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 form 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.

Monday, February 02, 2015

25th Anniversary Specials

On New Year's Day, we celebrated our 25th anniversary at Dunbar Associates!

 I am very grateful to the 300 clients who allowed me a chance to go inside their businesses. In any consulting activity, there is an exchange of ideas.

Implementing a comprehensive food cost control system involves reviews of many mission critical systems: POS systems, vendor online ordering systems, catering banquet event order systems, bar code scanning solutions, accounting systems, and lots of Excel files.

In 1990, the best tools available included Lotus 123, Micros 2700 POS systems, Hayes modems, floppy diskettes, fax machines, and Novel networks. PC Anywhere, WinFax Pro, faster modems, DSL phone lines and numerous computer devices helped to improve connectivity.

After 1995, the speed of innovation picked up tremendously as the world moved quickly toward 1/1/2000. Y2K solutions and new dotcom websites helped technology companies grow faster than the economy.

Many software developers needed to transition from their DOS environment to the newer Windows environment.

It was a fascinating time to work with food service companies.

Today, we are all connected with powerful online tools. Many of the essential pieces of the puzzle for back office pros in 1990 are obsolete. Lotus 123 lost out to Excel. Floppy diskette drives are no longer mentioned. USB ports and DVD/CD drives are used today. I have not seen a Novel network in years.

During 2015, I welcome any of my clients to contact me for any projects. For the entire year, you can hire Dunbar Associates for the same rates you paid when we first met. In late 2005, I started this blog. The blog celebrates it's 9th anniversary with a new report store FoodCostWiz Reports. Our first report, Visual Portion Control, is available at 50% off the $9.95 price - $4.95.

In a few weeks, our new text book will be available for restaurant managers, educators and students.  Please stay tuned for more information.

Monday, January 19, 2015

Food Cost Tips - Fabrication and Butchering

Many restaurants purchase large wholesale cuts of meat.  Generally, these cuts offer a lower price point to the skilled butchers.  They take advantage of their diverse menu selections and utilize the trim associated with these cuts.  Packers offer restaurants a selection of quality grades including prime, choice and select.  It is important to purchase prime or choice cuts for steaks and chops. 

Stew meat and ground meat do not require prime cuts.  If you butcher a prime cut and are left with stew meat and ground meat trim, how should you treat this in your food cost?  The best way to determine the proper credit is to pretend you needed to buy stew meat or ground meat.  This purchase price should be used to determine the credit.  You need to know the current cost per pound of ground meat and for stew meat.

Most butcher yield sheets have one to three primary uses for the meat.  In addition, these sheets record usable and unusable trim weights.  The key to success is following the total price paid for each wholesale cut (or box of several pieces) all the way through to the cost per portion for each primary use.

It really isn't necessary to track unusable trim in the portion cost calculations.  You may want to record these weights for future negotiations with your meat suppliers.

The total amount paid for the meat put into production needs to be assigned to the products yielded in the fabrication process.

If you weigh the usable trim and use the current prices for stew meat and ground meat, you can determine the credit to be applied to the total amount paid.  The net amount, after applying the credit, needs to be assigned to your portions produced. 

If you have only one objective, for example filet mignon 8 ounce steaks, you simply divide the net amount by the number of portions you produced.  The total of all portions valued at the net price per portion and the value assigned to the trim must equal the total amount paid for the meat.

Many wholesale cuts of meat produce more than one end use.  These cuts may produce roasts, steaks, chops, shanks, scallopini, and cutlets.  The process of assigning the proper value to each unique end use is more art than science. 

Start with the primary reason you purchased the wholesale cut of meat.  Just like the trim meat, we need to know the price per pound for this retail cut.  Once you have this information, you can properly value all of your meat in this butcher yield.

The total amount paid for the wholesale cut remains our starting point.  From this number, you need to subtract the value for the trim meat to determine the net cost to assign to the main cuts.  Using the retail price per pound for the primary item produced, you multiply the weight by the price to determine the total for this cut.  Subtract this from the net amount after assigning the trim credit.  This calculation will supply the dollar value to assign to the other main cuts produced.  You also need the weight of these other cuts.

We are now ready to determine portion costs for each of our main cuts.

Trim weight is valued using the current prices for stew meat and ground meat.  The primary cut portion cost is calculated next.  You have the total weight and the cost per pound from current prices.  Multiply these two numbers to find the total cost to assign to primary cut portions.  Divide the total cost for this cut by the number of portions produced.

Finally, we can determine the value for all other cuts using the total dollars after subtracting the trim credit and the credit for the primary cut.  Take the net dollar value and divide this amount by the total weight of all other cuts.  This will determine the cost per pound and the cost per ounce for these cuts.  Depending on the portion sizes for each cut, use the cost per pound or ounce to determine the portion cost.

To check your work, make sure the total dollars for trim and portions of the primary cut and all other cuts equal the total amount paid for the meat purchased.

When you butcher meat, the goal is to remove the cost of the meat you purchased from your food inventory and assign this total to the portions produced.  You will credit the value of the raw product taken from stock and debit the value of the products produced.  If you had a vendor called BUTCHER, you would have an invoice with a net amount of zero.  You would send this vendor the raw meat as a credit or negative number.  For each cut produced, you would buy the number of portions at the price per portion from your yield sheet.  The invoice total would be zero.

Most inventory control systems allow you to handle credits using a negative number for the quantity (pound, portion, etc.).  They always use a positive number for the price.  The process is similar to handling deposits and returns, short shipments and other credits.

Using well documented butcher yield sheets, actual purchase prices for wholesale cuts, current retail prices for trim items, and current retail prices for primary use items, you will be able to accurately track portions produced by your butcher.  If you use a system which has ideal cost reports, the techniques above will allow you to eliminate poor yields as a source of variance.

Your inventory will reflect the proper cost for each wholesale cut (not yet butchered), each portion and the trim weight.

NOTE:  You may have meat with bones.  If the bones are not served to customers, they are trim.  Only credit the bones if you would have to purchase bones to create a base menu item.  Otherwise, you should treat the bones as unusable trim.

Tuesday, December 30, 2014

Outlook 2015 - US Food Service Industry

Our industry has absorbed the impact of the supply chain adding health insurance coverage.  Most distributors now have complied with the ACA provisions.  The food distributors have passed these increases on to restaurant owners and caterers.  The record drought in 2013 and the related poor corn crop had a major impact on protein prices during the first 3 quarters of 2014.

Fortunately, the corn crop in 2014 was robust and we can all expect a positive impact on protein prices in 2015.

Given the high 2014 food prices, current low grain prices and the supply chain's early compliance with the ACA requirements, I expect low or negative food cost inflation in 2015.

Minimum wage legislation at the state and municipal level has raised labor costs for many operators.  Health care expenses are on the rise as companies offer minimal coverage to previously uninsured employees (skinny plans and low cost HMOs).  Labor costs will rise in 2015 in dollar terms.

The current oil glut has had a major impact on transportation costs.  Distributors will pass along energy savings to restaurant operators.  Delivery concepts will benefit from lower prices for gas.  Customers will have more disposable income.  The drop in energy prices will provide a needed boost to our industry in 2015.

As the unemployment rate continues to fall, consumer confidence rises.  I expect modest improvement in the employment market with a drop to 5.5% for the unemployment rate. 

Americans are slowly experiencing growth in wages.  The new college graduates will enjoy a better job market.  Previous graduates have adapted to their rough start by staying single in higher numbers.  Take-out, delivery, fast casual and bakery cafes will continue to see plenty of sales growth.

In January, I resolved to lose 12 pounds during the year.  My success in accomplishing this goal came at the expense of beef consumption.  Personally, I did not go out to have a steak dinner in a restaurant during 2014.  Even at home, my family has opted for seafood for most celebrations.

Many of my fellow baby boom generation are increasing their consumption of vegetables.  Locally sourced, organic vegetables will continue to attract diners in 2015.

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

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