Chapter 14: Food Cost Controls
If you manage a food service operation, you have to buy food products; that is the reality. The largest expenditure for most food service operations is the cost of food. In this chapter we will show you many ways to reduce your food costs. Even a 3 percent reduction in food costs for a restaurant grossing $1,000,000 with food costs of $400,000 means an approximate savings of $12,000, which will go straight to your bottom line.
CONTROLLING FOOD COSTS: STRATEGIES AND TIPS
In order to control food costs effectively, there are four essential things that you need to do:
1. Forecast how much and what you are going to sell.
2. Purchase, receive, and prepare according to these forecasts.
3. Portion effectively.
4. Control money, waste, and theft.
Thankfully, improvements in technology and management techniques allow smart restaurant operators to keep food costs within the boundaries needed to generate a profit, while still providing their customers with the level of service that they need to generate repeat business. A restaurant manager must be prepared to develop and monitor cost-control programs, particularly food cost, to maintain profitability.
Unless you make changes, this book is of no use to you. You must begin to change your thinking and your methods. Take them one at a time, and make them a part of your business. Many of these tips will not only cut your food costs, but will also enhance your finished products. Better food brings more business, which brings more money. A reduction in your food costs means that you can keep more of that money. Armed with the information in this book, you will find actual tips that produce profitable results, without consuming all your time in unnecessary research or experiencing painful trial, risk, and error.
GETTING ORGANIZED
Organization is the easiest and cheapest manner of generating productivity and reducing food costs. The mere act of putting instructions on paper or giving your staff a checklist, instead of having to hold their hand through a process, can save your company thousands.
Organizational and Structure Component Charts
Use organizational charts to know and understand who does what in your restaurant on a daily, weekly, and monthly basis. How can this structure improve? Are jobs allocated in the most productive manner possible? Written job descriptions are good tools to use for this. You can find examples of job descriptions and a questionnaire for writing job descriptions at www.hrnext.com. Atlantic Publishing offers a complete set of restaurant job descriptions available on CD-ROM at www.atlantic-pub.com. Also from Atlantic Publishing is The Encyclopedia of Restaurant Training: A Complete Ready-to-Use Training Program for All Positions in the Food Service Industry With Companion CD-ROM (Item # ERT-02). This manual has job descriptions and other organizational tools that will help you train your employees and increase efficiency.
Use checklists for yourself. Create a checklist of tasks you perform every day and organize your time. Of course, variations from this checklist will always occur, but you will cover the basics a lot faster with a guide in hand, saving you and your staff time and confusion.
FOOD SALES AND COSTS SURVEY
Before you can determine the best ways to reduce food costs, look at sales and cost figures. Take a look at the following food sales and costs statistics. How does your operation compare?
What Does Food Cost Percentage Really Mean?
Johnny’s steakhouse has a food cost of 38 percent; Sally’s steakhouse has a food cost of 44 percent. Which is a more efficient operator? Which is more profitable? Your restaurant has a food cost in January of 38 percent; in February it is 32 percent. Did you operate more efficiently the second month? The answer to these questions is: You just do not know. There is not enough information to determine this from the figures; you need to know what the food-cost percentage should have been as well.
• Importance of food cost percentages. Do not become overly concerned over food-cost percentages; they are truly meaningless unless you know what your food-cost percentage should be for the given time in question. Remember, you get paid in and deposit dollars into the bank, not percentages.
• Weighted food cost percentage. Once your food cost is calculated, you must determine your weighted food-cost percentage. A weighted food-cost percentage will tell you what your food cost should have been over a given period of time if all procedures and controls in place operated at 100 percent efficiency. I will show you how to determine a weighted food cost in a later section.
Reconciliation
The key to controlling food cost is reconciliation. Every step or action in the cost-control process is checked and reconciled with another person. Once these systems are set up, management’s responsibility is to monitor them with daily involvement. Should all the steps and procedures be adhered to, you will know exactly where every dollar and ounce of food went; there are no loopholes.
• Teach them. Management must be involved in the training and supervision of all employees. For any cost-control system to work, employees must be trained and know what actions are expected of them. It is management’s responsibility to supervise employees and see that they receive this training.
• Communicate. Daily involvement and communication is needed in order to succeed. Employees must follow all procedures precisely. If they do not, they must be informed of their specific deviations from these procedures and correct them. It is a daily task that involves a hands-on management style.
• Enforce. Any control initiated is only as good as the manager who follows up and enforces it. The total amount of time a manager needs to complete all of the work that will be described in this section is less than one hour a day. There is no excuse for not completing each procedure every day. A deviation in your controls or involvement can only lead to a loss over the control of the restaurant’s costs.
ESSENTIALS OF CONTROLLING FOOD COSTS
To control food costs effectively, there are four essentials that you need to do. First, forecast what and how much you are going to sell. Second, purchase and prepare according to these forecasts. Third, portion effectively. Finally, control waste and theft. Consider the following:
Standards. You must have standards to which you rigorously adhere. Here are several standards that will help you sustain quality, consistency and low cost.
• Do not allow chefs to determine pricing. The plates your chefs create are their pride and joy. But do not let them set prices. You have specific profit goals in mind; allowing a chef to set prices may mean your targets are not reached. Discuss menu pricing parameters and costs with your chefs so that they are dreaming of hamburgers instead of filet mignon, but keep the menu pricing a management function.
• Standardized recipes. Since the recipe is the basis for determining the cost of a menu item, standard recipes will ensure consistent quality and cost. Standardized recipes include ingredients, preparation methods, yield, equipment used, and plate presentation.
• Standardized purchase specifications. These are detailed descriptions of the ingredients used in your standardized recipes. Quality and price of all ingredients are known and agreed upon before purchases are made, making the recipe’s cost consistent from unit to unit and week to week.
YIELD COSTS
Once you have standardized recipes in place, you can determine the per-plate cost of every dish. You need to know the basic ingredients’ cost and the edible yield of those ingredients for each dish. There are a number of necessary terms for this process:
• As-purchased (AP) Weight. The weight of the product as delivered, including bones, trim, etc.
• Edible-portion (EP) Weight. The amount of weight or volume that is available to be portioned after carving or cooking.
• Waste. The amount of usable product that is lost due to processing, cooking, or portioning, as well as usable by-products that have no salable value.
• Usable Trim. Processing by-products that can be sold as other menu items. These recover a portion or all of their cost.
• Yield. The net weight or volume of food after processing but before portioning.
• Standard Yield. The yield generated by standardized recipes and portioning procedures—how much usable product remains after processing and cooking.
• Standard Portion. The size of the portion according to the standardized recipe. It is also the basis for determining the cost of the plated portion. With convenience foods, items where at least a portion of the preparation labor is done before delivery (pre-cut chicken, ready made dough), you simply count, weigh, or measure the portion size and determine how many portions there are. Then divide the number of servable portions into the AP price. Even with their pre-preparation, a small allowance for normal waste must be factored in, often as little as 2 percent per yield.
These factors allow you to calculate plate costs. The cost of convenience foods are higher than if you made them from scratch, but once you factor in labor, necessary equipment, inventories of ingredients, more complicated purchasing and storage, you may find that these foods offer considerable savings.
Costing items from scratch is a little more complex. Most menu items require processing that causes shrinkage of some kind. As a result, if the weight or volume of the cooked product is less than the AP weight, the EP cost will be higher than the AP price. It is a simple addition of the labor involved and the amount of salable product being reduced. Through this process, your buyer uses yields to determine quantities to purchase and your chef discovers optimum quantities to order that result in the highest yield and the least waste.
MENU SALES MIX
You begin to design a restaurant with the menu. If you have a specific menu idea, your restaurant’s location must be carefully planned to ensure customer traffic will support your concept. Likewise, if you already have the location, design your menu around the customers you want to attract.
Consider the following basic requirements:
• Functionality. Once your concept is decided, your equipment and kitchen space requirements should be designed around the recipes on your menu. Once a kitchen has been built, there is, of course, some flexibility to menu changes, but new pieces of equipment may be impossible to add without high costs or renovations. To design correctly, you need to visualize delivery, processing, preparation, presentation, and washing. To do this, you must be intimately familiar with each menu item.
• Fit for purpose. When shopping for equipment, choose based on the best equipment for your needs, not price. Only when you have decided between a small non-vented fryer or an industrial one, two ovens or five, and which specific brand will meet your needs, should you begin to find the best price.
THE MENU
Your menu should not just be a list of the dishes you sell; it should positively affect the revenue and operational efficiency of your restaurant. Start by selecting dishes that reflect your customers’ preferences and emphasize what your staff does well. Attempting to cater to everyone has you doing nothing particularly well and does not distinguish your restaurant. Your menu should be a major communicator of the concept and personality of your restaurant, as well as an important cost control.
An effective menu does five key things:
1. Emphasizes what customers want and what you do best.
2. Is an effective communication, merchandising, and cost-control tool.
3. Obtains the necessary check average for sales and profits.
4. Uses staff and equipment efficiently.
5. Makes forecasting sales more consistent and accurate for purchasing, preparation, and scheduling.
Bear in mind the following:
• Menu item placement. Where you place an item on your menu is important in determining whether or not the customer will order the item. Customers are most likely to remember the first and last things they read. By placing the items you want to sell (the items that yield the highest profits) first or last, you increase the chance of selling them.
• Design. A well-designed menu creates an accurate image of the restaurant in a customer’s head, even before the customer has been inside. It also directs the attention to certain selections and increases the chances of them being ordered. Your menu also determines, depending upon its complexity and sophistication, how detailed your cost-control system needs to be.
• Plan to have a menu that works for you. The design of your menu will directly affect whether it achieves these goals. Certain practices can influence the choices your guests make. Instead of randomly placing items on the menu, single out and emphasize the items you want to sell. These will generally be dishes with low food cost and high profits that are easy to prepare. Once you have chosen these dishes, use design — print style, paper color, and graphic design — to direct the readers’ attention to these items. A customer’s eye will fall to the middle of the page first. It is an important factor; however, design elements used to draw a reader’s eye to another part of the menu can be just as effective.
• Print the menu in-house. With today’s desktop publishing technology, you can easily produce your own menus. All you need is a software program like Menu Pro, available at www.atlantic-pub.com. Choose from a selection of menu papers at www.ideaart.com or www.armesco.com.
• Tell your story on the back of the menu. People always want to know more. Use this chance to increase their perception of your restaurant quality. Tell them how your staff prepares fresh salad ingredients on a daily basis, never using pre-made items or canned goods. Let them know that you grind fresh gourmet coffee beans each morning before coffee is brewed. Tell your story and your guests will be impressed.
• Provide clean, presentable menus. Ensure that your menus are always clean and appear to be as good as new; otherwise throw them out. Greasy, sticky, soiled menus with bad creases, dog-ears, and stains are not very appealing to people who are preparing to dine. If a server hands a sticky, dirty menu to a customer, what kind of impression do you think that customer will have of your restaurant?
MENU “DO NOTS”
• Do not charge extra for the small items. Some restaurants will charge an additional $0.30 for a slice of cheese on their hamburger or $0.40 for blue cheese dressing. While it may cost you a bit extra for these items, you should cover the cost by averaging it in to the overall cost of the meal. When you break down charges, people get the impression that you are being petty.
• Do not tell your guests that you have run out of a particular item. You have sold out, not run out. Run out makes it sound as if the restaurant is poorly managed and unprepared. Selling out is a good thing, not a bad thing. It means business is good and food is fresh.
SETTING MENU PRICES
To follow are some important considerations when setting your menu prices.
For every dollar that you earn, you should aim for ten to 12 cents as a profit. Once you figure out your food cost, multiplying it by 3.3 will give you about a 10 percent profit per item, factoring in food cost, labor cost, and overhead. Do realize that some items will have to have a slightly higher cost structure and others will have a lower cost structure, giving you, overall, a 10 percent profit.
Keep in mind that factors other than direct costs will influence your menu prices. Indirect factors, such as how a customer perceives quality, your location, the restaurant’s atmosphere, and the competition will also play a role in your menu-pricing decisions.
You can buy software that will facilitate the costing procedures. Atlantic Publishing offers once such program called NutraCoster. NutraCoster will calculate product cost (including labor, packaging, and overhead) and nutritional content. The program can be ordered online at www.foodsoftware.com.
Try to price your menu so that the food cost and labor cost of each meal is about 70 percent of the sales price. In other words, try to price your menu items so that direct expenses run about two-thirds of the sale price. If you can bring other expenses down and do a good job of up-selling to your customers, you should be able to make a good profit while providing your customers with great meals at a great price — a win-win situation. Up-selling can be accomplished in a number of ways. Coach your wait staff on suggestive selling. By having servers ask if a customer wants appetizers or desserts, the customer is more likely to order these extra items.
Change your menu to accommodate large price shifts. When the price of beef soars, consider raising your main menu prices to accommodate. Change your menu items to use pork, chicken, or another meat with an acceptable price level.
Menu Costs
Use your menu as a means for reducing your operating costs. A menu sales analysis is a good tool to use to track what you are selling. Keeping track of this information will enable you to identify areas where you can reduce costs, such as labor, waste, rising food cost, or over-portioning. A menu sales analysis will tell you three things:
1. How much of a particular item was sold.
2. The cost of the item.
3. The profitability of the item.
Many restaurants have computerized cash registers, so getting a report on what items sold nightly, weekly, or monthly is easy. If your restaurant does not have a computerized register, you can track a period of time and get this information by pulling it off guest checks.
Pull all this information into a simple table so you can compare it easily. See the example below:
|
Item |
Popularity* |
Cost |
Menu Price |
Profit Margin |
|
Pork tenderloin |
42/100 |
$0.62 |
$12.50 |
$4.88 |
|
Spaghetti & meatballs |
12/100 |
$1.79 |
$8.25 |
$4.46 |
|
Shrimp scampi |
46/100 |
$3.40 |
$15.95 |
$7.55 |
*42/100 means 42 tenderloins were sold out of a total of 100 entrées served in that time period.
What do you do with this information once you have it? What does this information tell you about how you can reduce costs? Looking at your table, you see that your pork tenderloin is almost as popular as your shrimp dinner, but it costs a good deal less to make. You can summarize that by focusing on such lower-cost items. You can also increase your profit margin by decreasing your food cost. Keep in mind that by only focusing on low-cost items, you will lower your guest check average and this will lower profits. To reduce costs and remain profitable, you should emphasize a mix of high- and low-cost food items on your menu.
There are many software packages available to help you with menu costing. CostGuard’s website, www.costguard.com, offers a product called Menu/Sales Engineering that tracks your sales mix information and provides analysis of your most and least popular and profitable items. The product currently sells for $495. Calcmenu is another software product you can use for menu costing, inventory management, menu planning, and nutrition analysis. You can find Calcmenu at www.calcmenu.com. There are various versions that are priced between $580 and $950. The site also offers a free trial version.
Calculating Food and Drink Costs
The following guidelines will help you calculate food costs for your restaurant:
• Inventory. Start by calculating the value of your beginning inventory. Then add your purchase costs over the course of the month. At the end of the month, subtract the value of your remaining inventory from that figure to produce your monthly food expenses. Divide this figure by food revenue for the month and you will know exactly the food-cost percentage of sales. Cost of sales is the cost of the food or beverage products sold.
• Drinks. Beverage cost of sales and operating supplies would be calculated in a similar manner. Wine and beer should also be separated into another cost of sales category.
Standardized Recipes
Using standardized recipes helps control costs and ensures quality and consistency of menu items. By providing your cooks and bartenders with this necessary information, you can retain control over portioning. Keep these in the kitchen and bar so your kitchen and bar staff will use them. You can store them on index cards and in an index cardholder or use a three-ring binder with recipe sheets inserted into transparent envelopes that can be easily wiped clean. Information to include on your kitchen recipe form follows:
• Name of item and recipe number.
• Yield. The total quantity the recipe will prepare.
• Portion size. May be listed by weight or number of pieces. You may want to include what size of utensil to use for serving. For example, use the 6-oz. ladle for a cup of soup.
• Ingredients. Make sure to list quantities of ingredients used.
• Preparation instructions.
• Garnish. You may want to draw a diagram or include a photograph to show your staff how the item should look when it leaves the kitchen.
• Finishing. Describe any finish the product needs, such as brushing with oil or melted chocolate drizzled on top. Also include how to cool it and at what temperature the product should be held. Can it sit at room temperature or does it need to be refrigerated?
• Cost. Include every ingredient and every garnish for accuracy. You will need to look at product invoices to get unit prices, and then determine the ingredient cost from this. Total the cost of each ingredient for your total recipe cost. This figure can then be divided by the number of portions in order to arrive at a portion cost. You will find a sample standardized recipe below.
|
Blue Ridge Jambalaya |
Recipe No. 126 |
||
|
Portion Size: 1.5 cups |
Yields: 40 portions |
COST PER PORTION: $0.90 |
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|
INGREDIENTS |
WEIGHT/MEASURE |
COST |
|
|
Chicken, boneless breast cut in 1-inch pieces |
4 lbs |
$8.00 |
|
|
Andouille sausage, sliced |
2 lbs |
$5.58 |
|
|
Celery, chopped |
16 cups |
$3.16 |
|
|
Red peppers, chopped |
8 each |
$6.00 |
|
|
Onions, chopped |
4 each |
$0.40 |
|
|
Garlic cloves, minced |
8 each |
$0.17 |
|
|
Short-grain brown rice, dry |
6 cups |
$4.74 |
|
|
Beer |
32 oz |
$3.50 |
|
|
Chicken stock |
60 oz |
$1.72 |
|
|
Canned diced tomato |
60 oz |
$2.12 |
|
|
Tabasco sauce |
4 tsp |
$0.03 |
|
|
Parsley (garnish) |
$0.04 |
||
|
Corn bread (side) |
$0.58 |
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|
TOTAL COST |
$36.04 |
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Directions: Trim chicken, and cut into 1-inch pieces. Heat vegetable oil in a large sauté pan. Add chicken and cook through. Add sausage and heat through. In a large stockpot, sauté onion, garlic, celery and red pepper in oil. Add rice, and coat rice with oil. Turn heat down to low, add beer and broth a little at a time, allowing the rice to absorb the liquid before adding more. When rice has simmered about 15–20 minutes, add tomato, chicken and sausage. Continue cooking until done and rice is tender (about 1 hour). Add Tabasco, salt and pepper. Portion out the jambalaya into smaller containers to cool. Can refrigerate or use immediately for service. |
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Serve: Serve in a dinner bowl with a piece of corn bread on the side. Top with parsley. |
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ECONOMIZE WITHOUT REDUCING QUALITY
Try the following food/ingredient cost-reducing tips. They could make a big difference to your overall expenditures.
• Extend the life of oil or fat for the deep fryer. By following these six simple steps, you can almost eliminate the need to discard old fry oil or fat.
1. Thoroughly clean fryer baskets and the fryer elements with a mild detergent rinse at least once a week.
2. Filter with the Fry-Saver, from www.espressoplusmore.com, one to three times per day or after each shift.
3. After one week, remove 50 percent of the filtered oil or fat and store in a clean container to be used for daily “top off” oil.
4. Refill fryer with 50 percent new oil and continue using.
5. Add used, aged, filtered oil, or fat for upkeep to refill fryer back to fill line.
6. Repeat steps on a regular schedule.
• Use air pots for coffee. They are sealed and insulated like a thermos and can hold temperature and coffee quality up to eight hours.
• Bread baskets. The potential for waste in bread baskets is large. Most of these come back from the table partially eaten at best. You may want to consider providing bread baskets only if requested or you may want to cut down on the amount served. You could also consider including packaged items since these can be reused. Some operators are now serving bread only by request and one roll or breadstick per guest served from a bread basket with tongs at a time.
• Cut kitchen waste. One of the major culprits in high food costs is waste. Put a new garbage can in the kitchen. This can is for wasted product only, such as wrong orders, dropped food, etc. By giving your kitchen staff this visual aid, you can reinforce the amount of money that gets spent on such product waste.
• Substitute pre-made items for some items you have been making from scratch. You do not have to sacrifice quality; many pre-made items are particularly high standard. You can also start with a pre-made item and add ingredients. You can buy a pre-made salad dressing and add blue cheese or fresh herbs. Using these items will lower your food and labor cost and you can still put out a quality item.
• Use industry information. Check out www.restaurantnews.com/foodcost.html for other restaurateurs’ tips on how to lower food costs.
Portion Control
Ensure all employees adhere to portion standards. If the portions your staff are serving are just 10 percent more than you are budgeting for, you are losing a lot of money every month. Portion control holds true from the size of a slice of meat to the amount of salad and dressing served with each meal. Bear in mind the following:
• Weights and measures. Ensure your kitchen staff weighs all portions and ingredients before cooking them so as to meet recipe specifications on every meal. Often when you purchase from suppliers, you are paying by the pound, so if your portions are too large, you are losing money on every meal. Trim where necessary and maintain consistency wherever possible.
• Established recipes. Restaurant recipes have two purposes: to ensure consistency and control costs. Following these practices will keep food costs from getting out of control. Also, having a consistent quality for all your meals will enhance the way your establishment is perceived by customers.
• No “free handing it.” Be sure your staff is using scales, measuring cups, measuring spoons, and appropriate ladles. Often cooks will “free hand it” after a while. Free handing usually results in over-portioning.
• Does your staff use trim items from meal preparations in other meals? Meat trimmings can be used for soups to great effect, celery leafs can be used as garnishes, and pastry off-cuts can be re-rolled and used.
• Fixed menu. Maintain a fixed menu for your business, one that allows you to keep a smaller inventory and a fairly simple price list for employees to remember. When you do offer daily specials, fashion them around whatever ingredients you managed to buy for a great price that week or items in your inventory that you would like to move. If you do use a seasonal menu, try to use local growers for lower produce prices and design seasonal menus that allow you to use ingredients in several dishes so you can order in bulk.
• Side dishes. Soups, breads, and salads have a far lower fixed per-plate cost than your entrée meals, so make your soups and salads available with a variety of meals and ensure they are of high quality. Your customers will notice how good these meals are and you can keep your entrée portions to a manageable size without leaving customers hungry.
• Portion out all condiments, sauces, and breads according to the number of guests at a table. If servers put more bread on the table than is needed, your patrons will inevitably eat more and order less. Similarly, if the bread is thrown away and not used, it is simply wasted money.
• Plate size. Be certain your kitchen staff uses the correct-sized dish for each menu item. If they are serving a salad on a dinner plate, they will probably serve too much since the prescribed portion will look small on a large dinner plate.
• Train your staff. Train all new employees and spend time retraining existing staff at regular intervals.
MANAGE COST — INCREASE SALES
Managing business costs such as inventory, supplies, labor, and other services takes focus and consistency, but there are also a few easy tips that can help you keep such costs to a minimum. Utilize existing resources, such as:
• Expand sales without additional investment. Provide a display case selling specialty items that can last for a few days or even weeks. Have your chef prepare these items during the slow hours. Many guests will love the idea of purchasing items “to go” that they cannot purchase in a store or anywhere else. Utilize existing resources and create additional sales on the side. Gourmet Display offers a wide array of food and beverage display equipment. Visit www.gourmetdisplay.com to see the wide selection. To capitalize on growing off-premise sales opportunities, package your desserts or carry-outs attractively. This three-tiered tray from Gourmet Display is an excellent way to display desserts or other items. Visit the website or call 800-767-4711 to order.
Sabert has many cost-effective disposable solutions. Sabert’s elegant product styling makes food look great. Platters, bowls, and utensils are available in an extensive selection of styles and sizes. All products are food service tested for superior performance and designed with food service operators’ needs in mind. Sabert’s FastPac three-compartment tray is an excellent to-go solution. Available from www.sabert.com or call 800-SABERT1 or 800-722-3781 for more information.
• Virgin drinks. Offer a wide selection of virgin specialty drinks for children, nondrinkers, and designated drivers. Doing so saves you the expense of providing free refills on coffee, tea, and sodas.
• Sell water. Offer customers a choice of bottled water such as spring water, still water, sparkling water, or even flavored water, before you simply pour them a glass of ice water from a pitcher. You will be amazed at how much this simple act will increase your sales figures.
• Reduce waste. Remove all garbage cans from the kitchen and instead place plastic tubs throughout the prep area. At the end of each shift, the tubs’ contents can be checked to ensure the proper procedures are being followed for preparation and trimming raw products. Make workers accountable for the quality of their work.
OTHER COST-SAVING TIPS
You may well have trimmed your inventory and staffing costs, but in a restaurant environment, many other possibilities exist for cost control.
• Lease icemakers. Icemakers are costly to purchase and repair. Rent or lease icemakers on an as-needed basis instead. If you already have an icemaker, be sure to install appropriate filters in the unit to enable it to last longer. Contact the following companies for leasing restaurant equipment and supplies:
o Arctic Refrigeration and Equipment, www.arcticfoodequip.com, 866-528-8528.
o Easy Lease Company, www.easyleasecompany.com, 800-514-4047.
o Global Restaurant Equipment and Supplies, www.globalrestaurantequip.com, 800-666-8099.
• Install electric hand dryers. Not only do they save on costs, they are also better for sanitation purposes. Contact:
o ASI Electric Dryer, www.cescompany.com, 707-664-9964.
o Stielbel Eltron, www.stiebel-eltron-usa.com, 800-582-8423.
o World Dryer, www.worlddryer.com, 800-323-0701.
• Return pallets and crates to vendors. Pallets and crates take up valuable space, as they are bulky items requiring labor to manage them. By making vendors responsible for taking pallets away and reusing them, the burden on your staff is reduced as well as the costs of waste management.
• Save on table-top items. To eliminate the use of individual wrapping, use straw and toothpick dispensers. Also consider using drink coasters that can be reused instead of cocktail napkins. Decorations do not have to be expensive. Consider browsing through online party and decoration sites such as 23 Party, www.123party.com, D and D Design, www.ddchili.com and Grab A Bargain, www.grababargain.com.
• Offer discounts for mugs. Offer discounts to customers who bring in reusable mugs for refills. Several restaurants have similar programs that encourage customers to reduce unnecessary waste. The incentive to bring in their own mug works when they receive beverages at reduced prices. Contact:
o Advertising Magic, www.advertisingmagic.com, 800-862-4421.
o Ceramic Mugs, www.ceramic-mugs.com, 305-593-0911.
o DADEC Photo Mugs and Gifts, www.dadec.com, 866-853-3257.
o Gift Mugs, www.giftmugs.com, 321-253-0012.
o My Promo Store, www.mypromostore.com, 877-838-3700.
• Use cleaning rags instead of paper towels. Encourage staff to use cleaning rags instead of high-quality napkins and paper towels to mop up a spill. The purchase of disposable towels and napkins can be more expensive than laundry service.
• Install thermal strips over cooler and freezer doors. Keep cold air in and warm air out. Strips increase efficiency and reduce unnecessary electricity usage so that the compressor does not have to work as hard. Here are a few companies that provide seal-tight doors and replacement parts:
o Arrow Restaurant Equipment, www.arrowreste.com, 909-621-7428.
o Commercial Appliance, www.commappl.com, 800-481-7373.
o Loadmaster, www.loadmaster.com, 514-636-1243.
• Separate hot and cold appliances. Separate the locations of hot and cold appliances. It will increase efficiency and temperature regulation. Draw out an organizational diagram of your kitchen. The one-time effort will be worth it.
FOOD-COST PROBLEM AREAS
BEGINNING INVENTORY
The beginning inventory is the total dollar value of food supplies on hand at the beginning of the accounting period. This figure represents the starting point from which you can then compute total food cost each month.
Computing the beginning inventory is a simple calculation. If you are purchasing all new food products, simply total all your food purchases prior to opening day. This figure will be the beginning inventory.
Opening an old restaurant at a new location. If you are opening an existing restaurant and will be using some of the old supplies, first take an inventory of the old supplies. Add the dollar value of these supplies with all your new food purchases prior to opening day.
ENDING INVENTORY
An ending inventory is taken for a complete and accurate count of the food stock on hand at the end of an accounting period so that the remaining amount may be used in projecting the total cost for each category. When conducting the ending or physical inventory:
• Use scales for the most accurate determination.
• Stocking order. Place inventory sheets in the same order that the room is stocked.
• Separate sheets. Use a separate sheet for each area.
• Include the following on the form: your inventory unit, units per case, pack or size, par, and vendor code.
• Use two people: one to count (a manager) and one to record the figures (preferably an employee from a different area). For example, have the bar manager assist in the food inventory. One will count while the other writes. The person counting states each item, its unit, and its total amount. The other person enters the figure on the inventory sheet on the correct line.
• Partial items. If there is a partial item, such as half a case of tomatoes, estimate how much is remaining on a scale from 0.1 to 0.9 (0.5 being half of a container). Make sure there is a figure on either side of the decimal point (e.g., 0.5, 1.3).
• Counting order. Count shelves all the way across. Do not jump around.
• Fill in all columns. Put a zero (0) in columns where there is no item to be counted.
• Use pound and unit costs. Convert all items that are in prepared form into pound and unit costs. For example: 15 fish dinners at 12.5 oz = 11.72 lbs.
• Multiples. For items with multiple weights, such as different-sized cans of crushed tomatoes, use a separate pad for your addition and enter your total on the inventory form.
• Double-check. Make sure there is an entry for each item.
• Be thorough. Complete each area before moving on to a new one and check for blanks and possible mistakes.
• Estimating. When estimates must be made, they should be made with sound reasoning, not guessing.
FOOD COST PERCENTAGE
This basic ratio is often misinterpreted because it is calculated in so many different ways. Basically, it is food cost divided by food sales. Whether your food cost is determined by food sold or consumed is a crucial difference. For your food cost percentage to be accurate, a month-end inventory must be taken. Without this figure, your food cost statement is inaccurate and, therefore, basically useless because your inventory will vary month to month, even in the most stable environment.
Distinguishing between food sold and consumed is important. Food consumed includes all food used, sold, wasted, stolen, or given away to customers and employees. Food sold is determined by subtracting all food bought (at full price) from the total food consumed.
COST-CALCULATIONS — THE BASICS
Maximum allowable food cost percentage (MFC)
Maximum allowable food cost percentage (MFC) is the most food can cost for you to meet your profit goal. If your food cost percentage is over your maximum allowable percentage at the end of the month, you will not meet your profit expectations. To calculate it:
1. Write your dollar amounts of labor costs and overhead expenses (subtract food costs). Refer to past accounting periods and yearly averages to get realistic cost estimates.
2. Add your monthly profit goal as either a dollar amount or a percentage of sales.
3. Convert dollar values of expenses to percentages by dividing by food sales for the periods used for expenses. Generally, do not use your highest or lowest sales figures for calculating your operating expenses. Subtract the total of the percentages from 100 percent. The remainder is your maximum allowable food cost percentage (MFC).
100 – (monthly expenses – food costs) + monthly profit goal = MFC %
Actual food cost percentage (AFC)
Actual food cost percentage (AFC) is the percentage at which you are actually operating. It is calculated by dividing food cost by food sales (only food sales, not total sales). If you are deducting employee meals from your income statement, then you are calculating cost of food sold. If there is no deduction of employee meals, which is true for most operations, then the food cost you are reading is food consumed; it is always a higher cost than food sold. If inventory is not being taken, the food cost on your income statement is just an estimate based on purchases and is not accurate.
Potential food cost percentage (PFC)
This cost is sometimes called the theoretical food cost. PFC is the lowest your food cost can be because it assumes that all food consumed is sold and that there is no waste at all. Calculate this cost by multiplying the number sold of each menu item by the ideal recipe cost.
Standard food cost (SFC)
This is how you adjust for the unrealistically low PFC. The percentage includes unavoidable waste, employee meals, etc. This food-cost percentage is compared to the AFC and is the standard that management must meet.
The prime cost
The prime cost includes the cost of direct labor with food cost. This cost includes labor incurred because the item is made from scratch (labor from baking pies and bread, trimming steaks, etc.). When the food cost is determined for these items, the cost of the labor needed to prepare them is added. This costing method is applied to every menu item needing extensive direct labor before it is served to the customer. Indirect labor cannot be attributed to any particular menu item and is overhead.
Beverage exclusions
Beverage sales should not include coffee, tea, milk, or juice, which are usually considered food. If you include soft drinks in your food costs, be aware that it will reduce the food cost, since the ratio of cost to selling price is so low.
Ratio of food to beverage sales.
Simply the ratio of the percentages of your total sales. In restaurants with a higher percentage of beverage than food sales, profits are generally higher because there is a greater profit margin on beverages.
Sales mix
Sales mix is the number of each menu item sold. It is crucial to cost analysis because each item impacts food cost and food percentages differently.
DAILY FOOD COST ANALYSIS
Traditionally, food cost is calculated once a month. There is no reason, however, why you cannot compute a daily food cost and a daily weighted food cost to analyze problem areas. Much of the inventory counting can be eliminated by moving only the products used for production into the kitchen at the beginning of the shift. Doing so, you can pinpoint problem areas, problem employees or problem shifts. You can also calculate a separate food cost for breakfast or lunch.
WEIGHTED FOOD COST PERCENTAGE
Once your food cost is calculated, determine weighted food cost percentage. A weighted food-cost percentage will tell you what your food cost should have been had all procedures and controls operated at 100 percent efficiency. The schedule on the following page summarizes sales information from the restaurant’s POS system or from other bookkeeping records. Basically, you are recreating the food cost for each item based on the standard recipe costs to determine what your food cost and, thus, food cost percentage should have been. For this example only four menu items are served in this restaurant. You can see that $7,000 of food costs have slipped away (assuming all calculations are accurate). The restaurant should have actually had a 34.28 percent weighted food cost percentage.
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Weighted Food-Cost Chart |
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|
Menu Item |
Cost per Meal |
# of Meals Served |
Cost per Menu Item |
|
Chicken Kiev |
$5.00 |
2,000 |
$10,000.00 |
|
Steak Oscar |
$8.00 |
4,000 |
$32,000.00 |
|
Stuffed Flounder |
$9.00 |
1,000 |
$9,000.00 |
|
Hamburger Platter |
$3.00 |
3,000 |
$9,000.00 |
|
Weighted Total Cost: $60,000.00 Actual Sales: $175,000.00 Weighted Food-Cost Percentage: 34.28% Variation Over Actual Food-Cost Percentage: 4% or $7,000.00 |
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RAISING PRICES
Want to immediately lower your food cost percentage? Raise your prices. At some point in your career as a food service manager, you have to deal with the issue of raising prices. Here are some tips:
• Reasons for raising prices. Make an overall review of your establishment. You may be experiencing higher food costs because food prices have risen significantly since your last price review. Perhaps you have just undergone major renovation and have upgraded the atmosphere of your restaurant. Competition may have changed since the last increase or you may have decided that you need to make a bigger profit in order for it to be worthwhile to stay in business. All of these are valid reasons for price increases. The way to implement increases should be considered carefully.
• Target certain items first. If you do an across-the-board price increase, you may scare off some customers. You may want to consider increasing the price on a certain number of key dishes and leaving other price increases for a later date.
• Decide how to communicate these increases. Should you print a new menu or devise a way to increase the price on existing copies of the menu? It is never a good idea to simply cross out the old price and write in the new, but many food service managers also feel that it is a bad idea to increase prices when you print new menus that have changes in the items being offered. Whatever you decide, do not alert customers to price increases.
• Test market. It may be best to reprint old menus with new prices and save any changes to the bill of fare until a later printing. This strategy will also let you “test market” the new prices. If you are not seeing the sales you need from the new prices, you can adjust them with a second printing.