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Tuesday, October 30, 2007

Seasonal Forecasts

When food service operators experience wide percentage swings between in season months and off season months, I recommend a simple analytic tool. The key to using the tool is a list of managers and staff working year round. Once you have this list, it is possible to calculate the monthly labor cost and the estimate of food consumed by these people. In theory, the costs associated with paying and feeding the core team should be the same each month. Sales may fluctuate widely.

As an example, let's use three managers with a monthly salary and benefits expense of $16,000 and food consumption of $540. We'll use six staff employees with a monthly expense of $12,000 and food consumption of $720. Combining the 9 core people, we would pay $28,000 monthly and they would consume $1,260 in food. The table below shows the impact on percentage results as volume changes. While labor cost % spikes during downturns, the employee food consumption should not produce a huge swing. Using dramatic changes from $2,500,000 in sales to $250,000 would only account for a 0.45% change in food cost percentage.

So why do food cost percentages go sky high in off season periods? I believe chronic waste and theft are exposed. However, we can imagine a 100% theft free kitchen and focus on waste. Waste will increase as volume drops if the menu choices do not change in the off season. Producing food for a varied menu with lots of choices in each meal period and menu category puts huge pressure on the forecast team. They need to accurately predict the covers and the expected menu profile. If they miss on the busy weekend, the garbage cans will be loaded with dollars of food cost.

In summary, it's difficult to explain away huge upticks in your food cost percentage with employee meal expenses. Try to decrease the number of menu offerings when you are slow. Watch for repetitive waste issues (e.g. an entire prime rib is cooked and only two portions sold - the rest is used in sandwiches and soup). Slow periods do help daily theft issues to surface.

Friday, October 19, 2007

Chronic Waste

Do you feature lots of specials? If specials account for over one third of your volume, you probably experience a significant waste expense. Forecasting is much more complex with menus featuring market-based entree specials.

I find many menus focused on specials create chronic waste. The cost of each bad decision is not immediately recognized most of the time. These mistakes are frozen, rehashed, served on buffets and fed to employees. Some executives praise chefs and kitchen managers for their talent with using leftovers. There is nothing wrong with creatively using a modest amount of over-production. Chronic waste starts when the over-production becomes routine.

Once your operation starts producing too much product due to poor forecasts, you eventually begin to focus more on mistakes than successes. Wait staff are asked to recommend last night's poorly received 5th choice rehashed into tonight's number one choice. Freezer space is used to store items which will become an expense of some future period. At an extreme, I have witnessed companies spending capital resources on greater freezer capacity.

So how do you end this cycle of progressive and chronic waste? The simple way is to develop and feature a solid slate of popular entrees on your base menu. Use specials judiciously to highlight seasonal favorites (preferably using low cost seasonal ingredients).

It's OK to offer some variations on a theme but try to utilize fewer meat and seafood raw ingredients. Waste expands as the variety of protein ingredients increases in your walkin cooler. Operators with limited menus experience very little waste because they offer the same entrees and sandwiches day after day. Study this simplicity before revising your menu strategy.

Tuesday, October 09, 2007

Volume Hides Mistakes?

There is an adage in the restaurant industry which states: Volume hides mistakes. I prefer to take the statement and twist it a little. What are these hidden costs? Why does volume hide them so well? Is there a benefit to eliminating these profit killers?

Hidden costs often involve food consumption unexplained by menu analysis. Finding the food consumed without regard for the number of covers or the menu choices made each day is our goal. When do these costs become visible?

Hidden costs stick out on low volume weeks. When there is no volume to hide them you can identify and eliminate these problems. Embrace your slow weeks and use them to improve the operation.

The core staff will often be on duty during your slower business periods. These workers will most likely consume food while on the job and they may also consume food off the premises. It's a mistake to credit your food cost for employee meals. Rather than issuing a credit, I'd recommend including the employee meals in your food cost percentage. If you credit these meals, you will miss a control opportunity.

Some operators see huge swings when their volume drops. The biggest moves I've seen are from the high 20s to low 40s. If your food cost percentage is 28% at peak volume and 42% at your low point, you use 50% more food per portion served to a customer. Careful analysis of employee food consumption can help identify major problems.

Imagine someone is robbing a case of shrimp each week. The impact of this activity would clearly be greater when volume drops. Your big volume weeks will offer cover for these thieves. Try not to offer additional cover by creating overly generous employee meal credits in your calculations.

Restaurant Data Pros

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