Plowhorses or Deterrents?

Anyone who has used the popular Kasavana/Smith menu engineering model is familiar with the term "Plowhorses". A Plowhorse refers to an entree which is highly popular and has a relatively low contribution. My brother Paul is an Executive Chef at a major resort in California. We love to discuss menu engineering theory and we question the characterization of these under-performers as Plowhorses. Paul prefers to refer to the popular items with low profitability as deterrents.

Dr. Kasavana states: "While plowhorses do not help carry the restaurant's "burden of margin," they surely can be utilized to attract price sensitive buyers. These items present an opportunity to create significant price promotions." Later in the Plowhorse description, he offers a suggestion: "...try to shift demand to other, more profitable items through merchandising programs and menu positioning."



Clearly, the fastest way to higher profits would be to convert sales of these popular under-performers to Stars (highly profitable/high contribution items). Playing around with the unpopular Dogs (unpopular/low contribution) and Puzzles (unpopular/high contribution) won't have the same impact due to the relatively low number of orders sold.

My brother Paul argues these "Plowhorse" menu items deter customers from ordering a more profitable menu item. Often he finds servers promoting these menu choices when asked for help by the guest. He courageously eliminated the most popular menu item at the resort. Whether you call it a Plowhorse or a Deterrent, check averages and gross margins are way up.

We find lots of "price sensitive buyers" in the current environment. If you can't bring yourself to completely eliminate these deterrents, consider one other suggestion from the book: "Relocate plowhorse items to a lower menu profile position. Hiding these items may lead to the sale of higher contribution menu item selections." If I am interpreting this suggestion accurately, our aim is to demote these Plowhorses to Dog status.

Treatment of Dogs is straight forward in the book: "TAKE DOG ITEMS OFF THE MENU!"

If you are struggling with one or more highly popular menu items which simply do not carry their fair share of contribution, you need to take action now. You may feel the need to try to hide these items or combine them with more profitable options. Do you have the confidence to eliminate these items now? You may find more money in your bank account.

Managing Sunday Brunch

The number one decision in managing your Sunday Brunch operation is the size of the staff for a given forecast. The staffing should include one or more people at the host stand. If your patrons know each other, you should consider seating people close to one another by opening zones in your dining room. Dining patrons will tend to spend more time in conversations thereby giving their digestive system ample time to send the "I'm full!" signal.

Generally, people will behave differently around their friends and neighbors vs. a crowd of strangers. There are no statistics to back me up but I think they will eat somewhat less if they are surrounded by people they know.

You will also staff the food stations and the dining room. In the dining room, the number of servers will be significantly lower than a typical dinner shift. Most of the service will involve drinks and condiments. One area you should adequately staff are the stations with meat and seafood selections. If you are comfortable letting patrons empty your pans of bacon and sausage, you should at least consider someone who can portion roasts and grilled items.

Some restaurants have a featured item which requires a ticket. Generally, the serving size for this one-time item is generous. The theory is twofold. First, the patron is limited to one generous portion. They will tend to build their experience around this menu item. Second, the portion is generous and will help limit consumption of other menu items.

When we were traveling with my first employer after college, our group always hit a great brunch in a hotel on Sundays. We were allowed to stay on the road vs. flying back home on the weekend. We were loyal to a hotel brunch with three drawing cards: fresh baked rolls, a great salad bar and prime rib (one serving per patron). None of us ever had any room for bacon and sausage. We paid at least 25% more than the local competition charged for the fresh baked goods and the large portion of perfectly cooked prime rib.

I'd recommend a baker in the kitchen if the volume justifies the expense. These pros can put people in your seats. Since many bakers work at night proofing the dough, you could finish the bread and rolls during the shift.

Clearing plates from the table seems to be art form many brunch operators have mastered. If someone is around to offer coffee and suggest a fresh pastry, you could save the expense of seconds at the meat and seafood stations. Placing pastries in conspicuous niches helps to get guests discussing dessert before they even begin their meals. The cost of a coffee and a slice of cake is lower than seconds on shellfish and steak.

Finally, I recommend costing each pan or plate sent from the kitchen. You need to know the cost per serving ahead of time in order to properly orchestrate the brunch in the dining room. If you have a main draw with terrific fresh baked goods, you can still charge a premium and save on mass consumption of ancillary items.

Wake Up a Sleepy Night

I just received an email from Hotel F&B Magazine. There is an excellent article with advice for slow nights in the current magazine. They highlight the Hotel Durant in Berkeley. The chef was able to lure UC Berkeley students into the hotel on Sunday nights for a fried chicken dinner with soup and dessert for $10.

How Accurate Was the Outlook for 2009?

Last year, I posted an Outlook for 2009 on December 31st. Excerpts of this post show the following expectations:
1. Oil Prices
Forecast: Oil prices finding an equilibrium higher than $60.
Reality: They stayed between $60 and $80 most of the year and currently hover near $70.
2. Interest Rates
Forecast: Low interest rates and tight credit.
Reality: This forecast was spot on.
3. Bottled Water
Forecast: Lower bottled water sales and more tap water orders.
Reality: Absolutely correct! Tap water rules in 2009.
4. Regional outlook
Forecast: Slow economy in regions with a high banking or government weight.
Reality: This is especially true in areas where the banking and government sectors had a major impact on upscale dining operations.
5. Alcoholic Beverage Trends
Forecast: More beer and less wine.
Reality: In absolute dollars, this prediction is true. What actually happened is consumers down shifted from higher priced beverages to mid-range and budget alternatives. The downshift occurred in both beer and wine.

Many of you will get a true read out on the economic future as the holiday season ends. Expect oil prices to find an equilibrium price higher than current levels. Grain prices will continue to track oil since most gasoline now has a 10% ethanol blend. Interest rates are very low allowing many businesses and consumers a chance to refinance. Credit remains very tight. Bottled water sales are in decline and tap water is becoming a popular restaurant beverage choice.

Rather than using 2007 or 2008 as your compass, try to put together a logical forecast for your region. If you operate near a major banking center, the layoffs could completely change your business model. Anyone in the Mid-West may see an increase in economic activity as stimulus dollars reach the automobile manufacturing companies. State and local governments have less revenue. If you are located in a capitol metro area, you can expect less traffic.

Americans are consuming more beer. You may want to slow down your wine list expansion. Turn a portion of your wine inventory into cash by selling slow movers by the glass. Don't be afraid to accept a higher cost of sales on these bottles. Your shelves are filled with frozen cash.

Stay tuned for the 2010 Outlook at the end of the month.

Upbeat RAMW Holiday Party

We all enjoyed the annual Holiday Party for the Restaurant Association of Metropolitan Washington held on Tuesday. This year, the party was hosted by Tony and Joe's and the food was fantastic!. The cocktail shrimp were fresh and huge with great flavor. They also offered oysters on the half shell with freshly grated horseradish. There was a terrific cheese display and a steamship roast of beef.

Everyone loved the shrimp and oysters and we were comparing different sauces for shellfish cocktails in my group. I stuck with beer and the selection was perfect for my tastes.

Although everyone expects this year to be slower than Q4 2007, most people feel the bottom is in and we will all do as well or better than Q4 2008.

It was great to see a big turnout and hopefully this is a good sign for special event caterers.

Restaurant Finished Goods Inventory Question

Hi Joe - I've had a recent question about counting stocktake and wonder if you could help me answer it. You're welcome to also use it on your blog if you wish.

In our discussion forum the question is:

My question has been playing on my mind since we opened. Where do products that we make and store eg. canneloni, lasagna etc. go in relation to the stocktake? At present, I am counting up all finished products and deducting that from my final costs of goods sold. ( My guess was that if you didn't then you would be counting the flour and the eggs used twice).

Regards,
Ken Burgin
______________________________________
Profitable Hospitality
Management Systems & Profit Strategies for Hotels, Clubs & Restaurants
Sydney Australia ph 1800-001353 (international +612 93401089)
fax +61 2 93692668 mob 0414-660550
Web: http://www.profitablehospitality.com
Twitter: http://twitter.com/KenBurgin

Thanks for the question Ken. I favor including the finished goods inventory in the ending inventory value for all batch recipe products. As long as the operation expects to receive revenue for the item as it was prepared, it should be included in inventory.

These stuffed pasta dishes are commonly sold for several days at the full menu price. Roasted meats are trickier. If the cooked item will not be sold in the primary manner (for example, leftover roast used in hash), they should consider including only 1/2 the value or completely eliminating this item from the ending inventory.

The accounting treatment should be consistent.

Butchering and the Inventory Impact

Hi Joe,
My question would also be, how do account for it in inventory. Right now we are sitting on 400 lbs of this usable trim product for grinding stewing or otherwise. We will generate revenue from it, but wonder do we count it at a discounted price per pound or the original price per lb. that we paid for it when it was a whole muscle item?

Thanks for the quick and informed response. Greatly appreciated!!

Cheers,
Ross

Imagine you have a vendor, Fabricated Beef Products, who you swap whole pieces of meat for fabricated, portion control items. You never pay this vendor any money since you swap one large item for several smaller items. If you give them $1,000 worth of whole sirloin and they return sirloin steaks and ground beef, you would treat the transaction as a wash.

Credit the inventory value of the whole piece of meat. Then debit the inventory for the steaks and trim meat. If you decide to treat the trim as free, the steaks would carry the full cost of the whole piece of meat. On the other hand, if you place a value on the trim, discount the value of the whole piece by the trim credit and then value the steaks based on the net.

The key issue here is the value of the steaks. You probably would not spend the labor cost butchering the whole sirloin simply to achieve many pounds of ground beef. If you have a true value in your operation for the trim meat (I use revenue generating menu items for my test.), go ahead use a full credit based on comparable market prices for ground beef.

The total of the steaks and trim for a specific production batch would be exactly equal to the value of the whole sirloin used in the batch. In a nutshell, your steak cost goes higher as the credit for trim goes lower.

It seems you meet the criteria for valuing the trim based on the market cost of ground beef. Your inventory value of the steaks and trim should reflect the cost of the whole sirloin used to produce these items.

Butchering and Usable Trim

Hi Joe,
Just a quick question we are having a debate about at out businesses.

We bring in our own whole sirloins of beef, trim them, and cut and portion them to our specs typically for sirloin steaks in a variety of portions 8 oz. and 10 oz. cuts.

So we have 3 items resulting from that process:
1. A usable salable product in the form of cut and portioned sirloin steaks as mentioned above.
2. We get actual waste that does not go into anything other than soups, stocks, reductions etc…
3. And we have a considerable amount of usable trim that we can manipulate into another food form and generate revenue with, i.e. burgers, chop steak, etc.

My question is we have a considerable amount of this usable salable trim in our freezer. The question is how we account for it in our inventory. At the price/ lb we paid for it upon delivery, a factored price after we it is trimmed and in the ready to use format in the freezer waiting to be utilized (essentially the same costing formula applied to the steaks we are portioning for immediate sale) or at a cost reduced price as it is no longer a part of the original piece of meat we would be using to generate sales with in the immediate as we do with the portioned steaks.

Your wealth of knowledge and assistance here would be greatly appreciated!! Get back if you can.

Kindest Regards,
Ross Munro

There are two schools of thought on this issue Ross. The first group charges the cost of the whole sirloin to the steaks. They consider all usable trim "free" and they use the total weight of steaks divided into the purchase cost of the whole sirloin to calculate the cost per usable pound. This philosophy is correct if the trim is used in employee meals, stock pots, etc.

The second school of thought credits the cost of usable trim. Typically, there are two primary trim bi-products: ground beef and stew meat. These people weigh the ground meat and cost the credit using the prevailing cost per pound for ground beef. They do the same for the stew meat. The net cost is then divided by the weight of the steaks to get a cost per usable pound.

I prefer the second method if the restaurant serves burgers, meatballs, meatloaf and entrees which utilize the stew meat. The bones may also be credited if you genuinely gain revenue from their use. If the chef had to buy beef bones for base menu items and did not need to purchase as many due to the butchering process, you can go ahead and follow suit with the bones.

Menu Planning and Strategy

Our industry is experiencing a shift in the demand curve. Restaurant goers are downsizing from upscale to casual, casual to fast casual and fast casual to QSR and take-out. The regular patrons at many family owned restaurants are watching their checks and eliminating an appetizer or dessert course. If you have a lower priced entree on your menu, you may find the popularity on the increase.

Most of the menu analysis and menu engineering models were built during a time of solid annual growth for our industry. These models focus on high gross margin entrees loved by patrons. Blindly using these models to adjust menu prices may hurt your bottom line. These models are designed to eliminate low gross margin menu items if the popularity is low.



Rather than completely eliminating these dogs, you may want to repackage these items. Take them off your printed menu and try them as budget specials. You may find a winner or two.

The stars need to get your full attention. Are your guests still selecting the reliable cash cows? You may see the high gross margin items slipping in popularity. Chef Mario Batali (one of my favorite chefs) was quoted in a USA Today article: "There's less caviar, foie gras and truffles, but they're still there. They're just not on nine courses. They're on one course." This same article highlights other chefs who have decided to offer more price points for their patrons.

Expense accounts are being scrutinized at every major S&P 500 company. The current earnings season on Wall Street shows companies are slashing costs.

The wine lists are offering guests fewer trophy bottles as demand for the $200 plus bottle of wine has collapsed. Many restaurants religiously ordered their annual commitment from the same boutique vineyards without regard to consumption. Now, these wine cellars are loaded with these high cost bottles. Many have decided to end this practice and they are moving these bottles by the glass.

Are there ways to produce the same gross margins in this new era? Yes. You need more turns on busy nights. Offer early bird specials, table d'hote options, and popular add-ons for your popular menu items. Promote seasonal ingredients which typically offer lower cost of sales.

Customer knowledge (including dining out budgets) leads to effective menu planning efforts. Rather than completely revamping your current menu, you may find a few strategic revisions will help you meet your targets.

Beverage Included Buffets

The lowest priced lunch buffet we visited on our tour was $6.95. This operator serves both BBQ pork (whole hog) and fried chicken with lots of sides and desserts. Drinks are not included and sweet tea is sold for $1.19 (unlimited). A quick look around the dining room showed about 75% of patrons enjoying a tea and the others ordering tap water (free).

There were a few competitors offering similar food choices for $7.45 with beverage included with the meal. On average, the $6.95 buffet plus beverage accounts for $7.85 in revenue and an extra $0.40 in gross margin.

For out-of-town guests, the big $6.95 sign beckons. By the time they see the buffet layout and are warmly greeted by the hostess, they will probably never ask about the extra charge for the tea.

I spoke with one of the general managers at the all-inclusive buffet. He told me most of his business is local and everyone wants the tea. They have offered the buffet with tea for decades. He believes the locals are aware of the real price for the buffet with tea at the $6.95 location. I'm sure he is correct.

Both restaurants were very busy in the middle of the week.

All You Can Eat Buffets

We have all tried an all you can eat buffet. Whether you are in Las Vegas, a local hotel for Sunday Brunch, a Chinese restaurant or a buffet specialist, the format is the same. You are seated and asked for your drink order. Once the order is taken, you are invited to go ahead to the buffet.

Most buffets are setup in stations. Typically, there is one or more ethnic food stations (Italian, Mexican and Chinese are common), a roast meat station, seafood station, BBQ station, a large salad bar and a dessert station. Breakfast and brunch buffets will include an omelet station (with lots of toppings), breakfast meats, pancakes, waffles, bagels, toast, muffins, fresh fruit, smoked salmon, and cereals.

Operators who pay attention to baked goods have an edge since these items have a relatively low food cost. It is advisable to have a server help guests with the roast meats. Most buffet houses continually pick up plates when the guests leave the table for seconds.

Buffet operations require high fixed costs. Much of the food and production staffing is decided before the meal period. Operators need accurate forecasts to prevent costly over production.

There are two schools on how to close down a buffet. Some professionals believe the buffet should look fully stocked right up until the final guest is served. Other operators prefer to offer fewer pans as the clock nears closing time. You need to have a strategy for either philosophy. The worst buffet presentations are those where you see many pans with very little food and drying sauces and gravies.

At the very least, these pans should be removed or replenished (depending on the policy). I have requested a tour of the buffet before deciding to dine on occasion. About 1/3 of the time, I decide to leave due to the appearance of the food.

Packed Restaurants

I'm just back from a long road trip through coastal North Carolina and South Carolina. Since it was past the peak season, hotel rooms were dirt cheap and I never hit one traffic jam. All you can eat BBQ places were enjoying full parking lots. At lunch time, these spots offer whole hog BBQ with fried chicken and loads of sides and desserts for $7.50. Some throw the ice tea in and others charge ($1.79 for unlimited tea). This has a terrific impact on food cost results.

I know there are lots of people who want to debate gross profit vs. food cost percentage. With regard to the tea included issue, it doesn't matter what camp you are in since the impact is huge. At one place, I paid $10 and another $8 for basically the same style food and service. I'm guessing the $10 (includes tax but no tip) spot is on target for a 33% cost of sales since they charge for the tea. If the same costs were incurred by the operation with no charge for tea, their cost % would be over 40%.

Both parking lots were jammed.

Down in Myrtle Beach, the dinner buffets offer all you can eat seafood spreads for $19.99. The calorie count was pretty high at lunch and I skipped the dinner buffets. A couple of the owners let me in to observe the buffets. One had a raw bar with lots of shrimp, oysters, crab claws and clams. They also had just about every style shrimp entree and lots of dishes with fin fish and vegetables. Drinks were extra at the places I visited.

The number one issue in Myrtle Beach is the selections. It seems a competitive advantage is held by restaurants offering more selections. One marquis: "Over 170 selections..." Another: "We have 120 selections..." The people who spoke with me said the customers liked to try a little bit of everything and they all like dessert.

Several operations highlighted their bakery offerings. I didn't actually see a baker but there was a prominent bakery at one place. They offered take-out bread, rolls and desserts.

The place with 170 offerings in the off-season scared me a little. They had a light crowd due to the heavy rain and it was a Wednesday night. Still they presented the 170 menu items (some with dairy) in the huge buffet area. Some operators run the cream soup and bisque over several nights bringing the food from cold to hot and back several times.

If I was in the market for a big meal, I probably would have tried the place with the raw bar and a mere 100 menu items. Their lot was about 50% full.

Nobody offered an all you can eat breakfast buffet. I'm sure many of the hotels offer breakfast. The places I visited mostly opened at 5 PM.

HFTP Question - Final Counts and Safety Factors

In my recent session at the HFTP Annual Convention, I gave my opinion on the use of safety factors in food service operations. Generally, purchasing managers and chefs tend to order a little extra to prevent running out of stock. While a small amount of over stock is optimal, the typical operator has too much stock of many perishable items.

A symptom of over stocked protein is a rising dollar value in freezer inventory.

During the Q&A session, I was asked about optimistic banquet event order final counts. If your sales manager tends to over estimate the final count for banquet events, the probability of spoilage and waste increases. In addition to the freezer, you may find the food in the employee cafe is better than usual. Crab cakes and Chateaubriand should not be on the employee lunch menu.

An optimistic final count number negatively impacts purchasing and production activities since the kitchen will over produce these menu items. Service staffing is also too high.

When you combine the impact of high final counts with a tendency to over order for a safety factor, it is easy to see how costs will run high in this operation. Each department uses their own safety factor to cover the risk of running out. If each department uses a 10% adjustment, you could find the sales team adds 10% to the count, the chef adds 10% to the production forecast and the purchasing manager adds 10% to the chef's order. These adjustments have the biggest impact on high cost per pound, perishable protein items. Look for the impact in freezers, garbage cans, employee meals, soups, stock pots and employee trunks.

Suggestion from HFTP Annual Convention

My recent presentation at the HFTP Annual Convention in Las Vegas included 3 Q&A spots. In the first Q&A break, there was a suggestion by an audience member regarding purchases and sales.

This food cost professional suggested dividing each day's food purchases by the food sales. I'm a big fan of using sales as a compass for food purchases. At the end of each month, one of the most highly scrutinized statistics is the food cost percentage. This daily check will help to prevent surprises.

Since many operators have between 10 to 14 days of cost of sales in their inventory, I also recommend tracking the most recent 14 days of purchases and sales. You may stock up on a few shelf stable items if market prices warrant. Using a 14 day ratio of purchases to sales will help prevent surprises while allowing for an occasional long term buy.

Simply create a 7 column spreadsheet with DATE, PURCHASES, SALES, % DAY, PURCH 14, SALES 14, % 14DAY. You enter the date, purchases and sales each day. Calculate the 14 day sums once you have enough data. Then you can calculate the daily ratio and the 14 day ratio each day. These ratios will provide you with a compass for controlling food cost.

FoodTrak Update

I was in Las Vegas last week for the HFTP Annual Convention at Green Valley Ranch Resort. After my presentation, I was invited to dinner by Bill Schwartz, the founder and owner of System Concepts Inc. SCI is the developer of FoodTrak.

Bill invited me to a Version 4 Boot Camp in Scottsdale. The new version of FoodTrak is now web-based. There was always a web-based option but now all customers will enjoy this feature. The previous license fee for e-FoodTrak has been removed.

Operations with an ambitious wine list will find the recently added Wine Module a tremendous tool. This module has optional wine attribute data fields. Wines may be classified by brand, country, origin, region, sub-region, vineyard, vintage, type and varietal. In addition, a perpetual inventory report for wine is included in the new module.

Food Service Technology

Dear Joe Dunbar,
Thank you very much, for updating the latest tech & happenings in Hospitality world.

Regards,
Abraham

You are welcome Abraham. I am currently taking a look at a very improved product in the $1,000 range. Stay tuned for my review.

Food Cost Formula Question

Hello. I just read an article you wrote concerning food cost. I follow the same formula except for one change, I account for discounts. Should I not do this? Could it sway my food or beverage cost to a less accurate percentage? I would really appreciate your insight to this matter. Thank you

Lori
G.M.

Thanks for the question Lori. I prefer to run two calculations - with and without discounts - each period. Consistency is key.

If you run the numbers with and without discounts, you'll achieve several objectives: 1. You can gauge the impact of discounts on results. 2. I'm not sure the sales figure would have been possible if a discount wasn't offered but the fantasy number for sales (i.e. discounts included in sales and treated as a marketing expense) is always popular with the people trying to achieve a food cost close to ideal. 3. A sense of reality is available for folks trying to pay the bills. Netting discounts from your sales shows the true food cost.

If you would not have made the sales target without the discount, I would definitely focus on net sales. Use the second statistic for the production people. They have no control over sales discounts and follow standard portion sizes. They should know how close they came to the standard and they should also be made aware of the impact of discounts.

Flexible Pars

For anyone who is considering the time investment for a comprehensive menu pricing/recipe costing tool (about 120 hours), I believe the payoff potential justifies the investment.

Think of the growing data warehouse on your POS server. You can put this data to use. By tracking trends on covers and guest order profiles, you can accurately predict production requirements. Go beyond simple portion analysis. The recipe model will estimate raw ingredient requirements. The better programs (for example, Food-Trak) will allow you to focus on menu driven raw ingredients.

Once you have a working recipe costing model in place, feed the model POS data. Try to upload a full year with daily files. The software will allow you to create order guides based on prior guest preference, average ingredient usage and a sales estimate. Catered events may be loaded into menu plans to complete the picture.

Rounding out the picture, you can feed the ingredient database par stock information for all shelf stable items. The result is a highly flexible ordering tool. This model will track par levels and adjust order guide quantities to reflect current sales estimates.

Flexible pars could help you eliminate over ordering of perishable items. Depending on your current spoilage and waste levels, your savings will average between 3 and 8% of purchases.

Question - Best Practices in Food Cost Control

Good Morning,

I am the Assistant Controller for a luxury property in downtown San Diego. I have volunteered to lead a presentation discussing food cost control best practices. I read your article “Essential Food Cost Control” on Hotel F&B that you wrote in June 2007 and thought I would write you. Do you happen to have a good source for obtaining industry food cost best practices? I am hoping to show a few examples of how to best control food cost.

Thank you for your time.

Brandon
Assistant Director Of Finance

Thanks for the note Brandon. I encourage you to use whatever articles you wish from my blog. Please include proper attribution and there is no charge.

I would recommend two books:

Purchasing for Chefs: A Concise Guide
Andrew Feinstein
John Stefanelli

Wenzel's Menu Maker
George Wenzel

You may want to checkout the articles on Tom Wahl's site Hotel Trends using the Food & Beverage link on the left sidebar.

Cornell University has a Center for Hospitality Research with an excellent website. You may wish to register online - its free. You will find lots of hotel articles you can download.

The 4 V's and the Pareto Principle

If you buy the notion of working smarter vs. harder, the 80/20 principle is certainly a great starting point. When a restaurateur searches for the 20% of his operation producing the 80% impact, I'd like to suggest a simple method. The 4 V's stand for volume, variance, volatility and value.

It is important to focus on high volume activities. Ranking your menu items by the percentage of total sales is a popular weekly report. Try the same analysis on your food purchases. If you monitor production of batch recipes, you could rank these by the highest volume. In every case, find the high volume items and activities.

Avoid spending lots of time on issues which do not produce a decent return for your efforts. If there is a low variance in usage, price, or any other business metric, look elsewhere. There are lots of high volume items with very little variance from your budgeted expectation. Maybe you consume lots of rolls but the usage report indicates the rolls were used properly. Find another item with a higher variance.

Price volatility is a major opportunity area. Locate all of your raw ingredients with volatile market prices. Any positive actions you take in purchasing these items will produce a benefit.

Most chefs have a handful of items stored in their offices. You may find truffle oil, saffron, cognac and other high value items. They recognize the relative value (in terms of cost per milliliter or gram) of these items.

If you focus on high volume items and activities with usage variances, price volatility or high relative value, the 80/20 principal will start improving your return on time invested.

Pareto Principle of Food Stock Control

Inventory management is time consuming and takes our focus away from building sales and providing a great customer experience.

The Pareto Principal states that 80% of the effects come from 20% of the causes. In other words: 20% of your stock items make up %80 of your stock value. By focusing on the high value 20% we can minimize the time spent on stock control, but ensure this time is spent on the things that really matter.

To implement the Parento Principle go through a full stock take and select the high value stock items that you want to focus on. You can then summarize the remaining items into a nominal cost. Next time you do a stock take you only need to count the high value items and use the previously calculated nominal value to represent the other items. You can still calculate all the key metrics like Cost of Goods and Gross Profit, but minimize the time spent on stock control.


Paul Clarke (@foodmargin)

Q Factor

Chefs love to see a recipe model come together in the final stages. Sole proprietor owners love this stage even more if possible. What's the lure? They see how much it costs to produce the actual menu items with all the trimmings.

The most frequently asked question at this stage goes something like "How do we tell the system our cover costs? Is there a way to enter a Q factor?"

I let them know they should enter all applicable costs to properly cost the menu. The follow up question is actually a lengthy discussion of complimentary items, starch choices depending on the entree choice, most popular options, etc.

I like to create a setup recipe which may be used over and over in every entree selection. My Q factor includes all complimentary items (rolls, butter, ketchup, mustard, soy sauce, salt & pepper, Tabasco sauce, etc.), salad portion, most popular dressing choice, most popular starch choice and the most popular side choice.

The POS system will keep track of the guest selections. If the most popular salad dressing is Blue Cheese and the POS modifier is Ranch, I like to make the recipe for the Ranch modifier equal to 1 portion of Ranch minus 1 portion of Blue Cheese. Since the Q factor already accounted for the Blue Cheese, the reduction of 1 Blue Cheese portion brings the count in line.

What's a typical Q factor in a high end dining room offering rolls, butter, salad, baked potato, more butter, and sour cream? About $3 if you use fresh baked rolls.

Great Article on Managing Food Costs

Brad Nelson, Marriott's Corporate Chef, wrote a great post on his blog last summer when food costs were beginning to spiral high due to the energy crisis. His article focuses on the backyard grilling options for the frugal home cooks.

The chef uses less tender cuts of beef and garden fresh vegetables from his own garden. There's a great recipe for new potatoes which cook in a cast iron skillet over slow coals.

Basic Food Cost Analysis

An investment of time and money in any recipe costing model has a payoff in food cost analysis. Most operators lack sufficient information to conduct a meaningful food cost analysis. Many operators receive a simple percentage which they are told is either too high or too low(occasionally, just right).

If the company's accounts payable system charges all cost of goods sold to the same account, there is no additional information available. So what do these companies focus on when trying to explain their food cost results? Their food cost analysis typically consists of a review of the ending inventory.

This food cost analysis works like this in most cases: 1. Scan the Excel file looking for large inventory totals. 2. Check these high impact numbers for unit cost information. 3. Once a major item is found with some price volatility, the entire analysis ends and management works on "solving the problem". Occasionally, this team may get around to using a top 10 analysis. This is a small step in the right direction.



Often, the food cost analysis completely ignores the true issue. Many food cost "problems" stem from an incorrect inventory value the previous period. No one remembers the over valuation from the previous period. The simple reason this is ignored is the euphoria caused by a great food cost percentage eliminated the need for any proper food cost analysis. This incorrect valuation went completely unnoticed until now.

When I'm called in to help with inconsistent food cost percentages, I find the top 10 items in terms of purchase volume. My work includes tests of everything involving these items. A thorough analysis of the top 10 items is the best place to start any meaningful food cost analysis. Eventually, you will want to increase the list to the Top 25.

Advanced recipe models automatically focus on 10 to 25 items (depending on the menu scope). Knowing the eventual solution will be found in these high impact items can be useful to the operator with limited information.

Treat each item like a stock in a portfolio. Each food cost component has an impact relative to the unit volume, price volatility and risk of spoilage. Focus on perishable, high volume items with volatile market prices. You'll find many solutions in this key item food cost analysis.

Finding Strength In A Weak Economy

I sent this letter by WinFax Pro around 19 years ago to hundreds of restaurant owners:

Cost Reduction = Profit Improvement

Cost reduction is dirty business. Few managers want to trim fat by eliminating jobs. Cost reduction is not flashy (like sales increases or new openings).

A 10% reduction in costs can increase profit by 25 to 50%. I can help you concentrate the bulk of cost reduction efforts in the areas that affect profit the most. Completion of a short-term strategy can be accomplished in one month.

Where can the greatest savings be realized? Where should you concentrate your efforts? If you aren't aware of where the bulk of your money is going, you can't possibly know in what areas cost reduction will have the greatest impact.



Current economic conditions offer low interest rates and low inflation. This environment encourages borrowing to invest in cost saving solutions. If you could borrow money cheaply to buy a solution which would lower future costs and improve quality, now is your time.

Streamline your organization through a comprehensive cost reduction program. Build profits through cost reduction, as opposed to unit growth. I can help you eliminate short-term debt and replace it with fixed long-term debt, sell off or close down marginally profitable or red ink operations, free up working capital through inventory management.

Plate Cost Question

Hello,

I have a question and may-be you can help me. When doing a plate cost for your menu items would you include paper products in with the food cost or would it just be the food products to get an accurate food cost.

Thanks,
Food Service Manager

There is no hard and fast rule regarding inclusion of paper products in a plate cost. I'd recommend you build in all costs when calculating a true gross margin.

Cost of sales should include food, beverages and all supplies which vary directly with a sale of an item. An accurate food cost would include only food purchases and you should only divide the costs by sales of food items.

Basic Recipe Costing - Part 3

I started my consulting company in 1990 to help food service operators with financial troubles. Finding it difficult to get paid, I started looking for work with companies in better shape. I ran into a local consultant, Bob Kaiser, who said I should work with computers since I had a background in accounting and technology.

My first assignment was with one of Bob's clients. This company had two catering facilities and used Eatec software. The chef had zero success building recipes despite purchasing the The Professional Chef and the Food for Fifty (12th Edition) modules.



These add on modules were a huge time killer. I found myself gutting sophisticated recipes for chicken, beef and vegetable stocks and replacing the classic recipes with a package of soup base and a gallon of water. After hours of wasted time, I completely destroyed the chef's preliminary efforts and built the recipes from scratch.

I used the Professional Chef book's approach and started with Mise en Place and Stocks. Then I progressed to Soups and Sauces before starting work on entrees. After a week, I had all the major protein work done. The vegetables, starches, breakfast items, baked goods and desserts went much quicker.

During the project, my wife and I began to refer to this gig as "The $4,000 Mistake" since it consumed over 200 hours and 3 round trips (300 miles each trip) to finish.

The Food For Fifty book has a fantastic first chapter which is a must read for anyone trying this exercise for the first time. They focus on quantity food service and use the perspective of a caterer or institutional food service operator. Recipes all yield 50 portions. I took many of the chef's clippings from Bon Appetit and Gourmet and converted them to the 50 portion yield.

Before you start a project on a recipe costing program, you need to be very well organized. Create an outline. Take the most complex recipe and imagine you are building the database. You will find you need to stop work and create other sub-recipes first since you can't purchase many of the stocks, sauces, mixes and blends called for in the recipe. Each of these components requires a recipe.

These individual components called for by the complex recipes are the building blocks of a successful recipe model.

Taking Stock

No one likes doing stocktakes. However, an accurate stock count is essential to producing meaningful management information.


Here are some tips on doing an accurate stocktake:


Have a hard copy of your stock list - A list grouping stock items by Category, then listing Stock Items in alphabetical order makes it relatively easy to look-up Stock Items as you count.


Do one storeroom at a time - If you have stock items that are stored in multiple locations (dry store, cool room and service fridges), don't run around the kitchen to find all instances. Count methodically through one store location at a time.


Count each storage location left to right, top to bottom - Start at the top left of each shelf, then work your way down to the bottom right. That way you wont miss anything.


Count with a friend - It is faster and easier if you count in pairs. One person can physically count the stock while the other records the counts. In addition to speeding up the process this also serves as a check, to make sure you don't miss anything.


Although counting stock may seem simple, it is surprising how many people I have seen get it wrong.


Paul Clarke (@foodmargin)

An Opportunity With A Tight Budget

Good Day Mr Dunbar!

I'm seeking answers & asking for your help with food cost & menu engineering.

Info in hand: I put up my own cafeteria inside a factory; catering to 80+ people. I'm a BS Hotel& Restaurant Mgt graduate - 2005; can not remember much about Food Costing. The net only gives guides & lacks experience that's where I'll need your expertise sir.

They also allotted only 2 dollars for food allowance; the employee must eat at least 1 meal(breakfast,lunch or dinner) & 1 snack. How can I manage & even start w/ this.

Thank you in advance for the time & opportunity!

God Bless!

Gabo

If you are fully reimbursed for labor and all other expenses (including profit), it would be possible to offer a menu with lots of eggs, poultry, starches, seasonal vegetables and tea given the allotment. You won't be able to offer any higher cost protein items. The labor issue is key. You'll need to make soups and other labor intensive menu items to meet your goals.

Try to focus on quality as much as possible. Keep accurate records.

After 90 days, ask for a meeting with your client. Try to negotiate a change order. If they enjoy your menu and find you honest and fair, you may be able to suggest some other higher cost ingredients.

What Should Our Bar Cost Be?

Hi Joe

What would you say my expectations for beverage cogs should be in a private club, not a member owned club?

Beer

Wine

Liquor

Thanks for your input, I’m trying to do an analysis and I need some solid guidelines on what it should be.

Sharon│Controller

Sharon,
A well controlled bar is a great source of profit. Many bar operators are out of control and the result over time is unnecessary selling price increases. Alcoholic beverages are highly regulated and the customers order specific brands. This makes for relatively stable costs (usually change quarterly) and no specification issues.



[Feel free to download this simple tool on my Food Cost Control Library site.]

I like to track a simple weighted average figure rather than a hypothetical benchmark. Depending on the level of service, occupancy costs and other factors beyond the cost of alcoholic beverages, your selling price will vary. Sales need to cover all costs and provide a profit (even if your goal is break even at the club, you should budget for risk and cover slightly more than your costs).

Using a weighted average, you should track a handful of key bar items: well vodka drink, premium vodka drink, domestic beer, imported (or micro-brew) beer, house wine and premium wine. Weight each item by the respective sales impact. Sales for all well pours for the well vodka, sales for all premium liquor for the premium vodka, sales for all domestic beers, sales for all premium beers, sales for all house wines and sales for all premium wines.

You simply enter the selling prices and cost of the alcoholic beverages. The Weight column should total 100% or use your total sales. The Ideal column equals the cost divided by the selling price. The Weighted column will supply the answer to your question. This column weights each Ideal figure based on the share of sales for the category.

Feel free to add more categories. The weights should always equal 100% of sales. Guard against going into too much detail. We are not trying to solve every issue with the formula. You will find the current bar cost percentage is higher than the formula result. Resist requests to complicate the formula. Leave all non-alcoholic items out of the pouring cost.

I have found numerous bar operations with major problems (theft, over-pouring, wasting draft beer, lost revenue, etc.) splitting the atom over lemon wedges, olives, and wine sent to the kitchen. Create a separate line item to track the non-alcoholic beverage activity and kitchen wine, liquor and beer.

Accounting Gets Closer To The Kitchen

This month, I noticed an urgency in 3 restaurant chains which would be out of the question in the past. Top level financial officers have made the dive into inventory control including batch recipe models for work in progress inventory. Calling late at night, I found the CFO of a 35 unit chain in the office working feverishly to get the new database deployed. She was working on recipe costing and linking her recipes to the POS system.

Years ago, restaurant companies needed to be shoved into software systems to get better a handle on their cost of sales. Now, these solutions are ubiquitous. POS vendors throw them in for free to sweeten an offer. Solutions exist in every price range.

I spoke with the Executive Chef of a 6 unit group here in the DC Metro area. He was working on a solution with his brother who works in the accounting department. Each of their concepts has a unique menu and they have finished the first test. Results have exceeded their expectations. The actual food cost has now come down to less than 1% above ideal.

Recessions often force corporate staff to wear different hats.

As these financial people work closely with the chefs, purchasing agents and other key operations people, the reports have to improve. Communications are more focused and everyone has a feel for their counterpart's unique issues.

5 Tips for Receiving Stock

1. Did you get what you paid for?


The first and most obvious tip is to check that you get everything you paid for. Often this is as simple as doing a quick count and checking items off against the delivery note or invoice.

While this seems obvious, take a look at your practices and you will be amazed at how often stock is received without checking it’s all there. Paying for stock you didn’t receive directly impacts your food margin.



2. Do a Quality Check

Make sure the stock you receive meets your expectations. Quality assessment can be made by visually inspection, feeling, smelling and/or tasting ingredients. Inspecting packaging for damages and checking “use-by” dates also ensure you get what you pay for.


Stock that is poor quality will impact the quality of the end product you present to your customer. Poor quality goods may also spoil faster, generating waste and eroding your profitability.



3. Reject Goods that don’t Measure-up

Rejecting stock that doesn’t measure-up communicates your quality expectations to your suppliers, setting the base-line for future transactions.


4. Minimize the time goods spend on the Loading Dock


Ensuring stock is put away promptly increases the life of perishables and reduces the likelihood of theft.


5. Did you get everything you ordered?


Often you need to know ASAP if an ingredient that was ordered didn’t arrive so that you can make alternative arrangements.


Paul Clarke (@foodmargin)

New York Times Features Butchers

This week, the New York Times featured butchers in an article Young Idols With Cleavers Rule The Stage just when everyone thought butchering was a dying art. They interview young butchers from around the country working primarily in boutique butcher shops.

Basic Recipe Costing - Part 2

After you have your item list broken down into purchase units (e.g. case) and inventory units (e.g. #10 can), you can begin to visualize the production process. For each ingredient, make a list of units commonly called in recipes. This will vary depending on how many different recipes use each item.

Three common portion methods for recipe ingredients are weight, volume and count. Meat items are often portioned by weight and count. When portioning by the piece, you may have more than one portion size. A strip steak could be sold in two or three portion sizes. For each portion size, imagine the entire strip will be used. You need to answer a simple question. How many steaks would you expect if you only cut the one size from the strip? Repeat the exercise for each portion size.

Use the average weight for popular random weight items. Generally, each case will always have the same number of large cuts (ribs, strips, loins, etc.). The total case weight will vary. Huge weight variances from the average will impact the number of portions per piece. It helps to keep accurate records of the butchering and fabrication process.

Yields may change from week to week. If you expected a 80% yield for a particular cut and you actually hit a 70% figure, your costs would run higher by over 11%. The variance is due to the poor yield alone. Add a price variance and some spoilage and the gross margin will begin to disappear. Portion control steaks provide operators with a consistent yield - one portion. When deciding to purchase portion control meat, you need to consider the hidden costs. Look at the whole picture including labor, equipment, risk of injury, and poor yield in your comparison.

Items portioned by volume or weight are straight forward. It is helpful to know the common conversion units for each method. Volume is expressed in gallons, quarts, pints, cups, liters, fluid ounces, milliliters, shots, tablespoons, teaspoons and fractions of each. Weight may be expressed in pounds, ounces, kilograms, grams, etc. A #10 can has about 6 pints (96 fluid ounces) and often about 6 pounds. Check all weight to volume relationships.

When developing standards, you may find your specifications are different than some of the excellent books. If you trim your produce quickly, the yield will probably be lower than the expectation. One way to reduce the variance is to portion produce items by the piece. A 24 head case of iceberg lettuce will yield 144 wedges if sliced in six pieces per head. Cutting the heads into larger wedges of four per head would yield only 96 portions.

Think of this step as the recipe model equivalent of the prep process. Having accurate recipe costs depends on accurate unit and yield data. The recipe costing programs will re-cost your recipes over and over as prices change. Spend the time initially to get this critical information correct for your operation. Don't worry about benchmarks for portion size. Use your unique portion sizes in determining the conversions between inventory count units and the units called for in recipes.

Food Cost Control Alliance

I would like to introduce my colleague from Australia, Paul Clarke, who will be posting here on the Food Cost Control Blog. Paul has his own blog, Food Margin which offers a "dialog on food operation management" with an impressive start. Food Margin is one month old today.

Recipe Costing Technique - Plate Cost

Hi Joe.
I hope im posting this in the correct blog.
In order to cover our waste, free bread, staff food, and complimentary items we are planning to add a plate cost to our new recipes to cover these costs. We understand that this will push our selling prices up. My question is as follows:
Do we add the plate cost to the recipe or do we simply raise the selling price by the respective plate cost?
Ray

From a strategic viewpoint, there are many options for menu price revisions. The correct overall solution would need to take other factors into consideration.

I prefer to add the plate cost as a fixed number(vs. a percentage)for each entree. This is a preference not an absolute. Some operations will be better off taking a different approach.

The fixed dollar method will also cover your costs regardless of the entree selling price. You'll receive the same cost coverage whether the selling price is $9.99 or $29.99. This is especially attractive now as consumers are choosing lower priced menu items.

Generally, any amount you add to a selling price as a fixed dollar amount is 100% variable from a cost accounting perspective. As you sell units (in our case entrees), the revenue (and variable cost coverage ) are in sync making your break even point more predictable.

Many companies provide complimentary items and do not provide for these costs in their selling prices. With consumers looking for value, you need to consider competitive threats when you evaluate any price increase decision.

Basic Recipe Costing - Part1

You may have lots of cookbooks, proprietary recipes, books with food yield statistics, market data, shopping lists, inventory count sheets, supplier quotes, product mix reports, quarterly tracking reports and other documents. A professional recipe model should be designed to integrate all of this useful information. The person working on this project needs to wear many hats: purchasing agent, steward, prep cook, line cook, and chef.

Rather than using a cookbook approach, start with your shopping lists. Use your shopping lists to create a spreadsheet with all your ingredients. Make columns for the name, category, primary supplier, purchase unit, storage area and storage unit.



Since the unit you purchase is used on orders, this is our starting point. It's helpful to know your alternate sources for each ingredient. You may want to categorize each item by the storage method. For example, frozen, refrigerated, dry bulk, canned goods, frozen goods, baked goods, etc. Feel free to add these columns. Its impossible to get too much information for your ingredient list.

[We'll eventually need to know the usage units for each ingredient and portion information. This will be discussed in Part2 (later this month).]

Once the list begins to come together, envision the flow for each item from loading dock to the table. Most items are purchased by the case and are stored as purchased. Some items are immediately transformed into other items through fabrication. Visualize the process of moving from the purchased unit of measure to the storage unit of measure first.

You may simply remove six #10 cans from a case and place the cans in a rack. The purchase unit is case and the storage unit is a #10 can. Focus on the storage unit and the divisor (6 in our example). Breaking down every item you purchase into logical storage units is one of the most important steps in creating a professional recipe costing model.

Each #10 can is valued at 1/6 of the case cost. Don't worry about the actual cost of each can. Focus on the number of storage units in each purchase unit.

Our work will eventually involve many calculations using units of measure, various blends, yield formulas, conversions, reciprocals and standard portion data. The simple exercise of developing a purchase unit to storage unit model is the ideal starting point. Once you complete this exercise, future conversion work will be more intuitive.

Shift in the Demand Curve

The local economy here in the Washington DC metro area seems to be bouncing on the bottom. Diners are watching the check average and patronizing restaurants with entrees below $20. Zagat's blog had an article on the closing of two high end dining options here in DC.

So where do you you go if your expense account is alive and well?

The same blog has news regarding the new J&G Steakhouse opening in early July.

Alternate Uses of Over Supply

Many restaurants use their specials board to move over stocked protein items. The protein could be raw or previously cooked. Generally, a menu item is developed to utilize the over stock. For example, leftover roast may be diced and added to chili or soup. Fresh fish may be offered as the "Catch of the Day" and featured at an attractive price.

Many urban areas have charity organizations with the goal of reducing hunger among the homeless. They usually have trucks and will send a driver to pick up any donations. Some restaurants donate over stocked protein items which tend to lose flavor when frozen.

Certainly, many over stocked fresh items find their way to the freezers. Both raw and cooked items are frequently frozen. Some food loses flavor and texture when frozen and thawed. You may consider purchasing items in a frozen state. Commercial flash freezing retains more of the qualities.

My favorite uses of over supply is the stock pot in cold months and salads in warm months. We are now in summer. One of my clients serves a wonderful salad Nicoise using cold seared tuna. In addition to stocks and salads, you may be able to marinate some meats. Kabobs and BBQ often require several days in a marinade.

Photo from Simply Recipes.

Once your over supply of food spoils, the obvious destination is the nearest garbage bin. If the wasted food is disposed of in a heavy plastic garbage bag, it may eventually produce methane which is harmful to the environment. Compost piles may be an option if you are in the country. Some urban garden groups may be interested in your waste. Some fats and oils can be converted into a fuel which can be used in diesel engines.

Accurate forecasts help reduce the management energy spent trying to make the most of over stocked items. In a perfect world, there would be very little left over each night. Improved forecasts will reduce waste.

Macroeconomics of Food Waste

The U.S. Environmental Protection Agency (EPA)tracks food waste in the United States. They list food waste as the "single-largest component of the waste stream by weight" in the country. Americans waste 25% of the food we prepare each year.

This waste amounts to 96 billion pounds annually.

Click the photo below to be directed to their website:


Restaurants are included in the statistics. You can lower your food cost and the costs to dispose of waste (both sewage and garbage removal costs) and help the environment.

Food donations, offering urban gardening groups waste for compost and recycling fry oil for diesel are some of the solutions we read about currently.

The New York Times, October 9, 2008, article "Farmer in Chief" has two amazing facts:

After cars, the food system uses more fossil fuel than any other sector of the economy — 19 percent.

A bushel of grain takes approximately a half gallon of oil to produce; grass can be grown with little more than sunshine.

Combining these facts, we could cut the use of oil used to grow food which will eventually be wasted if we never order the excess food in the first place.

Exposing Hidden Food Waste

There are plenty of issues in every operation which could be corrected if only management was aware of their existence. Many operators avoid the effort required to create a detailed operations manual. Given the turnover level in our industry, this document should be mandatory. Imagine working as a line cook or expediter without any point of reference. You are hired and receive very little direction.

Immediately, you start work using your prior experience to guide you in your new position. Maybe you never cut steaks at your previous jobs since portion control cuts were used. Orders come in for strip steaks and you are told the meat is in a walkin cooler and the policy is to cut steaks from the boneless strip loin. Properly cutting steaks is not your forte. Instead of 11 steaks per strip, your efforts yield only 10 steaks. In a steak house this would be unlikely but possible. In a casual dining operation with a large menu, this is common.

Lack of training and standard portion control costs this operation 10% extra on each steak served.

Produce preparation is subject to tremendous yield swings. Even the industry sources disagree on produce yields. Whenever you prepare anything other than the entire piece of fruit or vegetable (e.g. head of lettuce or an apple), you have an impact on yield. On slow nights and in many low volume operations, produce prep takes place on an inpromptu basis. With no specific person or team tasked with produce prep, the exercise produces wide swings in yield.



French fries seem like a straight forward item to properly portion. One of my clients called me excited one day to retell a success story with our recently built usage variance model. The system uncovered a 30% overuse of fries. The issue involved poor training of a new hire. This cook would fry an entire bag of fries. He portioned the fries perfectly on each plate after the expediter showed him how the fries should look on the plate.

Early and late in the meal periods, his cooked fries would be routinely swept into the nearby garbage pail once they were cold. A quick training session fixed the issue. He was taught how to portion the fries before cooking during slower times.

[An anonymous reader left a comment on the Food Cost Basics post which pertains to waste.]

After 20 years of running Full Service Restaurants. Food cost can be attacked by two basic angles. 60% of all food cost is in the garbage can (waste). The rest is over portioned. Focusing your coaching and training on these two key areas will typically keep your food cost in check. However, in some types of restaurants, such as Steak houses, you have to focus on your budgeted number and it will be much higher, but keep in mind RTN or return to net. If you sell a 24 oz cowboy Ribeye for $20.00 and it cost you $10. You have a 50% food cost, but your making $10 on each one sold. For a comparison, take chicken wings, you might sell them for $10 and have a cost of $3. You have a 30% cost, but your making $3 less than the 50% cost, Ribeye. Food for thought.

Profitable Forecasts

Everyone now discusses the current trends with tremendous confidence. The consumer has traveled downstream from upscale to value. Some restaurants are offering smaller portion sizes for lower price points. Value menus remain hot. These trends were not so easy to spot 8 months ago.

I took a walk on King Street in Old Town Alexandria last evening at 7:45 PM. The restaurants farthest from the Potomoc River were slowest. I noted a French restaurant Le Gaulois had closed. Most of the restaurants with entree prices above $25 were nearly empty.



On the other hand, many other restaurants were packed. No seats were empty at Eamonn's a Dublin Chipper. Coffee houses, pastry shops, pubs and focused menu concepts were generally busy.

Would Le Gaulois been saved if they had run weekly forecasts and compared actual results with expectations? They may have seen a drop in covers on normally busy nights and tried a table d'hote option. It would have taken courage but they might have tried a different menu style last fall.

When you look at their 10 Best and Southern Living reviews, its tough to see the storm ahead:

This Old Town favorite offers country French cuisine as comforting as it is delicious. Top menu choices include bouillabaisse, cassoulet, and a hearty pot-au-feu, a pleasing combination of beef, vegetables, and savory spices. The appealing place includes a lovely garden patio and a rustic, French interior. The wine list is full of little-known French offerings, along with local wines, and desserts are as you'd expect, with rich French pastries, mousses, and tarts. (© 10Best)

Request a table out in the courtyard garden full of green trees and blossoming fresh flowers at this restaurant in Old Town Alexandria. The cassoulets are consistent at this French restaurant, but we say splurge for the seafood (especially the scallops), the chef's specialty. (from Southern Living)

The hours of operation and average entree price complete the story:

Hours:
Mon-Thu 11:30am-10:30pm, Fri-Sat 11:30am-11:30pm, Sun 11:30am-9:30pm
Pricing:
Average Main Course Price: $27.00

The clientele shifted from a splurge attitude to a value attitude in our area. People began tightening their spending habits last fall. We see the impact in this top rated restaurant closing the door.

Inventory Dilemma

Hi there,
Interesting blog you have there. I hope you have time to give me some advice. I’m the controller of a medium sized hospitality company. We operate several fast food places with lots of inventory (around 700 unique items per location). Inventory takes forever to count, and of course, the longer it takes, the less motivation on the part of the employees to count it, leading to probably inaccuracies in the numbers.

Here’s the dilemma: the owners don’t trust the inventory, or the possibility that the inventory will EVER be counted right, so they have decided to select a truncated list of items to count based on various criteria. One of the owners tells me that this is common industry practice – even though I don’t have a lot of experience in the hospitality industry, I don’t see how only counting some items could yield worthwhile numbers, but at the same time I could see the benefit of not counting certain things. It seems to me they only want to save labor dollars, to be honest. Do you have any experience you could share?

Regards,
Andrew
Controller

Andrew,

Thanks for the excellent question. As long as the short list is counted frequently and usage compared to sales, I agree. Do these key item counts weekly with a full count monthly.

Three suggestions: 1. Most QSR operations have far fewer than 70 unique items. QSR implies focused menu. If a QSR operation stocks too many unique items, it is a warning sign. 2. Analyze sales and determine which menu items need to go (unpopular) and which items are making the money (popular). Trim the losers and promote the winners. 3. You may have a thief. Many people who can't get an accurate inventory, with all the tremendous tools available, do not want to get an accurate inventory.

Why Did This Week Suck?

In the movie "A Few Good Men", Tom Cruise's character Danny shouts out "I want the truth!" and Jack Nicholson's character Colonel Jessup shouts back "You can't handle the truth!" just before the Colonel offers the entire truth. While sitting in on management meetings at some of my client's offices, I'm tempted to mimic Danny and ask for the truth.

The truth gets swept into the closet at too many of these meetings.

With regard to food cost results, I have seen some major screw ups over the years. Here's the top 2:

1. Manager ordered his staff to cook 200 whole rotisserie chickens (typical demand is 40 per night) since he felt they might spoil. He offered the birds at a $1 discount.

Instead of freezing the raw birds, the staff followed orders and prepped 5 times the usual marinade, prepped the chickens and slow cooked them all day long on the rotisserie. They sold an extra 10 chickens. The additional unit sales weren't enough to offset the discount of $50. What did they do with the other 150 birds?

They never did sell well the next day when they were offered cold for $2 off. More ingredients were wasted when the staff whipped up a mess of chicken salad. Try to imagine the additional labor, the marinade ingredients, the gas used to cook the chickens, the mayo and veggies used in the salad.

Instead of stopping the insanity early and eating the $250 on day one, the mistake was allowed to dominate the week. The manager never survived this debacle.

2. A fast moving multi-tasker put 10 cases of baby back ribs over medium heat and went outside to check on a delivery. Since the restaurant was not open for breakfast, no one was in the kitchen for the next hour. The delivery didn't go as planned and several phone calls were required to communicate with the vendor's main office.

By the time the employee made it back to the kitchen, he realized his mistake. The ribs were all ruined (burned on the one side). The owner came in 2 hours later and asked why the kitchen smelled like something was on fire. He was told how the 300 pounds of ribs were burned and discarded.

This was an honest mistake. The ribs were immediately discarded and the employee never wasted another rib again.

These huge errors were well documented due to the shear size of the hit. It would have been impossible to change a couple of Excel entries to heal these wounds. As crazy as it seems, I found the 2 meetings following these events to be fantastic.

Everyone discussed real issues and developed safeguards to prevent a replay.

Check Out The Hospitality Finance Blog

I took down my well crafted Yahoo Finance Pipe with a filtered news feed for the hospitality industry. Eric Hertha's Hospitality Finance Blog will keep you up-to-date on any and all reports for public companies in our segment.

Restaurant Flash Report Format

Hi Joe,

Thanks for your newsletters, its of great help to me in the industry.

I would request if you could help me find/make a format of Cost Controller's "Daily Flash Report" in excel, with all possible data it should contain.

Thanking you for your support,

Harish

Good request Harish! Thanks for the compliment.

The daily flash report has to have all the essential information. Our business is quite straightforward from a reporting viewpoint. Sales, food and beverage cost and direct labor dominate the profit and loss statement. The daily report should include sales by meal period, total food received, total beverage received, number of workers and total hours for management, kitchen and service.

In addition to this essential information, I like to include notes and explanations including unusual events (from a financial perspective). Perhaps the weather was very poor or a key staff member called in sick. You may have lost power or had 3 tour buses pull in at the same time.

Food Cost Techniques - Counts

Most food service people are out in their storage areas each and every day. If they stopped to keep a record of their observations, they would have an incredible tool for solving the usage riddles each week. The normal tendency is to check the stock level of the highest volume items frequently. These same items make up a major portion of the cost of goods sold.

Production teams communicate with clipboard lists. The current shift needs to leave a sufficient stock of batch recipe items for the next shift. These clipboard sheets document the movement of major production items. Don't let the data go to waste.

So how do you make the data come alive? Match it with sales activity. Test your forecasts against the actual demand. Did you over produce? under produce? or were you in the zone? Keeping records will help you get in the zone and stay in the zone.

The keys to turning your walk around spot counts into an effective tool are record keeping, feedback and adjustments.

Food Cost Tips and Tweets

I started a daily food cost tip tweet on Twitter a week ago. All readers are welcome to join Twitter and follow my tweets.


By TwitterButtons.com

These tweets all start with #FCTip: which you can enter on Twitter's search to see the earlier days. Earlier today, I discovered Ping dot FM which allows the same micro-blogs to be posted here on the Food Cost Control blog, on Twitter, my FaceBook page, LinkedIn and Plaxo.

Food Cost Techniques - Receiving

The second biggest opportunity for saving money in a restaurant is available at the loading dock. Receiving controls can save you a bundle. The amount of savings is directly proportional with the number of miles from the supplier. If you are the last stop on the delivery route, the morning's rejects may find their way onto your doorstep.

We once followed a rejected case of salmon all over New York when I was working with a local chain. The driver tried to unload the case at each and every location. Good noses and lots of phone calls kept the spoiled fish from our walkin coolers. Do you let the delivery man load the goods on your shelves? I recommend you end this practice. Especially in operations with limited deliveries and long lead times, drivers often bring the stock up to the order quantity using items already on the shelf.

Imagine you order 20 cases at the order point which is 5 cases. By the time the driver makes the delivery, you have 3 cases left. You let him put the cases in your storage. He delivers 17 cases and calls you in to check off the delivery and sign the invoice. You count 20 cases and sign. You just paid for 3 cases you never received. This is just slightly better than a phantom delivery.

One site I was sent to audit for an out of control food cost had several assistant managers. I was in charge of the inventory and I assigned everyone a location. Keeping the refrigerators for myself, I began looking for a truckload of eggs. Looking everywhere, I could not locate the eggs. The managers started complaining about not finishing in time. I persisted and increased the heat.

Eventually we located the truckload of eggs at our competitor's project five miles away. The invoice had been rubber stamped with one of the manager's signature. We threw out all the rubber stamps and got a credit for the eggs. The driver and our purchasing manager were in collusion.

In general, try to treat your inventory delivery with the same seriousness shown to the armored delivery of cash. You probably lose more cash in food not received than the miscounted cash delivered.

Food Cost Techniques - Orders

The number one component in your weekly or monthly food cost percentage calculation is food purchases. This figure is modified by the net inventory change before you divide by sales. Many operators tell me they don't count inventory any more. I always ask them how they order food.

In every case, food service operators go to their storage locations when determining the order requirements. This activity is an inventory count. Although there may not be a formal report or a careful valuation, the person who checked the stock room, walkin cooler or freezer performed a count. In most cases, these counts are discarded once the food order has been completed.

Do you organize your food orders by category (e.g. produce, meat, seafood, dairy, etc.), by vendor, or by storage area (e.g. freezer, cooler, dry storage, etc.)? Do you have a day of the week organization? Perhaps you order produce twice a week on Monday and Thursday. You might replenish groceries once a week for high volume items and monthly for other items. Maybe you have become aware of a special on a shelf stable item. On the other hand, prices for some high volume items may be sky high this week.

If you phone in your orders, you may be on the phone with someone trying to blowout an over stocked item. Do you change your order on the spot to "take advantage" of this limited time offer? If you answer yes, how do you determine the impact on other items you need to order? The person on the other end of the phone line has taken over your order process.

Most operators have a decent price awareness. Some are acutely aware of any market shifts in their top volume items. These same operators may have a vague idea what the market conditions are on their low volume items. Who has the time to track all this activity? Time is money.

Every operation spends a significant amount of time each week ordering, receiving and storing food items. Much of the information used in these decisions is discarded once the order has been submitted. Spot counts, market prices, last minute deals, emergency orders, short shipments, poor quality rejections, and every day customer preference shifts are processed and the impact is seen in your invoices.

Do you have a feedback mechanism built into your control system to highlight ordering issues? If you don't have any feedback other than the goods arrived, you are missing another opportunity to improve your ordering process.

Five simple recommendations:
1. Develop order guides to fit your personal environment. Document the counts, par levels, and other notes. The notes should have details on weather conditions, seasonal peaks, etc.
2. Clearly mark your orders with any changes made during the phone call with the supplier. Use a different color ink to highlight these changes.
3. Organize the price quotes faxed each week on bid comparison sheets.
4. Document all specification issues and ask for credits when the delivery does not match your request.
5. Summarize this activity each week and use the information to improve the process.

Once you order food, the economic impact of the order is reflected in your food cost percentage. It is impossible for something you never ordered to spoil, be improperly portioned, stolen, or over produced. Spend less time in the long run by investing in organizing your ordering process today.

Reader Feedback on Priorities

Hi Joe,
I think no matter how you answer that interview question you have to back it up with an explanation to make it sensible. Personally, I think they are all equally important and certainly completely intertwined. Therefore, there is no way to isolate these as three separate entities.

As far as the warehouse is concerned would it be helpful to discuss the concept of averaging a price for items that are coming from the warehouse that has in inventory product that was purchased at varying prices?

Thank you,

Paul

Thanks for your feedback Paul. These 3 priorities are completely intertwined. You are 100% right. I see better food quality in kitchens with less waste and spoilage. Customers love to receive a consistent portion size. If a researcher studied the relationship between food quality and food cost control for a focused menu, they would find better food cost results at restaurants with higher food quality. Top quality food sells better and higher volume helps your percentage.

Properly trained and supervised employees are needed to make everything work. Good financial results and happy customers result from a motivated staff.

As far as using average costs in a complex organization, I'd certainly recommend a consistent cost method with all transfer activity priced on an average. In a period of price volatility, this is the fair method. The goals of a tight transfer model are simple: control flow of food and allocate the costs based on usage. An average cost fairly measures the unit operators control over usage. The central purchasing management is responsible for getting all the profit centers better prices.

Personnel Supervision is Job One

Ralph said...
Joe:
Great answer. I know you focus in on cost control, but it seems to me personnel supervision is the #1 cost control issue...but it also the #1 revenue generator.

In this economy, I believe restaurants overlooking the obvious.

I'm still eating out. Just not as many places. I make it an occasion, and still spend a fair amount of money.

But I only go where the food AND service AND atmosphere AND value...are all excellent.

I'm believe many of the restaurants could thrive in this recession/depression by focusing on these items. I know these items make up more than 1/2 of the costs of running a business. Why wouldn't business owners focus their energies on this?

But instead I keep seeing chefs/owners reducing the wrong items: food quality, food freshness (localness), portions or service.

I was just in Vegas. All of the casinos and restaurants and employees have gotten the message. Every single person was extremely helpful and grateful for my business. I thought I was going to get a kiss for just a $2 tip. I loved the service from the waitress to the pit boss.

I would ask every restaurant owner: do you have the best possible server, captain, busser, hostess working for them? Are the best possible trained employees out front positively representing the restaurant?

Are you unequivocally proud of every single employee?
If not, then your employees are driving your business into bankruptcy.
Now ask yourself the same about atmosphere, cleanliness, quality and value.
Am I the only person in the restaurant concerned about these factors?

We are definitely in sync Ralph! Employees make the guest experience. They produce the top quality menu items, served guests with a positive, friendly attitude and help keep your restaurant spotless. They also help you make money by following portion control guidelines and making sure both the quality and serving size are consistent.

During my most recent trip to Las Vegas in October, I had two excellent dining experiences.

If you really want service, take a trip to St. Kitts. The Royal Beach Marriott has several restaurants. At every meal, the management and staff came by at least five times to check on my satisfaction. Most of these people wanted to know if I was able to explore the island and they each mentioned their favorite spots. I asked my client if there was a course all resort employees were required to take prior to work. He said the entire island is sensitive to the needs of tourists. The whole population recognizes the importance of the industry.

When you contrast these tremendous service experiences with the mediocre efforts at many restaurants and hotels, there is no reason to return to a poorly managed operation. Over on Roadfood.com , a recent review of a famous hamburger spot in Connecticut points out a serious attitude problem:

Posted by Joan Keating

What a letdown! We made a special trip to name left out just for the great burgers. We walked in and found it packed with first-timers like us, standing in a confused mob inside the door. The counter-person (owner?) and the cook, standing next to each other at the counter, neither acknowledged nor made eye contact with ANYONE in the line for an annoying 20 minutes or so. FINALLY the counterman said, "OK, who has to order?" Not, "how can I help?" or anything cordial. He then took orders for about a dozen or so burgers from six or eight people, and was surly at best during the entire process.

No menus, no explanation, not even a list on the wall to explain protocol. We ordered based on hearsay, and waited an excruciating 40 MORE minutes (for a total of ONE HOUR) to get a mediocre, dry burger; and the order was wrong! If it was supposed to be a cheeseburger, there was so little cheese it was a hint at best. "The works" were forgotten, and it was NOT the default medium-rare that is supposedly served unless otherwise requested. It was flavorless, dry, and boring, on white toast with not a drip of ketchup or other condiment, and NO SALT OR PEPPER either!

The icing on the cake was the FU attitude from the owner and the chef, who sighed and rolled their eyes at anyone who asked a question or made a special request. We are SO disappointed at this bum deal. Worst of all: it cost roughly $30 for four lousy, dry, overcooked burgers, a half-cup of potato salad, a bag of chips, and two sodas. What a RIPOFF!