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Tuesday, February 27, 2007

A Cold Winter Month

Winter arrived late in many parts of the country. Following a busy December and early January, many operators felt the freeze. As highways became dangerous this month, hibernation became the strategy in many homes. Dining rooms all over the land had fewer patrons and sales were low. If the bad weather hit your business on both Valentine's Day and President's weekend, you will be hard pressed to get close to budget.

This is an ideal time to let staff members take a ski vacation or go South to warm up for a week. If your busy season is summer, you don't need your full staff. With proper accruals for vacation pay each pay period, the cost has already hit the books. Have accounting debit the accrual account instead of your labor cost account.

If you have a reserve account for your food inventory, reverse the entry in February and build it back up in the next 11 months. It's common to be overstocked as sales plummet following a busy holiday period. As sales slump, food cost percentages rise. Risk of over production is higher and employee meal costs have a greater impact. Don't buy as much food. If ever the risk of being understocked was low, this is the month.

Clear out the freezers and create some hearty and spicy soups with the thawed ingredients. Cook up some stews and limit use of salads and fresh squeezed orange juice.

Maybe your bartender has a favorite drink for the winter season. Or go to Chena Hot Spring's website to find out how they weather the dark months up in Alaska.

Have the wait staff really push specials and prepare fewer options. Use the season to feature less expensive cuts of meat which can be slow cooked using moist heat methods. Stews may be reheated with very little change in quality. Waste will drop if you can sell customers these high profit, low risk menu choices.

With March Madness in the future and the Super Bowl in the past, opportunities for filling bar seats with sports fans are limited. As a frequent solo traveller , I know lots of bars with great evening entertainment options. One pizza concept I like turns the volume up on Jeopardy and customers compete to solve the questions. Every little bit helps your income statement.

Don't panic! Negotiate with your staff and tell them you can't afford a full week's pay for everyone. Some employees may welcome some extra time off to catch up with their other pursuits. Let the staff rest for the busy months ahead.

P.S. For my ski resort friends, LET IT SNOW!

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Monday, February 19, 2007

Number One Cause of High Food Cost

When your accountant or office manager hands you the monthly income statement, where do your eyes go first? Probably, you look at net income and then head back up top to see sales and food cost. If labor cost is a problem, you'll make that line a priority. When the net income is below budget, serious analysis begins.

I'd like to see a lot more analysis of super net income months. My bias comes from the high percentage of disappointments which follow an unbelievable profit in the previous month.

You can really dig deep into the numbers behind your weekly or monthly food cost calculations. A typical restaurant stocks over 800 food items and spends more on food than any other income statement item. Each of these ingredients has a unique mix of shelf life, popularity, storage requirements, preparation requirements, portion size, market conditions and delivery days. Savvy operators need to reorder these food items frequently due to food's perishable nature.

Improper ordering is the number one cause of high food cost. If you don't believe me, look at your accounting records. You'll find your worst food cost percentages are in slow months which follow an especially busy month. The lack of sales volume brings the problem into the light of day. Ordering problems get "solved" during busy periods since storage capacity is strained as patron counts soar.

It's important to recognize the coming reality as you move from a peak season to the off-peak period ahead. Order less food. You'll be forced to use more of your stocked items. Run some specials to clear frozen items. Produce and sell some soups with the overstocked produce. Above all you should not shift the cost of over ordering in the peak month to the next month. If your ending inventory is more than your expected consumption for the next two weeks (off season), you should ask the accountants to setup a reserve for waste and spoilage.

Look ahead when ordering food and your cost fluctuations will decrease.

Friday, February 09, 2007

Disbelief and Denial

I really grow concerned when I find an operator who just does not believe cold hard facts. The majority of food service managers attack a poor food cost performance from the "it can't be true" viewpoint. Fewer than half of these professionals actually see the issue and develop a game plan to correct the situation. Those who don't believe the numbers or don't want to believe in reality spend valuable time explaining away the bad news.

Since many operations calculate their food cost percentage on a monthly basis, it is entirely possible to eliminate any chance of hitting budget targets with one serious problem. If you operate in a seasonal resort town, the chance of a single problem wiping out an entire year's profits is possible.

Many managers treat the initial report of bad news as an error in calculation. When purchase details are brought to their attention, they might point out cutoff problems with vendor credits, inventory valuation errors on slow moving items, anectdotal tales of difficult to please patrons and many other irrelevant issues.

The chance of curing the illness in month two is zero.

As month two proceeds, the operation continues to be adversely affected by the critical problem. Let's give an example to illustrate. Our poor performance unit is serving a center of the plate portion which is 50% greater than the standard on the most popular entree. This serious problem has now made hitting our food cost target impossible for two months running and we have only one month left to go in our busy season. When will the problem be discovered? Most likely the issue will be ripped apart in the off season when management has some free time to analyze the matter.

The only thing which will become apparent from reading the bad news in month two will be the inaccurate diagnosis in month one. Accountants will poor over the details of statements. Invoices will be tracked down in desk drawers. Inventories will be combed for incorrect cost data. Employee meal policies will be scrutinized. Inter-departmental transfers of lemons, cherries, cooking wine and paper goods will be compared to previous periods.

If we're extremely lucky, someone may weigh a couple of steaks at random and find we are serving an 18 ounce portion instead of a 12 ounce size. Chances are low if the scales are not put to use. Even if the problem is discovered, some managers feel they can't cut back the size or increase the price because they risk customer ire.

Through the initial emotions of disbelief and denial and a feedback system designed to report bad news monthly, our season has ended with insufficient profit to cover overhead costs during the long off season period to come.

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