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Tuesday, December 01, 2015

Three City Comparison - Restaurant Closing Rate

A new report shows the impact of service style in the rate of failure in the restaurant industry for the top three metro areas.  Chicago has a lower rate of closures and has a much lower ratio of table dining establishments to counter service restaurants.

See the report on

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.
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