Tuesday, November 25, 2014

Reader's Industry Information Request

Good afternoon Joe,

Thank you for such fantastic content in your emails and blogs, I have always found them very useful.
I have been in food services for almost 20 years with the exception of the last few, I have started working at hotels.

I am looking for hotel researchers or consultants like yourself whom I could follow or read their blogs and or hospitality case studies.

Would you know anyone that you could suggest and provide an direction?

Thank you once again for your time and patience and hope you are doing well and are in the best of spirits.


Thanks for your interest, Zafar!

My favorite industry sites are listed below:

Hotel Food & Beverage Observor

Hospitality Trends

Profitable Hospitality

The Center for Hospitality Research

Penn State Index of U.S. Hotel Values

UNLV Gaming Research & Review Journal

National Restaurant Association News & Research

Monday, November 24, 2014

Menu Price Question

Dear Mr. Joe,

Since New Year’s Eve is around the corner, we are planning this year end in our restaurant chain to use set menus.  I have saved all my free offers from suppliers as well as my credit notes year to date.  We are going to get all our beverage items (mainly wine) free of charge from our suppliers.

So how do I calculate my beverage cost using such free goods without any charges?

For the food items, I have no problem because I have to buy menu items ingredients and post the menu item name on my POS.  I just have an issue for the beverage.

I am counting on your advice.  Thanking you in anticipation.


I would ignore the free items when setting menu prices.  These items are actually discounts earned throughout the year on the items purchased from the same vendors.  There are several issues supporting my recommendation.  The top issue involves the cost to replace these items.  You will not be replacing the free wine with more free wine.  Use the replacement cost in your calculations.

A second option you may want to consider is using an average cost when determining the true cost per bottle.  You would use the free wine along with all the wine purchased to calculate the true cost per bottle.  Use the total purchase cost and divide by the complete bottle total (including free wine).  Adjust this per bottle cost for inflation to determine the menu price. You will be close to the replacement cost.

Optional Food Cost Formula

Hi Joe,
I am trying to help a colleague at another hotel in our chain.  He is F&B Controller at a new property.  They do not have a food store.  All purchased items are entered as direct purchases. 
At our property we calculate a weekly Flash (food & beverage cost check) and at the month end the food & beverage cost.

The weekly formula is:
Direct Purchase to Kitchen + Store Issues – (Complimentary Items + Employee Meals)= (Cost of Food/Total Sales)% = Food Cost %

The month end calculation is:
Opening Balance + Purchases – Closing Balance = Gross Consumption – (Complimentary Items + Employee Meals) = (Net Consumption/Total Sales)% = Food Cost %

In the case of my colleague's operation what should be his formula? Since he has no store all his purchases are direct to the kitchen.  So, unused items (that should be stored)  are included in the food cost calculation.  This resultant cost percentage does not represent actual consumption and a bloated food cost percentage is the result, I imagine. Am I correct?  I thought about it and it should be the same formula as a fast food operation that does not have a store.  I surfed the Net and could not find any such animal.  

I'd appreciate your feedback.

Thanks for the question, Brian!

Actually, the food cost formula is straight forward:

Food Cost = Purchases - Inventory Change

I prefer to include the cost of complimentary items and employee meals in the calculation.

Your weekly report utilizes a perpetual inventory model with tight control over issues of stock.  Your friend would need to count inventory weekly.  His formula would be very similar to your month end calculation.

If he wants to allow credits for complimentary items and employee meals, these items would be deducted from the actual food cost.  The key issue is consistency.

Weekly inventories provide excellent feedback to management.  Operations benefit from this added control with lower cost of goods sold.  Problems are spotted quickly.


Friday, October 31, 2014

Should We Include Labor In Our Standard Recipes?

A frequent reader question topic involves the addition of direct labor in all standard recipes.  Before giving a firm recommendation, I'm going to explore the pros and cons of this approach.

On the plus side, recipes which include a labor component will make side-by-side gross profit comparisons between daily specials menu options more informative.    Many restaurants enjoy a major profit contribution from their specials.  Knowing the expected gross profit is a big plus.  By their nature, specials are designed to provide a spark and they should be priced to deliver a decent profit margin.

If we feed the recipe model a week or month of actual menu item sales counts, the recipes with a direct labor component will show the number of expected hours (and dollars) of direct labor .  This figure may be compared to actual labor cost data.  This is one of the benefits desired by operators who adopt this approach.

Switching to the minus side, the addition of a direct labor component to standard recipes makes variance reporting more complex.  Recipe costing software is designed to quickly calculate the impact of price changes for major ingredients.  This impact may be muted by any pay changes. 

The payroll rate increase issue also impacts ongoing use of the recipe model.  While the software is designed to enter food purchase orders, invoices, stock issues, etc., it does not have a robust payroll data link. 

In fact, operators need to "purchase" hours of direct labor with the most recent rate per hour.  The hourly rate is a single figure and it needs to include burden (vacation pay allowance, worker's compensation insurance, unemployment insurance, disability insurance, etc.).  The explanation on how the model handles labor can be confusing to anyone without a degree in accounting or management.

 Some operators use central production (i.e. commissary) for a group of restaurants.  They may have a dedicated team producing food which is packaged in standard containers and shipped by tray or case.  If the commissary team produces a similar volume of finished product each week, the addition of labor (and possibly an overhead factor) may be useful in billing the units.

I would recommend operators examine their true reporting needs carefully before adding a direct labor component to their standard recipes.  The extra work involved in the setup and ongoing maintenance needs to be justified by the benefit derived from the reports.  Most companies control labor with time clocks, schedules, productivity software and employee incentives.  The addition to the recipe model may not offer a good return for the time invested.

Thursday, October 16, 2014

Banquet Guests Choose Most Expensive Items

Dear Joe,
I hope this finds you well.

Please tell me, what happens when you offer a banquet package for a flat price and the clients consume only the most expensive item?

You have no right to stop them because the package is quoted with a specific time (1 hour, 2 hours).  Also, what do you consider when you cost from 1 hour to 2 hours?

Jean Claude

A great number of banquet packages are offered to guests on an all you can eat basis for a time period specified in the contract.  There are ways to control your costs without bringing attention to your tactics.

Many caterers offer a package with a high profile protein item.  In order to restrict access to this item, for example Prime Rib, many give each guest a token or a ticket to hand in when they order their serving from the carving station.

I have worked on cost control for steak night in an operation at a construction camp.  Our guests consumed over 5,000 calories daily.  We expected each guest to consume 2 steaks.  Most guests ate exactly 2 steaks, there were almost an equal number who ordered either 1 or 3 steaks.  We did not have anyone who ordered a 4th steak.

In our contract, the cost of this steak night was weighted highly in our estimates. 

For your operation, it is essential to forecast the number of portions consumed by guests as accurately as possible.  As the meal service goes on for the second hour, your consumption experience will change.  During the first hour, you will have greater consumption than in the second hour.  If the service continues, this trend will continue.

Some tips from my clients include:
Creating a portion size which matches the guest behavior.  For example, you may want to offer a smaller portion size if you believe most guests will return for a second portion.

Budget around 70% of the typical male portion size for the female portion size.

Create a special station for the key item and stage displays of top quality pastry items along the path to this station.

Offer an absolutely irresistible second choice.  Many guests will try each entree and will be satisfied.

You can structure your event differently when you go beyond 2 hours.

For years, I partnered with a restaurant owner to offer traditional Clam Steams in Upstate New York.  These events are pretty standard in the New York Capital District.  Guests are offered a steak or chicken option.  Often, the steak price is $2 to $3 higher than the chicken.  Other than the entree, the event is entirely all you can eat.

At the start of a 5 to 6 hour event, the guests are offered clam chowder, hot dogs, Italian sausage with peppers, and burgers.  In addition, a selection of salads, baked beans, rolls and salty snacks are available.

Around one hour later, raw clams are available to guests.  They shuck their own clams.  Traditional condiments are offered.  The raw clams are available for around 90 minutes and the other items are available all day.

Generally, there are activities and games to break up the food service as the day progresses.  Either a band or a DJ provide music for dancers.

Later in the day, the guests line up for their steamer basket which consists of one dozen clams, one potato, 2 links of breakfast sausage, and an ear of corn.  Guests are encouraged to enjoy unlimited clam broth straight from the steamer.

The grill station is limited to guests with tickets.  They present the grill master with their chicken and steak orders.  This service is restricted to one steak or one half chicken per guest.  Very few people have room for dessert.

The secret to success is an awesome Manhattan Clam Chowder.

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