These services bring restaurants significant savings.
Uniform and Linen Fees
Another common area where restaurants are overcharged is for their uniforms and linens. Four major players form a de facto monopoly in this industry, giving them the freedom to engage in aggressive pricing tactics and constantly change their billing variables for their benefit. As a result, it’s common for restaurants to see their uniform and linen prices change throughout their contract.
In most instances, restaurants rent their uniforms and linens from these companies, which means they pay billing variables on an ongoing basis. Billing variables include fees for lost items, ruined items, size premium charges, new products like toilet paper and soap, and additional products added after the program begins.
These variables are almost impossible to decipher unless you have experience working with these companies. What’s more, providers pay route drivers based on a percentage of their invoices, so there’s little incentive to correct billing errors.
In most cases, linen and uniform providers are breaching their own contracts and overcharging without valid explanations. It’s common to see prices increasing at two or three times the inflation rate and customers getting five to ten percent annual price increases. It takes auditors with a deep understanding of the uniform and linen industry to detect and dispute these charges. In some cases, customers can even secure rebates or refunds for past overcharges, although this often depends on the contract language.
Don’t Pay More than You Should
Whether it’s a 100-location chain or a small mom-and-pop shop, running a restaurant is incredibly complicated. Between planning a menu, managing staff, and taking care of customers, items like waste management and linen and uniform services might seem like small potatoes. Unfortunately, many vendors take advantage of the fact that restaurant owners and managers are busy and pad their bills with unnecessary fees.
Fortunately, a thorough audit can help restaurants uncover these unnecessary fees and use that information to negotiate more favorable contracts, and, in some cases, recover overcharges. In an industry so fraught with difficulty, taking the time to manage even the smallest details could be the difference between failure and success.
Aaron Stahl is the CEO of P3 Cost Analysts, an expense auditing firm that has been helping companies across the nation determine if their spending on utility, telecom, waste and recycling, merchant processing, uniform/linen, managed print, and property tax expenses are cost effective since 1991. Over 90 percent of P3 Cost Analysts’ clients have realized savings and/or refunds from the firm’s expert auditing.