Accurate Food Costs Enable Menu Analysis

As many readers have noted over the years, we are working to put dollars in the bank. Frequent and consistent percentage analysis will help you identify consistency issues. Beyond percentage analysis, the ideal cost vs. actual cost report highlights specific ingredients ranked by dollars of variance. This analysis involves production and sales data, standard recipes and detailed purchase records.

If you are late to the theoretical cost movement, I urge you to start with the center of the plate ingredients. Get a handle on your high volume, perishable protein items first. Eventually, you will build a more comprehensive standard recipe file. When this day comes, I expect you will find most of the major variances will be center of the plate ingredients. My confidence comes from experience. Perishable, high volume protein items typically make up the major share of your controllable stock.

As you begin building your center of the plate recipe model, focus on entrees. Go ahead and carefully cost the portion for each protein item used in your entrees. If you have time, calculate the cost of your most popular accompaniments for these entrees. Include all complimentary items like rolls, butter, condiments, garnish, salads, etc. These complimentary items account for as much as $3 per dinner cover.


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Use the cost of the center of the plate ingredient along with your cost of complimentary items to find the gross margin for each entree. Simply subtract these costs from the selling price. This gross margin figure is the core of any useful menu analysis.

Menu analysis will take you beyond the food cost % report. You may currently use food cost % to trigger menu item price changes. Menu analysis techniques offer a different point of view. In the absence of menu price changes, purchasing results dominate your gross profit scorecard (as much as 80% of potential gross profit improvement vs. 20% due to tight portion control).

The portion cost data is much more useful when employed in menu analysis.

Menu Analysis: Quick Checklist

Do you keep your old menus? If you have a stack somewhere in your office, try to locate the menu from 2004. I would suggest you put your current menu side-by-side and perform the following checklist:

1. Count the number of choices in each major category for both menus. Fewer is better in this environment. If your current menu has more selections in the appetizer and entree zones, make a list of the items added in the last 5 years.

2. How do the prices compare between the two menus? Normal inflation over the 5 year period was low but food commodity markets had tremendous volatility during the oil price boom and bust. Perhaps you have cut menu prices to encourage more customers. Look for the highest and lowest priced entrees and put this information in perspective.

In 2004, proper pricing of the highest priced entree was very important. Diners were spending more 5 years ago. Today, the lowest priced entree is quite important. Many diners are searching for value. You may not be charging enough for your budget selections.

3. Try to remember your previous pricing strategy. Look back 5 years ago and think of your game plan. Were you raising menu prices 10% each year? Maybe 5%. A 10% annual increase will add up to 60% over 5 years. The 5% annual increases amount to 28% over the same 5 years.

If your current prices are looking similar to 5 years ago, your average increase for the 10 year period is about half of the number from the 2004 strategy. Should you bring your costs in line with this new reality? In the short run, most companies have been forced to make drastic cuts. Take a long term view and decide what the future holds for the next 5 years.

In summary, this is a great time to review your most recent 5 years. Sometimes people look at the future through an optimistic lens. Other times (like now), the pessimistic lens is used. By looking at the complete picture, you will see things as a realist.

Is Your Ideal Food Cost Number Real?

A veteran restaurateur asked me to check out his numbers to see if I could see a problem. Initially, he assumed the program he purchased was defective. As I started asking questions, my focus turned to yield data from his butchering department.

In addition to a very ambitious menu, this restaurant offers a top cuts of beef in a small retail shop. Along with T-Shirts and ball caps, customers can take home a filet mignon or porterhouse steak. The butchering department produces cuts of meat for both the restaurant and the retail shop.

The retail shop has a consistent cost of goods sold percentage.

After tracing the food cost percentage backwards, it became clear the restaurant suffered from butchering yield volatility. The accounting method utilized by the owner treats the butchering operation as part of the restaurant. Steaks are "sold" to the retail shop at cost. This cost is determined using a formula which has a standard yield and only varies with market price fluctuations.

The main issue is the normal volatility in yield (i.e. edible pounds as a function of as purchased pounds) is borne by the restaurant. The owner is using ideal cost data which assumes the yield is constant. One of the most popular large cuts has a "typical" yield of 61%. The actual results vary between 57% and 64%. The 61% standard occurs about 18% of the time. The rest of the time (82%), the butchering operation has a variance from the standard.


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When the yield is on the high side, the restaurant has a good week. The rest of the time, the restaurateur is scratching his head. The number one point to take from this story: he keeps tremendous records. I would never be able to explain this situation with clarity without his butchering archive. He keeps a three ring binder with a butcher yield sheet for each batch.

After I helped him tie the butchering yield data to his ideal usage model, the variance due to butcher yield declined and the problem was solved. Should we be happy with the virtual elimination of the variance? Probably not.

The previous uncertainty produced plenty of heated discussions between the production team members. These interactions produced a decent number of innovations over time. Now the calm waters have caused a level of indifference which never existed before the model was tweaked.

I personally enjoy variances. Many operators hate any variance from the ideal. They build recipe models which are designed to hide normal variances. When deciding on a yield, these people imagine the worst case scenario (57% in the operation above). By the time a variance is recognized using these reports, there is a huge problem.

The range between 57% and 64% is 7%. When expressed as a function of the low yield figure, this range is nearly one eighth. If the butcher was crooked, he could grab a box of meat for every eight when the yields are good. His theft would go completely undetected. The same restaurant may never get on the phone with the meat supplier and complain about the substandard yields. Inconsistent portion sizes would stay hidden as well.

So what is the best way to approach this situation? The restaurant needs to treat the butchering operation as a separate entity. In this entity, yield variances need to be front page news. Daily variance should be dealt with decisively and quickly. This butcher should "sell" portions to both the restaurant and the retail shop. These portions should be closely monitored using a POS system.