Combing through invoices can be a time consuming, and ultimately, unrealistic task for many restaurant owners. And with the multiple vendor options, varying contract procedures, and other distribution challenges, it’s not surprising that mistakes are frequently made. In an analysis of more than 11,000 individual invoices from 400 restaurants in 2015, Consolidated Concepts, a supply chain partner for more than 20,000 restaurants in the U.S., found at least one overcharge 35 percent of the time.
“Our passion is service and food, not going through invoices,” says Ettore Ceraso, director of operations for Davio’s Northern Italian Steakhouse in Philadelphia. "We want our talented people focused on the food and the guests. They don’t have the time to go through every invoice to make certain we are being charged the correct amount. Fortunately for us, there are partners that do have the time and the technology. Their auditing gives us the confidence that we are spending wisely, and we can have the oversight of a much larger corporate entity.”
Bruce Reinstein, the president of Consolidated Concepts, says the problem is typically not a malicious one. There are a variety of factors that could cause restaurants to discover overcharges on their invoices, and it’s important to understand why they show up and how to fix them. Also, naturally, how to prevent them from ever occuring in the first place.
“I want to be clear that we do not believe these frequent overcharges are the result of tricks or bad intentions on the part of distributors,” Reinstein says. “The restaurant food purchasing process is an incredibly complex one and simple mistakes can and often do happen if they are not constantly being monitored."
The analysis highlighted a few different culprits.
Contracts loaded late: Sometimes restaurants submit contracts after earlier than normal deadlines for cost-plus pricing on products.
Contracts were only partially loaded: Many of the processes in restaurant food purchasing are manual. Lots of numbers and codes are entered by hand, which can cause errors.
Different contract forms: Many times different vendors require different contract forms, each with their own requirements and peculiarities.
Contract did not reach the vendor: Sometimes restaurants simply forget to send contracts in. Other times there is a miscommunication between the restaurant and the manufacturer about who is supposed to send a contract in.
“It can be incredibly hard for restaurants to catch overcharges on their invoices,” Reinstein adds. “First, restaurant brands may not have the time to go over every invoice with a fine-toothed comb. When deliveries come multiple times a week, often with dozens of different products, chefs would spend more time crunching numbers than they would in the kitchen. Second, a lot of pricing is cost plus, which means it is based on fluctuating costs to the distributors. The only way to know if the price on a box of steaks is accurate is to know exactly what the costs to the distributor were at that exact point in time. That is not information that is easily available to restaurant owners.”
And how big of a problem is it exactly? In the restaurant industry, overcharges tend to play a bigger role than in other sectors, given the narrow profit margins. The analysis found that typical overcharges amount to about 1 percent of the total dollar amount of each invoice. While that may not seem critical, it can mount over time if the error isn’t caught and corrected.
“One percent may not seem like a lot,” Reinstein says. “But for restaurants facing pressure from the increased cost of labor, facilities, equipment, and volatile food pricing, 1 percent every week of every month of every year adds up to a significant amount. For our clients, that becomes found money."