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!

Report Format - Food Cost Control

Sir,
I need the proper format for costing. Can you send it to me.
Thanks & regards,
Jayanta

Back in May 2006, I posted a series of articles to help explain both the format of the period food cost results and the impact of each component. The report format varies for hotels and resorts with more than one profit center. When you have central purchasing and transfers of both stock items and batch recipe items, you need a more complex approach. It helps to start with a matrix.

The rows of the matrix are the formula components. You would have a column for each profit center (including the central purchasing - warehouse operation). The transfer activity should net to zero for the entire operation (i.e. transfers in equal transfers out). In theory, central purchasing & control's revenue and usage should be zero. All cost should flow to the operating units. We can evaluate each profit center's performance (as a % of revenue) and use the statistics to explain overall performance.



[Click on the matrix for a larger view.]

The goods available for use number is exactly the same as the simple formula. The beginning inventory plus purchases equals goods available. Usually, purchasing is done centrally and the profit centers will have very little purchasing activity.

Transfers out of the commissary to the units should closely track purchases since food is perishable. When net commissary transfers are far less than purchases, par stock levels should be modified to prevent future over stock conditions.

The commissary equals goods available plus the net transfer activity minus the ending inventory. We should see zero or a very small usage amount. A negative result would indicate a error in your data entry.

Each profit center's usage is simply the beginning inventory plus net transfers minus ending inventory. Divide the usage by the revenue to find the usage as a % of sales.

Setting Food Cost Priorities

I was asked this question at a job interview and hope that I got them right. What is your take on this question?

Food quality control, food cost control and personnel supervision are three important responsibilities of this position. Please prioritize these in order of importance and provide your reasons.

Thanks!

I would put these three important responsibilities in the following order:
1. Personnel supervision is number one because people make the entire business model work. It's impossible to hit your objectives if you are lax with supervision.
2. Food quality control would be my second priority because quality drives sales. You can hit every other number in a restaurant and if the quality is low you're in danger. So now we have qualified, well supervised staff producing high quality menu items.
3. Let's make some money now that our guests are happy with the service and food quality. Food cost control will help insure proper portion control, lower waste, optimal stock levels (freeing cash frozen on your shelves), and optimal blend of ingredient price and quality.

On the quality issue, it's often possible to meet the food quality control and food cost control objectives simultaneously. I shop at Whole Foods for many items due to family allergies. They have a private label called 365. The 28 ounce can of the 365 label canned peeled whole tomatoes costs $1.39 here in Virginia. This is a premium over other local markets. You may pay as little as $1.09 for the same size can. When you cost the canned products by the tomato, the Whole Foods 365 label comes up a winner. Each can averages 12 tomatoes. Some of the cheaper brands have only 7 or 8 tomatoes and plenty of water or tomato juice.

Would you rather pay $1.39 for 12 tomatoes or $1.09 for 7.5 tomatoes? You pay 25% more when you buy the cheap brand.

This analysis is 100% tomatoes to tomatoes. The size is almost identical.