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Monday, August 24, 2015

WSJ Article on Chipotle Hiring Plans

Julie Jargon's article, Chipotle Makes a New Kind of Play for Labor, appears on the front page of section B - Business and Tech, August 24, 2015.

She reports on a planned mass hiring day - September 9th.  Chipotle plans to hire 4,000 people on the single day increasing their workforce by nearly 7%.

The article features a graph of wage growth for limited-service restaurants vs. the entire private sector.  The source is Bureau of Labor Statistics.

LSR workers have seen wage growth of 6.77% in the 2.5 year period ended this June vs. 5.37% for the entire private sector.
I checked on the Restaurant Investor Report for closing rates in the first half of 2015 for fast casual Mexican/Latin restaurants.  The closing rate was far below other sectors.
Chipotle's closings are a mere 1/8 of 1% (.00125).  Almost all Chipotle locations remained in business during the six month report period.

Independents and regional chains operating casual dining Mexican/Latin concept closed 4.83%.  The entire Mexican/Latin fast casual chains group saw a closing rate of 1.46%.  Mexican/Latin fast casual independents closed 4.36%.

Saturday, August 22, 2015

Seattle Area Restaurants Face Higher Wages

Fox News ran an interesting article, written by Dan Springer, a month ago on their website in the Politics section:

Seattle sees fallout from $15 minimum wage, as other cities follow suit by Dan Springer

The article focused on the impact of a higher minimum wage - $15 per hour.

In his article, Mr. Springer delved into the actions taken by restaurants:

"Some restaurants have tacked on a 15 percent surcharge to cover the higher wages. And some managers are no longer encouraging customers to tip, leading to a redistribution of income. Workers in the back of the kitchen, such as dishwashers and cooks, are getting paid more, but servers who rely on tips are seeing a pay cut.

Some long-time Seattle restaurants have closed altogether, though none of the owners publicly blamed the minimum wage law."

With regard to the issue of long-time Seattle restaurants closing altogether, there is a tick upward in closings reported by in the new Restaurant Investor Report.

In general, Seattle has a vibrant restaurant industry.  The report is very interesting with regard to independently owned full service restaurants, including regional chain concepts.

As of June 30, 2015, the report showed the 6 month closing rate for long-time (over 3 years in business) full service restaurants increased by 46% from 2.7% in the second half of 2014 to a 3.9% rate in the first half of 2015.

A solid 93.4% of full service restaurants owned by sole proprietors and regional chains remained in business.

Thursday, May 28, 2015

Waste Calculation in Food Cost

Dear Joe,

I hope my mail finds you well.

I would like to know how to take into consideration the waste calculation while determining the food cost %.

Our formula:

Food Cost% =(opening inventory+purchases-ending inventory-staff meals-entertainment)/sales

So where is the place where we can add the calculation of wastage in the above formula?

Thank you. 
Best regards,

Thanks for the question, Elie.  This is a popular issue with many food cost controllers. 

In your operation, the purchased food should be consumed by guests when they order a menu item.

If the actual ingredient used to create a menu item requires fabrication, it is possible to experience a much lower yield than you expect.  You may also purchase too much of a perishable item and suffer a loss due to spoilage.  Finally, you may produce too much of a batch recipe used in a menu item which is not part of the base menu.

All of the food purchased, whether consumed by guests, lost in fabrication and poor yields, or lost due to over production or spoilage, is included in the "purchases" component of the formula.

The goal of the food cost control team is to explain to management the causes of food cost success and failure in the period of the report (week, month, quarter or year).

If you use standard recipes and standard yields, your variance reports will highlight the difference between actual usage and ideal usage.  Focus on the high volume items when you analyze variances.

In order to have the right information available, you should keep records for the ways each key item is used.  Purchases, butcher yield sheets, portion control records, and spoilage sheets are the building blocks for your variance analysis report.

In 2015, the high cost per pound or kilo for protein and fresh fruits and vegetables is a main driver of high food costs.  Only menu price increases can help with the higher purchase costs.

By developing a solid usage analysis for all key items, you will gain an advantage.  Over time, you will see trends in waste and spoilage.  If the management team communicates effectively, waste and spoilage will decline over time.

Monday, April 13, 2015

Restaurant Cost Allocations

Most dinner houses with a full bar have a difficult time deciding how to allocate food, beverages, labor and other expenses.  Since the tight control of cost of sales and labor are critical to success, the allocations in these prime costs are a central focus.

Before you begin to drill down into the truly fine cost details, make sure you define all the individuals who support key activities:  management, financial and administration.  The costs associated with the top management staff should not be allocated to any operations departments.  These operations departments are tougher to control.  There may be several workers who move between the kitchen, bar and dining room.  These flexible employees fill in where they are needed.

Some examples of flexible workers include bartender/wait staff, wait staff/general kitchen helper and bar manager/hostess.  Sometimes, these employees move between departments in a single shift.

The cost of sales issues break down by food and beverage in most restaurants.  The biggest decision involves which department receives the revenue for sales of soft drinks.  If sales of soda, bottled water, coffee, tea, juices and milk are included in food sales, the allocation of cost of sales can be tricky.  The bar will use all of these beverages as mixers and in dessert course beverages.

Most bars use olives, onions, cherries, lemons, limes, celery, fruit and vegetable juices, and many sauces (tabasco, Worcestershire, soy, etc.).  Some bars serve drinks with bacon, bouillon, horseradish, and purees.  Back in the kitchen, many chefs cook with beer, wine, and liquors.

The employee meal decision is a common concern.  Many restaurants allow all employees to enjoy a meal for each shift worked.  A common question involves whether to treat employee meals expense as a labor cost or a cost of sales for the kitchen.

In general, the net cost associated with food used in the bar and alcoholic beverages used in the kitchen will be comparatively low.  A best practice I have seen in my client's operations is to use a different brand of alcoholic beverage for the kitchen.  Examples include wine purchased in a gallon container and an economy brand of vodka which differs from the well brand.

Tracking flexible employees and isolating management and administrative staff are important cost issues.  The treatment of soft drink revenue and expenses is very important.  Employee meals can be a major expense. (e.g. 100 employees consuming five $3 meals per week represent a monthly cost over $6,000).

If the kitchen does recognize the revenue and cost of sales for soft drinks, the gross profit will help offset the employee meals cost.

The best solution for handling all of these cost allocation issues is an excellent system for transferring costs between departments.  Flexible employees generally earn the same hourly pay.  Most payroll systems allow hours to be charged to more than one department.

It is important to see report distribution ahead of time.  Imagine the managers who will review the monthly department report.  If your company genuinely utilizes a strong segregation of duties with separate managers for each department, you will benefit from the investment in a robust cost management system. 

On the other hand, your company may use a flat structure with many key people reporting directly to a single owner or general manager.  My experience with less complex operations shows the time and expense involved with cost segregation won't be justified.

Before you start a project for tightly tracking these cost allocations, make sure the benefit will outweigh the cost.  You may be able to mitigate the impact of these secondary issues through a simple offset system.  Most vendors will allow a single location to have more than one account.  For example, the bartender could order lemons directly from the produce supplier.  By performing a cost/benefit analysis, you may save significant time and expense.

Friday, March 27, 2015

Restaurant Management - A Best Practices Approach

In 1991, my wife Jackie and I spent two weeks in the Finger Lakes area of New York State. We decided to stay at a hotel in Ithaca. Near Cornell University, we found a terrific bookstore with a big red dot on the door. Once inside, I went hunting for books on food purchasing and restaurant cost control.

After a half hour of browsing through the available books, I purchased two excellent selections - SPECS by Lewis Reed and Controlling and Analyzing Costs in Foodservice Operations by James Keiser and Frederick J. DeMicco. My goal in working with these two books was to develop a set of spreadsheets to help clients improve their food cost performance.

During the next 3 years, I learned how to build recipe models using four different software systems. The number crunching needed to calculate ideal food costs was out of reach for many restaurant owners and managers. The software made this possible.

At the same time, I used WinFax Pro to deliver a newsletter - POSitive ROI - to New York City restaurants. I had time to chat with my early New York clients, as the slow computers worked for hours to get the ideal use report. These restaurant owners would ask me about my background and for any tips to improve profitability. Many times, I recommended the two books I had purchased from the book store in Ithaca, NY.

A few years ago, I received a phone call from Dr. Fred DeMicco, the co-author of the book on controlling and analyzing costs. He invited me to join a team he was organizing to create an e-book for restaurant management. I accepted the invitation with great enthusiasm and we began the project.

After many months, the book has been published by Kendall Hunt. The team at KH has done a wonderful job of editing the book and giving it the right look. This book is designed to help current and future restaurant owners and managers improve their knowledge of essential restaurant management skills and techniques.

The final two chapters in the book focus on budgeting and break even analysis. Most restaurant professionals can benefit from the advice in these two chapters. In today's volatile environment, restaurants need to deal with wage inflation, increased health care costs, big swings in food costs and tremendous competition.

Year to year comparisons can be difficult due to weather events, business interruptions, natural disasters, droughts, diseases and many other factors which we see on the news. A well prepared budget can be quickly modified to reflect actual operating conditions when you face an unanticipated change in your business environment.

Your break even point can change in a hurry with a minimum wage boost or a new group health care plan for your employees. Should you open a second location? What will be the impact? Break even analysis can help provide answers to these questions.

The book may be purchased directly from Kendall Hunt's website in paperback or e-book format.
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