IMAGINE PAYING $70,000 more for fry oil each year.

That's the unenviable position Jon Bloostein, the founder of Heartland Brewery, finds himself in these days.

"The price of fry oil has gone through the roof," says Bloostein, who owns and operates six brewpubs in New York. "I literally spend $150,000 a year in fry oil." Just last year, he says, "I might have spent $80,000 to $100,000."

Bloostein's experience is shared by scores of fellow restaurateurs. According to the National Restaurant Association's reading of the latest information from the Bureau of Labor and Statistics, wholesale food prices surged 8.2% this year through June and 7.6% in 2007. The fat and oil category shot up 56% so far in 2008 while the flour and egg categories have gained 73% and 55%, respectively.

In addition to food companies, small manufacturers and consumer-products suppliers of all types have been hit by rising fuel, minerals and ingredients costs. But while some bigger producers have been able to raise prices to pad their profits, smaller companies are finding it difficult to follow suit and still remain competitive. As such, finding ways to save on the high cost of raw materials has never been more important.

Here are a few strategies for cutting your raw materials costs:

Make materials last. While getting cheaper vats of oil or loads of iron ore isn't really possible, using these products more efficiently certainly is. At a couple of Heartland's brewery locations, for example, frozen French fries are used instead of freshly cut potatoes, Bloostein says. Since frozen products are preblanched and precooked, they contain less water — and importantly, they cook faster. "It allows us to have a little longer life span on the oil," says Bloostein.

Cut out waste. Inspect your processes with an eye on efficiency, suggests Bill Canis, vice president of the Manufacturing Institute, the research and education arm of the National Association of Manufacturers in Washington, D.C. Perhaps your scrap and waste products can be used elsewhere in your operation or even sold. As you're looking to be more efficient, knock out wasteful behavior, too. Set usage targets and offer bonuses or other incentives to managers who achieve them, Canis suggests.

Consider substitutes. While there are few ingredient alternatives for, say, making a pizza or producing copper, Annika Stensson, a spokeswoman for the National Restaurant Association in Washington, D.C., suggests switching out ingredients that are used less often. For example, she says, serving farmed salmon instead of wild salmon — though controversial — may be an option. To combat higher fry-oil costs, a restaurant might want to replace some of its regular fried fare with fresh, grilled or baked options.

Pare down portions. No matter if it's a menu item or a consumer product, "sizes can also be adjusted," says Stensson. However, she warns to be sparing with your cuts. "You can't reduce a portion too much, or people don't think they're getting enough for the money they spend." One way to assess which items to cut is to monitor waste, she says. "If the restaurateur notices that a majority of customers are leaving substantial amounts of French fries on their plates, he [or] she may serve less of those while keeping the other items the same, stretching the fry supply a little further."

Hedge against higher costs. Beyond buying futures on various stock exchanges, a way to hedge against a hike in raw materials prices is to establish long-term contracts with vendors, says Pete Rogers, a counselor in Lake County, Fla., for SCORE, an affiliate of the Small Business Administration. That way, he says, you'll be paying the same price even if costs ascend at a future date. Since vendors are more likely to give longer-term contracts to more valuable customers — that is, those that buy larger quantities — consider partnering up with similar businesses on orders, he says.

Do away with or bolster inefficient technology. Remember that expanded section 179 deduction, which allows business owners to write off as much as $250,000 of business-related purchases in 2008? Now's the time to use it, says Canis from the National Association of Manufacturers. Newer equipment tends to operate more efficiently, leading to less waste of raw materials and energy, he says.

Save on other areas. Shipping is a big cost sucker. Rogers from SCORE, who also runs a manufacturing business, suggests asking vendors to ship via lower cost suppliers. "Most people will ship you merchandise the easiest method that they have available, but that is not necessarily the best way," he says. Instead, check out sites such as ShipGooder.com, FreightQuote.com and RedRoller.com. Then, find out if your vendor might be willing to use another shipper. Also, consider pre-paying for materials, Rogers suggests. Vendors might reward you with a discount, especially if you pay in cash.

Raise prices for luxury items first. Still feeling the pinch? Consider raising prices. To stay competitive, though, try raising prices on more exotic items first. For instance, Bloostein suggests levying the price for steak or premium beverages, which consumers will generally pay more for anyway. "If I try to get $13.50 for a plain burger, I'll find myself in a heap of trouble," he says.

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