Whether it's beef carpaccio or smoked lobster, the food served at Danny Meyer's restaurants is of the high-end variety. And the last thing a chef in a top-tier restaurant wants to do is scrimp on ingredients. So given that food prices are on the rise, Meyer is in a tough spot. He's the founder of New York City-based Union Square Hospitality Group, which runs nine restaurants, including Gramercy Tavern, one of the best restaurants in New York and home to the aforementioned smoked lobster. Usually, Meyer's company posts strong annual revenue growth. But 2008's sales are only slightly ahead of 2007's. So Meyer has been searching for ways to cut spending. Inc. associate editor Hannah Clark Steiman talked with him about how he persuaded his chefs to work together to keep costs down.
Until recently, all of your restaurants were buying their food and supplies on their own. Why didn't you buy in bulk?
I've always wanted each one of our restaurants to feel like a handcrafted expression and not like a cookie-cutter of any of its siblings. One of the best ways to make that happen is to put the power of purchasing squarely in the hands of the chef and the general manager of each restaurant.
Why did you finally decide to make a change?
Clearly, we're in a period of escalating costs. And we knew that we were doing a lot of business with a lot of people in a sporadic, disorganized, uncoordinated kind of way. We were leaving a lot of money on the table. The only choice that leaves us with is to find ways we can deliver more business to our suppliers, in exchange for them lowering their prices. That forced us to reexamine a long history of asking our chefs to do the opposite, which is to go their own way -- really, purchase whatever they want from whomever they want.
How does your new system work?
We've left the power of the purchasing choice in the hands of the chefs or the general managers, but we do the negotiating for them. Once we see that more than one chef is working with the same supplier, we negotiate a deal with that supplier. Then we send that information out to the chefs and say, "Just so you know, three of you are already doing business with this fish company, so those three will get an immediate discount based on the amount of fish they're buying now. If more of you want to join, you can all receive an even better price."
Most people are loath to cut their own budgets. How did you get your chefs and general managers on board?
We began by finding items that we knew every restaurant used -- paper towels, bottled water, cleaning detergent, the kinds of things that really have very little impact on the artistry that distinguishes one restaurant from another. When restaurants started receiving rebates, it encouraged more of the chefs and general managers to say, "You know what? The sweet corn from that farm is really just as good as the sweet corn from the farm I'm already using."
It's appalling to me how ignorant we were before we got into this. Once we showed ourselves and our chefs and general managers all the places we were leaving money on the table, they started asking us to expand the program to food products -- things like butter, cream. I know there are varying qualities of milk, but I'll be darned if I've ever gone into a restaurant and been able to identify whose milk it was working with. Then we went into perishables, fruits and vegetables, and once again we began to deliver savings. Then we said, OK, now we're getting into the stuff that makes you you: where you buy your bread, your pork, your veal. We're not going to tell you whom to do business with, but we're going to tell you what you could do. We still want them to decide who they think has the best product for what they want to cook.
How much money has the company saved as a result of all these changes?
We expect we'll save $200,000 this year as a result of our cost-cutting efforts. Sometimes the savings on individual products are very small. But saving 2 percent here and 3 percent there adds up to a lot, especially in a business with razor-thin margins. And it has preserved our culture, which is one of bottom-up leadership. I knew we were going to succeed with this when the chefs and general managers started asking us to find more opportunities for them to save money.
Do you have any more advice for other business owners worried about the economy?
Challenge your team to "happen" to the recession, and to not allow the recession to happen to them. Use the downturn to do all the things you never have time to do in an expanding economy. Write that extra thank-you note to a regular customer. Give the extra pat on the back to a staff member. Recruit top talent, and prune the non-performers from your team. A down economy allows strong leaders to distinguish themselves through imaginative responses, when so many others are playing the woe-is-me role.