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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.

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