Don't overlook sales when reviewing your food cost results. There are several important reasons to scrutinize the divisor in the formula as much as the net purchases total. Your sales figure depends on covers, check average, promotions, coupons, discounts and lost revenue.
Lost revenue is related to menu items your service staff can serve a guest with no order entered in your POS system. Typical examples include slices of cake or pie, small pastries, coffee, tea, cocoa, soup, rolls and ice cream. Less common items include modifiers normally ordered through the POS system which have a small charge to the guest.
A second source of lost revenue involves unauthorized voids and price adjustments. I remember working with a family restaurant with a special price for ice cream sundaes for dinner patrons. Anyone visiting the restaurant for dinner was offered a sundae for 99 cents. After reviewing several POS data tables, I noticed late shift changes on many $3.99 items to $0.99. These patrons did not have dinner. They all paid cash. Their orders were changed from the full charge for the sundae to the dinner special price.
My annual estimate for this activity was $10,000. As you can imagine, these changes had to be made by a manager. The wait staff did not have the authority to amend closed checks. If the managers on shift were pocketing cash, you can be 100% confident the wait staff felt comfortable serving items not ordered through the POS system.
Chronic lost revenue won't show up in check averages. If this theft has been going on for years, the check averages will be consistent.
Jumat, 23 April 2010
Rabu, 21 April 2010
How Much Do We Need To Charge?
I received an email from a company with a large buyer of their tamales. The buyer pays $1.50 and they want to price the tamales to have a 30% cost of sales. Currently, they charge less than $3.00 for the tamales.
At $3.00, the cost of sales is 50%. If they could sell the $1.50 tamales for $5.00, they would hit their target. This is a 67% increase in selling price.
The tamale manufacturer could re-engineer the tamale at a $1.20 price point. If the seller raised the price to $3.60, they would be close to the target 30%. Do you think the customers would stand for 20% decrease in portion size and a 20% price increase?
The tamale manufacturer could offer a volume incentive. If the buyer hits a volume target, they could offer a discount. This discount could be paid monthly or quarterly. They could continue selling the tamales at $3.00. If the manufacturer produces the smaller portion for $1.20, they would have a 40% cost of sales.
Let's use a 20 cents incentive as an example. The buyer would achieve a 33% cost of sales if they hit the volume target ($1.20 minus $0.20).
At $3.00, the cost of sales is 50%. If they could sell the $1.50 tamales for $5.00, they would hit their target. This is a 67% increase in selling price.
The tamale manufacturer could re-engineer the tamale at a $1.20 price point. If the seller raised the price to $3.60, they would be close to the target 30%. Do you think the customers would stand for 20% decrease in portion size and a 20% price increase?
The tamale manufacturer could offer a volume incentive. If the buyer hits a volume target, they could offer a discount. This discount could be paid monthly or quarterly. They could continue selling the tamales at $3.00. If the manufacturer produces the smaller portion for $1.20, they would have a 40% cost of sales.
Let's use a 20 cents incentive as an example. The buyer would achieve a 33% cost of sales if they hit the volume target ($1.20 minus $0.20).
Kamis, 01 April 2010
Understanding Menu Categories
How many of your dinner guests order a starter? Let's use 50% as a guess. Same question for dessert. We'll use 25% of guests for our dessert guess. Do all of your dinner guests order an entree? Maybe you see 90% due to substituting a starter for the entree course. Do you offer side dishes? How many guests pay extra for a side? We'll use 25% as a guess.
Our customer profile looks something like this table:
Starters 50%
Entrees 90%
Sides 25%
Desserts 25%
We would expect this profile to run a higher food cost than a restaurant with similar prices and menu choices with the following profile:
Starters 25%
Entrees 90%
Sides 25%
Desserts 50%
Restaurants with relatively higher dessert sales tend to run lower ideal food cost percentages. Think of the elaborate pastry displays when you visit a hotel for Sunday Brunch. They want you thinking about dessert before you take your first bite.
Click on the banner above for information about our next Menu Analysis Webinar.
If you specialize in huge portion sizes and high volume, you may not wish to push dessert sales. You'll run a higher food cost %, lower check average and the increase in covers will make up the difference.
If your customer base is in a rush, you can offer a full meal option with smaller portions of all 3 courses for an attractive price. This is common in entertainment areas near theaters and stadiums. You'll effectively change the profile as follows:
Starters 100%
Entrees 100%
Desserts 100%
You could manage the choices for the 3 courses and create a full meal profit which is higher than the current average per cover.
Our customer profile looks something like this table:
Starters 50%
Entrees 90%
Sides 25%
Desserts 25%
We would expect this profile to run a higher food cost than a restaurant with similar prices and menu choices with the following profile:
Starters 25%
Entrees 90%
Sides 25%
Desserts 50%
Restaurants with relatively higher dessert sales tend to run lower ideal food cost percentages. Think of the elaborate pastry displays when you visit a hotel for Sunday Brunch. They want you thinking about dessert before you take your first bite.
Click on the banner above for information about our next Menu Analysis Webinar.
If you specialize in huge portion sizes and high volume, you may not wish to push dessert sales. You'll run a higher food cost %, lower check average and the increase in covers will make up the difference.
If your customer base is in a rush, you can offer a full meal option with smaller portions of all 3 courses for an attractive price. This is common in entertainment areas near theaters and stadiums. You'll effectively change the profile as follows:
Starters 100%
Entrees 100%
Desserts 100%
You could manage the choices for the 3 courses and create a full meal profit which is higher than the current average per cover.
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