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Wednesday, December 31, 2008

Outlook for 2009

Back in late April, I mentioned the shrinking size of the loaves of bread at our local bakery in the Smaller Portions Or Higher Prices? article. Today, we noticed the loaves have returned to their normal size. The price per loaf never changed at all during the entire period. We never bought more loaves during the eight month stretch. Actually, I think we bought less bread this year.

We had our annual HFTP Christmas Party at the Capital Hilton. I was running late and grabbed a cab for a short ride. It cost $7 to travel less than one mile. The drop fee was raised to offset higher gas prices. Nobody lowered the meter prices when oil dropped back to earth. Should you tip less to offset the obsolete pricing policy? Since I was in the holiday spirit, I tipped as usual.

With restaurant traffic down for the year, many neighborhoods have seen price wars. Even the top local restaurants here in Fairfax County have post card offers for free desserts. With lower gas prices, most families will have an extra $30 to $70 dollars each week to spend on discretionary purchases. Do you woo them with bigger portions, lower prices, both, or do nothing at all? If you do nothing for the next quarter, I would expect your cost of sales and other direct operating expenses to drop (as a percent of volume).

Many of you will get a true read out on the economic future as the holiday season ends. Expect oil prices to find an equilibrium price higher than current levels. Grain prices will continue to track oil since most gasoline now has a 10% ethanol blend. Interest rates are very low allowing many businesses and consumers a chance to refinance. Credit remains very tight. Bottled water sales are in decline and tap water is becoming a popular restaurant beverage choice.

Rather than using 2007 or 2008 as your compass, try to put together a logical forecast for your region. If you operate near a major banking center, the layoffs could completely change your business model. Anyone in the Mid-West may see an increase in economic activity as stimulus dollars reach the automobile manufacturing companies. State and local governments have less revenue. If you are located in a capitol metro area, you can expect less traffic.

Americans are consuming more beer. You may want to slow down your wine list expansion. Turn a portion of your wine inventory into cash by selling slow movers by the glass. Don't be afraid to accept a higher cost of sales on these bottles. Your shelves are filled with frozen cash.

Tuesday, December 30, 2008

Reader Question About Beverages

Is it a standard practice to include non-alcoholic beverages into food cost? Is that something I should ask my GM to have included in my food cost to help lower the percentage?

I am working in an American Grill/Irish Pub. I am currently running around a 30% food cost and am under pressure to have my food cost dropped down to 25%. Does this seem reasonable in our current economic condition? We are producing a rather large menu for a small kitchen with a walk-in that is shared with the bar and lots of kegs. We do have higher end entrees such as duck and a flat iron entree on the menu.

You have addressed several issues: Consistency; Profit Pressure; and, Shared Storage. Regarding the pressure to lower your food cost from 30% to 25%, you would need to look at this issue separately.

Above all other issues, it is imperative to keep a consistent approach. If you have never included non-alcoholic beverages in your food cost % calculation, any change in % due to the change would be meaningless. You would see a one-time shift in the cost curve and monthly comparisons would look better for a year.

To lower the food cost, I would focus on the duck and flat iron entrees. Is it possible to modestly raise the selling price, reduce the portion size and increase the quality on these menu items? It would be best to do all 3 actions simultaneously.

Eliminate unpopular menu items. A reduction in the number of protein options will lower your spoilage cost. Most spoilage occurs in unpopular protein items. You can also reduce waste and spoilage by avoiding large protein orders. I work with many different food service operations. Usage variances tend to be lower for frozen and shelf stable items. Fresh meat, fish and dairy products need to be ordered carefully.

With regard to the layout issue, it is always better to have clear separation between departments. Your bar operation could be using coffee, carbonated beverages, lemons, limes, olives and other food items. Your chef may use wine, beer and sherry for cooking purposes. Run some numbers to determine the proper allocations and get past this issue. You do not have a lime usage problem.

Tuesday, December 16, 2008

Hot Food Cost Topic

I just received a phone call yesterday from a reader of my blog regarding employee meals. She asked me how employee meals should be handled with respect to food cost calculations. I eventually gave her my answer. Before I directly answered the question, I mentioned my concerns about emphasis on allocation issues.

Generally, I believe there should be a clear policy for each company. There is no absolute method for accounting for employee meals. In the long run, you will have a lower overall food cost result if your focus is on popular menu items and the raw ingredients used in their preparation.

To clarify her position, I asked if she was the owner or a manager. She is a manager and is trying to help with the food cost calculations. Once an organization decides to reward employees based on their performance, it is very important for the performance monitor (in this case food cost %) to be well understood. If the kitchen gets credit for each employee meal served, this credit should be known in advance and applied consistently each month. Bringing up employee meals in a review of a poor monthly performance is a big mistake.

In most operations, the impact of fluctuations in the cost of employee meals should be minor. We used an example in our call to illustrate the point. This operation has weekly sales of $17,000 and 3 employees are offered free meals. I said the impact of feeding these 3 employees each week is at most $50. Many operators use a figure of between $3 and $4 per employee per shift for meals. If we have a bad week, maybe the cost would go up $50 over a normal week.

For every 1% of sales, we have $170 in this company. It is unlikely the employee meal results would help much in explaining a food cost % which is 3% over budget. Look elsewhere for your solution.

In general, all one-time discussions of cost allocations have very little long run impact. Employee meals will tend to have a higher impact during slower periods. If you run a seasonal operation, you can expect the food consumed by your staff to account for a bigger share of all food consumed. Regardless, I believe a combined food and direct labor cost over 65% is indicative of danger in our industry. Any operation with over 2/3 of their sales consumed by prime costs should work hard to lower these costs.

My answer to the caller: Your allocation for employee meals should be clear and should not have a major impact on results. If the same factor is used every period, the employee meal issue will no longer be a hot topic. Consistency is the key to success.

Tuesday, December 02, 2008

Commissary Question

Hello Joe,

I have been an avid reader of you blog for some time now & I have always wanted to ask you a question that I have not come across in your blog & I believe I have it.

We have just opened our CPU to help with consistency first & foremost with a hope to find savings from labor & food costs. What we have noticed is the running costs are something we need to work with & to accommodate them we are spreading them out over all locations, this in the end I find a little unfair as this isn't a reflection on the location “actual” costs. If you could point us in a direction to help the units show the better costs & how we should take care of the CPU expenses. We have discussed charging per item plus a percentage (5-7%), setting it up as a separate business ... Not sure which way we should turn...

With thanks!


I'd expect you to focus on expected CPU benefits and expected CPU costs. Benefits include: consistency, shared resources, shared production labor, lower unit production labor, lower unit investment in major equipment and large drop size for major suppliers. Costs include: packaging, delivery fleet, special equipment, maintenance on the fleet and equipment, delivery labor, administration expenses, rent of the CPU facility, insurance and many other unexpected expenses.

Try to avoid turning the CPU into a full blown warehouse with cases being broken down into smaller shipping units. Keep the initial focus on consistently producing high volume batch recipe items. Try to ship these key production items as cheaply as possible.

Encourage your units to avoid excessive deliveries by splitting the commissary expenses into production costs (allocated by shipping unit) and delivery costs (allocated by delivery). Build the production cost allocation into every container shipped. Higher volume units will bear more of these costs. Rather than a % method, I'd prefer a container charge. This charge would cover all non-delivery expenses associated with the CPU. If the CPU expenses were $200,000 per year and you shipped 100,000 containers, you would charge $2 per container.

The delivery costs should be allocated by actual deliveries. If you had 1,000 deliveries per year and the costs of the fleet (including maintenance), labor, etc. totalled $100,000, the cost would be $100 per delivery.

Tuesday, November 25, 2008

Some Good Books For Food Cost Control

Josh asked some great questions about yields and shrink this month. I recommend two books for more detailed information on standards. Francis Lynch has a new edition of his great reference tool The Book of Yields: Accuracy in Food Costing and Purchasing and I prefer the paperback book over the CD.

Mary Molt's classic catering book Food for Fifty (12th Edition) has excellent yield and standard portion information.

You can also get yield information on meat from the must have industry standard. The NAMP's The Meat Buyers Guide : Meat, Lamb, Veal, Pork and Poultry has zero fluff. I love the tables at the beginning of each section.

Production Operations Management

I am a big fan of your food cost control blog and was wondering if you would be able to help me with 3 questions.

How do you account for the difference in cost come inventory time for product pre-yield and post-yield. For example, you have to account for the cost of uncooked rib roast which costs you lets say $5/Pound. So in your freezer you have 1# of precooked rib roast or $5 worth of product. You also have 1# of cooked rib roast. The cooked rib roast is obviously the product of the uncooked rib roast after a 20% shrink. Therefore, 1# of cooked rib roast really costs you $6.25.

How do you account for the difference in cost on your inventory sheets to get an accurate ending inventory value. Do you have 2 line items, precooked rib roast at a value of $5 per pound and cooked rib roast at a cost of $6.25 per pound?

Also, with the large number of items that you do not get a 100% yield on such as rib roast, how do you know the sum of the legitimate shrink? For example, you take all of your recipe costs times your product mix sales report and you theoretically ran a 28% food cost, but your physical inventories show a 31% food cost. How do you know how much of the 3 % difference was legitimate shrink?

Commissary? When you have 7 restaurants running a commissary where 90% of the food is made out of one location, what is the best way to set it up? Do you set it up as a separate business and sell each restaurant the product with the labor and other expenses wrapped in to the product to cover your overhead and break even or do you sell the restaurants the product at its actual cost and then divide the entire overhead of the commissary operation between all of the units equally? Or is there another way that a commissary should be run?

Does this all make sense? I have scoured the web and have come up empty.


Question 1 - My preference is to use two line items for the rib roast inventory. In some examples, I'd value the cooked item exactly as you suggested in your example. I would definitely value an item with an 80% butcher yield in this manner. However, I would value cooked prime rib less than the $6.25 in the example. Since the cooked meat can't be served as a fresh from the oven prime rib, the inventory value should reflect the value reduction.

Some typical uses for cooked prime rib are French Dip sandwiches, stews, soups and many other menu items. These secondary uses are often sold for half the price of a prime rib portion. The lower of cost or market principle applies. This meat has a market value of about $3.00 to $3.50.

Question 2 - Rather than treating normal production activities as a shrink exercise, I prefer to know every use of the raw, untrimmed item under analysis. For each menu item, I want to know the number of portions produced if 100# as purchased (A.P.) were fabricated. This information would form our standard yield. Normal butcher variances are common. The answer to your legitimate shrink question requires accurate records of the fabrication process.

The variances in yield due to fabrication can be determined by a review of the butcher sheets. There are many sources of variances including customer returns, over-production, spoilage, over-portioning and theft. A well documented butcher process with the actual number of steaks, chops, etc. will help eliminate one source. Production records, POS reports of sales and returns, and waste sheets help to complete the picture.

Question 3 - I'm not a big fan of commissaries. I have helped lots of commissary operators lower their cost of goods sold. The initial goals of big drops, product consistency and shared resources may be offset by fleet maintenance expenses, delivery labor, additional administration costs, equipment depreciation, maintenance and other costs.

If some of your 7 locations have a lower unit volume, you could keep the kitchen properly staffed by producing sauces and prepped items for other units. This approach produces the shared labor result without an investment in another property.

Regarding cost allocation, the delivery cost allocation should be based on the number of deliveries. A volume allocation fails to make store managers accountable for the frequency of deliveries. Production labor and overhead may be allocated based on the volume transferred.

These are just a few examples of commissary allocation issues.

Thursday, November 20, 2008

Menu Engineering Basics

Dear Sir
I need To know the classification of items in menu engineering (like cash cow)
but I don't know the others. Please send me the others and the explanations.

Cost Controller (major 4 star hotel)

Thanks for the question!

The four quadrants of the traditional Boston Consulting Group's Growth-Share Matrix are Stars, Cash Cows, Question Marks and Dogs. Our industry's Menu Engineering categories are Stars, Plowhorses, Puzzles and Dogs. Pretty similar names but much different analysis. The menu engineering model is constructed from POS data and standard recipe costs.

Two pieces of information are required to construct the curve. For a given period of time, you need to know the sales count for each entree. In addition, you need to know each item's gross margin (selling price less the standard recipe cost).

I just happen to be in Michigan today. The menu engineering concept was developed at Michigan State University. Dr. Kasavana's model puts the highest weight on menu popularity. Popular menu items will be either Stars or Plowhorses (depending on their gross margin). Unpopular menu items will be either Puzzles or Dogs.

The graph approach to the menu engineering model is excellent for strategic planning exercises. The y-axis shows relative popularity and the x-axis relative profitability. The reason I prefer the graph method for decision support is because there are Plowhorses close to becoming Stars and Puzzles which are Dogs in disguise.

If you find a Plowhorse near the y-axis, a small increase in the selling price or a small decrease in the standard recipe cost could help create the next Star. On the other hand, a Puzzle far below the x-axis is unlikely to achieve popularity even if the selling price is slashed. Your customers are drawn to your restaurant by your Stars and Plowhorses. These items deserve your attention.

There is a tendency to focus on problems. Rather than trying to fix these unpopular items, you should work hard to make more profit with logical accompaniments to your Stars.

Friday, November 07, 2008

Budgets vs. Forecasts

Good morning Mr. Dunbar.
I often hear F&B managers talking about budgeting and forecasting. What is the difference between the two and how would you budget and forecast an operation?

Your budget is a reflection of your strategic goals, past performance, and your one year forecast. Typically, results are tracked monthly and your accounting system will show budget variances on a line by line basis. The most important issues for food service operators are the top line sales forecast and the prime costs. These prime costs include cost of goods sold, direct labor and direct operating expenses.

You can find excellent budget resources in your library. Cost accounting books and management accounting books explain variable costs and fixed costs. Your budget should reflect the realistic goals of your organization. All key managers should participate in the annual budget process.

Once the budget is final, this plan of attack should be treated as a contract between management and the owners of the company. In the current environment, zero-based budgeting techniques are quite effective. You need to know your break even point. Its a good time to take a hard look at any fixed expenses. Eliminating unproductive fixed expenses is a great way to lower your break even point sales.

Forecasts help you create your budget. While budgets are typically fixed for a year, forecasts have variable time periods. You can forecast for the next 5 years, the coming year, quarter, month, week, day or even meal period. People spend a lot of time forecasting sales. Its easier to forecast your prime costs once you have a sales target.

The planning horizon impacts your forecasts. Top level executives need to have a 5 year vision. The five year planning and budget process helps to put these long term forecasts in perspective. Line people may forecast the next meal period. The manager who is responsible for scheduling may need to forecast the week ahead.

Any great budget requires a great forecast. Top forecasters can help you beat the budget all year round.

Friday, October 31, 2008

Major Drop In Food Cost

Fall is in full swing and the days are getting shorter in the Northern Hemisphere. Here in the Mid-Atlantic, it is now soup season. Soup sales have a tremendously favorable impact on food cost percentages. There are many ways soup helps the operators.

When I worked in the remote site camps, we always had huge stock kettles full off peelings, bones, trimmings and other bi-products of the prep process. The chefs made highly profitable soups, sauces and gravies with the stock.

Slow cooked roasts and mashed potatoes make a comeback on football game days.

In addition to the favorable seasonal impact, gasoline prices are now in the $2.25 to $2.75 range (down from over $4 per gallon this summer). Lower fuel prices help our industry in many ways.

We should see drops in the fuel surcharges and in the case costs from broad line distributors. Customers will see their disposable income pickup as they pay less for filling their gas tanks.

As corn prices continue lower, we'll enjoy better prices on beef, poultry and pork. These lower prices come to the patient as it is common for beef rib 109 to spike during the Christmas season. Watch the markets for buy signals.

Consumers are looking to save during the week. If you can engineer profitable budget meal options for dining in or for take-out, you'll have an edge.

The stock market just had its best week in years. Some of the people who had their 401K slashed to a 201K will begin to feel better about their retirement years. Hopefully, we'll see less pessimism in the press.

Friday, October 24, 2008

Squeezing The Lemon

Operators are working the monthly income statements searching for ways to generate more profit. Many operations are running just above or just below the break even point. Profit improvement efforts produce a huge impact at the break even point. A 1% drop in costs may be the difference between profit and loss.

Sales are tougher to come by this year. If you find you continue to break even once sales volume improves, its time to implement an aggressive cost cutting campaign. You can't afford to miss these opportunities to put money in the bank. A 1% rise in sales won't equal the profit produced by a 1% drop in costs. Every dollar of sales requires food and beverage to be served to guests. This cost of sales reduces the income produced by the gain in sales volume.

With guest counts down and average checks off, there may be a huge temptation to fill seats through huge discounts. This strategy risks losing profitable seats on a busy night. Discount lovers take seats which could have produced superior profits. Rather than offering discounts at every meal, you could offer busy night patrons a discount for a slow early week meal period.

Cost cutting efforts produce profits faster than incremental sales improvements at the break even point. Many managers have already cut their cost of sales to the bone just to stay afloat. If you have squeezed all the juice from the lemon, try some new ideas. I'd start with direct operating expenses. Check on linen usage, sewage bills, utilities, garbage pickup, paper and disposable usage, and other costs which do not help produce additional sales.

You may be able to reduce your costs by closing earlier on many slower nights. Late night hours on slow nights are very unprofitable. Late night sales potential may not justify the labor costs. Compare your final hour's sales less the cost of goods sold to the labor costs for the same hour. If you can't cover labor, you'll save by closing earlier.

By finding cost savings and improving the quality of sales volume, operators can gain an edge over the competition.

Thursday, October 16, 2008

Some Let Up In Sight

Oil is trading below $70 a barrel today for the first time in over a year! Hopefully, we'll see the grain prices which have followed crude prices continue their downward trend. If you haven't locked prices on your high volume items, you may want to let the market drift lower.

Lower oil prices will eventually make the price of gas cheaper and this will give consumers more discretionary income. Your delivery fuel surcharges should be moving lower. As lower energy prices revive the food service model, we should find lower cost of goods sold, lower heating and cooling charges, and higher customer counts.

The federal government's recent decisions may not jump start the housing market but the inflation fears should be less. This will help keep interest rates low. Americans are adjusting to the reduced access to credit and they are watching their expenses closely. Value menus will still have the edge. QSR patrons like to build a meal from a value menu. Casual dining guests are searching for meals below $15.

Generally, the recent crisis should give way to a challenging but manageable business climate for restaurants. If you are in range of the break even point sales level, some proactive measures may help put you in the black. Make sure you challenge fuel surcharges. Look at the invoices from 2 years ago and document the increases. If you haven't been able to raise menu prices, the lower cost of sales will immediately help your bottom line. Stay on top of market conditions.

David Maloni, of American Restaurant Association, now offers a free portal Commodity Central with daily trends in the futures markets. Both Hogs and Corn futures are down over 4% today. If these trends persist, you'll see lower invoice prices.

Sunday, September 28, 2008

Leveraging Your Investment in Food Cost Control

The current economy presents a once in a lifetime opportunity for the operators who have an effective food cost control system in place. Imagine adding rampant commodity price increases to an out of control food cost mess. Can you picture the meetings in operations with soaring food prices, theft, poor ordering, waste and lousy portion control? Obviously, the managers who were already abusing the lax system will contribute all the bad news to the market conditions.

If you are on top of your costs, you can see the usage variances and the rate variances and put each in perspective. You have an enormous advantage over many of your compeitors. Many operators are avoiding the tough issues and calling attention to the rise in corn prices. Certainly, corn price increases have fueled a quantum leap increase in many food stocks. However, at this time corn prices have been trending lower and many companies are losing money despite menu price increases.

The companies who recognize the opportunity offered by their tight cost controls will prosper in difficult conditions. Look at McDonalds. Their stock is up over 15% in the last 365 days. They have always employed a tight cost control environment. Their perceived menu value and tight cost controls put them in the driver's seat.

Contrast the value menu concepts with the upscale, casual dining segment. How would you like to manage an upscale casual restaurant with the cost of sales completely out of control? Look at the industry press and you will see plenty of failures.

So you are in control. How should you take advantage of the weak competition? I would offer tremendous value to your guests. Use your advantage to make sure the competition isn't even close to making their menu a value proposition. Don't play games with menu prices and don't beg people to come to your restaurant. Let them come for the quality and value. Once the guest arrives, give them lots of extras. Get some buzz going through word of mouth.

Fresh baked rolls and desserts could get rave reviews with a minimal increase in food cost. Take advantage of the perceived major price hike in flour to create a competitive advantage. When bakers are in the news due to high flour prices, you can offer top notch baked goods as a complimentary extra.

I'm just using one example. You know your strengths. Use your tight cost control system as a weapon to win this war. Pick a few of your kitchen's advantages and feature these menu items and extras to defeat your competition.

Saturday, September 20, 2008

Food Cost Control ROI

If you've invested the time and money to build a food cost management system, this year will give you an above average return on investment. The reason your ROI will be higher is the edge may keep you in business. Many of my clients have seen their sales decline from 2007. Certainly, everyone has seen an increase in their cost of sales. Energy costs are soaring and the impact is seen in every delivery.

Management's #1 challenge is to survive 2008. Once a solid short term strategy is in place, the entire organization can work together to meet weekly goals.

In the longer term, many companies will emerge stronger and with fewer genuine competitors. If you follow the industry news, you've seen plenty of failures. Stale concepts and red hot brands have faltered. The future will be quite profitable for companies with profitable business models today.

The ROI from an investment in a food cost management system is greatest now - in a downturn. The reports you see each week give you an edge. This edge could be the difference between a profit and a loss. Reports which show price fluctuations are very useful. While your competition sees higher food cost percentages, you will understand these increases better. Menu analysis and recipe costing tools help with pricing decisions.

What is the impact of a smaller portion option? How are my top 25 items performing this year? If I raise prices, should I do it across the board or on specific menu items? Reports from your food cost system will help to answer these questions.

Some programs have reports with a gross margin analysis. The reports use standard recipes and current purchase prices to calculate gross margin by menu item. The calculation subtracts the recipe cost from the selling price and multiplies the result by the number sold (from your POS system). You can now see where your profits are produced. Menu engineering models use this data to help you with pricing decisions. I like to treat the menu as a portfolio of profit generators.

Purchase history reports will help you see price trends on your high volume items. You may not be in a position to buy differently but you will be able to measure the impact. This information puts you in position to make better decisions.

The perspective of the manager who is armed with a food cost management tool is superior. Your profits will grow tremendously as the economic conditions improve. Your ROI from the investment may just be a solid future for your company.

Wednesday, September 10, 2008

Food Cost Benefit

As we see oil prices beginning to drift lower (after threatening to go above $200 per barrel this summer), corn just hit a one month low. Prices of certain commodities are still near historic highs but this decline is a positive for restaurant operators.

On the micro-economic front, the industry has focused intensely on food cost control. Restaurants are buying less expensive ingredients and watching their storage areas closely. I hear lots of stories about tight cost control each week. The energy is moving beyond cost of sales. Operators are looking at power bills, sewage usage and garbage pickups. No expense category is ignored.

In the long run, the macro-economic conditions will improve and sales will rise. Smart operators will continue to control costs tightly. Future operating margins will be better than before the current downturn.

The coupon fever in our region has cooled a bit. Beverage sales are still off from the peak but a greater % of patrons are ordering drinks. Budget conscious guests are loosening up a little and splitting a dessert item again.

I was in the field last week and flights seem fuller. Airport restaurants were doing a brisk business in Washington and Miami. Fellow travellers seemed to be willing to pay for a meal before going to their gates rather than purchasing a sandwich on board. Portion control can be seen everywhere as kitchens carefully monitor the center of the plate ingredients.

Investments in cost control systems and tighter policies will payoff for years to come. Lower commodity costs and a drop in energy prices could accelerate the speed of the profit improvement in 2008.

Saturday, August 30, 2008

Menu Driven Specials

When menu specials compliment the base menu offerings, there is an opportunity to significantly drop the level of waste and spoilage. The reasons are many for this phenomenon. Cycle menus are always developed with the future in mind. The second choices are often based on the previous day's primary choice.

The ability to utilize the same protein items used every day in your base menu in specials is a great advantage. Your wait staff may promote menu offerings which help minimize waste. Small forecasting errors won't create spoilage since the base menu uses the same ingredients. You'll focus your purchases on fewer protein items. Its possible to save on these key items as the purchase volume increases.

Contrast this style of menu specials with the policy of presenting new and innovative menu items on your specials board. This strategy implies a wider range of protein items. I have observed operations where the chef offered 5 to 7 completely different specials each night. Imagine trying to forecast and manage usage on 35 different protein items (in addition to all items required by your base menu) when the number of covers is uncertain. In addition, you need to forecast your guest's preference each evening to utilize all the expensive center of the plate items.

Not every operation has the ability to make this transition. If you use a cycle menu as a base, your offerings need to change each day to allow long term guests to enjoy a diverse selection. As mentioned previously, talented cycle menu writers take great interest in eliminating waste through careful menu design. I recommend following this style of menu design whenever you need to provide more protein options than called by your base menu.

Tuesday, August 19, 2008

Food Cost Control Tour Guide

I'd like to welcome newcomers to the blog. The posts are normally in chronolgical order. This tour guide is organized by subject area.


Month End Surprises
Volatile Food Cost Results
Cost Per Serving Vs Servable Pound
100 Cost Percentage
One Dollar Of Food Cost
What Should Our Food Cost Be


Make Room For Special Events
Profitable Special Events
Great Night For Buffet
We Dont Know Our Costs
Profitable Breakfast Buffets
Profile 2 Short Buffet Lines
Buffets And Pos Investment
Buffet Style Events


Effective Food Cost Control
Benefits Of Proper Accounting
Preventing Food Cost Surprises


Changing Your Break Even Point
Do You Know Your Break Even Point
Slow Periods
Seasonal Forecasts
Volume Hides Mistakes
High Degree Of Operating Leverage
Seasonal Operations Profit Analysis_01

Education Inworld

JWU Inworld
Second Life Restaurant
Second Look At Second Life
Hospitality Education In Second Life


Best Of Times
Restaurant Prime Cost Savings
Cold Winter Month
Jit Vs Too Many Deliveries


Hidden Cash
Elusive Cash Flow
Cash Is King


Forecasting 309 Covers Equal Portions
Forecasting 502 Complex Operations
Forecasting 401 Day Profiles
Forecasting 501
Forecasting 101
Enigmatic Prime Rib


Impact Of Coupons On Food Cost
Food Cost Beyond Basic
Food Cost Basics
Food Cost Control Alphabetic Approach
Food Cost Percentage Decomposed

Ideal Usage

Ideal Usage Tricks And Techniques
Ideal Usage Calculation Major Hurdles
Ideal Cost Of Sales Decomposed


Food Inventory Levels
Signs Of Theft
Food Storage Rules
Leave Labor Out Of Inventory
Why Should You Count Key Items Daily
Perpetual Inventory Stratified Random
Inventory Control Decomposed
Legacy Food Cost
Constructive Exaggeration
Profile 1 Messy Walkin Cooler
Requisitions And Transfers Kiss


Prime vs. Choice
Market Conditions And Bid History

Menu Analysis

Managing Check Average
Menu Specials Strategy
Leaner Menu Equals Lower Food Cost
Coffee And Dessert Contest
Offer Dessert Early In Meal
What Would You Like To Drink
Chronic Waste
Focal Point
Hidden Profit Potential
Phenomenal Sides
More On Take Out And Delivery Issue
Estimating Opportunity In Take Out
Slow Cooked Bbq Requires Careful
Constructing Value Menu
Value Added Meals
Selective Menu Revision
Avoid Slashing Your Menu Prices
Entree Pricing Dollars Vs Percentages
Menu Analysis Decomposed
Utilizing Specials
Dont Destroy Your Stars
Market Price Menu Items


Planning For Unexpected
Planning For Competitive Threats
Passion For Long Term Planning

Portion Control

Major Chain Adopts Smaller Portion
Food Cost And Portion Size
Smaller Portions Or Higher Prices
Safe Portion Control Solutions
More Portion Options
Dealing With Portion Problem
Timely Portion Control
Portion Cut Decision
Yield Analysis
Visual Portion Control


Producer Price Index-Farm Products Way Up
Food Cost Under Uncertainty
Eggs Up 150% In 7 Years
Playing Market
Time For Burgers And Fries
Challenging Time For Pizzerias
Food Prices Are Way Up
Prime Market Follow Up
Prime Market Deal
Number One Cause Revisited
Number One Cause Of High Food Cost
Food Purchasing Decomposed
Purchasing Dollar Vs Food Cost
How Close Should You Get To Your

Quantitative Techniques

Keep It Simple Regression
Slow Day Vs Busy Day
Cost Benefit Analysis
Productivity And Dining Room Turns
Some Things Just Dont Work Well
Common Sense Vs Analytical Techniques
Faster Turns Can Help
Profitable Lines


Do We Count Employee Purchases
Art And Science Of Receiving
Traveling Accounts Payable Clerk
Who Is Fred Hardy

Recipe Costing

Explosive Recipe Models
Recipes And Cost Accounting
Basic Recipe Costing
Navigating Through Recipe Jungle
Recipes Are Wrong
Standard Recipe Costing 101


Time To Listen To Your Guests
Be Pillar Of Community
Restaurants Attracting Stimulus Dollars
Lagniappe Builds Loyalty
Old Fashioned Hospitality
Market Segmentation Service Style
Disbelief And Denial
Lost Opportunity
Pretend You Own Place
Strategic Food Cost Issues
Reuse Paper Clips
Market Segmentation Strategic Focus
Beyond Inertia
Market Segmentation Best Practices
Cultural Evolution
Stay Focused


Flexible Team
Pooling Tips Team Building
Chemistry Of Bid Team
All Star Team
Human Side Of Food Cost Control


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Monday, August 18, 2008

Eliminate Chronic Waste

Years back, one of my clients had a policy of brewing coffee fresh every 20 minutes. This simple policy caused an extremely high level of waste in off peak hours. They offered patrons a choice of house brew, hazelnut flavored, and vanilla flavored (regular roast and decaf for all three).

Each afternoon, the coffee sales would slow and the routine began. The staff would habitually dump 6 nearly full pots of coffee down the drain 3 times an hour.

On more than one occasion, I have noticed operators do not adjust production to meet demand. I have seen break rooms at conference centers stocked with the same levels of donuts, bagels, danish and other pastries each day. I asked to see the conference room guest counts and the levels varied from as few as 40 to as high as 300. Most of the day old pastries made it to the staff dining room.

If you observe enough operations over many years, certain patterns emerge. You'll find management strictly controls center of the plate portions in most restaurants. On the flip side, you'll find tremendous waste in condiments, light cream, coffee, fresh baked products, portion packets, etc.

This past weekend, I went out for breakfast at a local spot. My waitress delivered my hot cup of coffee with 6 half & half portion packs. I looked around and noticed I was not singled out for this treatment. You could see many guests loading 3 to 5 of the creamers in their bags.

One of my clients baked rolls fresh all day long. At the restaurants, patrons were served a generous basket of rolls. It was common for patrons to request more rolls and they were always given a second basket. On take-out orders, some locations stuffed a bag with as much as a dozen rolls with each order.

These are all examples of chronic portion control issues which often do not hit the management radar scope. Companies with a passion for precision portion control on meat and seafood items frequently drop the ball on many other high volume items. Eliminating chronic waste and over-portioning will help lower your food cost. Start looking around for obvious issues. Take a second look at your policies.

By matching coffee production to guest counts, managing the number of creamers, rolls, baked goods, etc. and purchasing the proper container size for your needs, you can eliminate most chronic waste.

Monday, August 11, 2008

Food Cost and Break Even Point

In speaking with many local operators (completely unscientific sample), the consensus estimate is a 12% drop in revenue (year over year). This is tough to swallow with the current trends in food cost percentages. Since the cost of many commodities have risen, the impact of the revenue decline has hurt more than usual. We haven't seen the typical drop in ingredient costs which occur in many recessions.

These higher food costs have caused the break even point to grow rapidly. Many operators have seen a shift from 5 to 10% profit to a loss. What can restaurant managers do to lower their break even point in this challenging environment?

This is a time to promote people with line authority and shed corporate staff. A lower fixed overhead expense is the fastest way to lower the break even point. If you currently work in a corporate staff position, try to get closer to the customer. Abandon your desk post and go into the field. Find ways to improve the efficiency at your locations.

I worked for 3 corporations on either the internal audit staff or as the operations auditor. My travel time averaged over 70% for a 10 year period. In each office, there was a staff room and you were considered under-utilized if the Vice President saw you in the room for over 1 week. My final travel intensive job required close to 90% out-of-town work. When it was time to come in from the field, my boss handed me my paychecks and gave me the week off.

The return for my on site work was enormous. I knew the key operations staff and many of the department heads on all of our key projects. We worked together to solve many issues which simply can't be handled by clever report analysis and endless meetings. You'll find messy walkins, open back doors near closing, unopened boxes of seafood and meat in the garbage, employees with substance problems, invisible over-achievers, well-disguised under-achievers and you'll see many other critical issues first hand.

The break even point will go down as you become a variable cost instead of a fixed expense. You'll be part of the gross margin improvement. Lets say your salary is $1,500 per week and you can visit 2 locations per week. If the sales at each location is $50,000, the combined sales figure is $100,000. If you can make a 1.5% impact, you have covered your expenses at the operation level and completely eliminated your cost at the office.

Perhaps you can have a 3% impact. You will probably be promoted back to the headquarters to make sure the people are not in the staff room for more than one week.

Sunday, July 27, 2008

Make Room For Special Events

Eliminating the uncertainty of a covers forecast is helpful for everyone in restaurant management. Restaurants with a line around the block estimate with confidence their cover count on a busy night. They are less likely to over staff or miss their production requirements. The long line insures they will hit the maximum cover count.

On the other hand, operators with spotty dining room counts and no line wrapped around the building experience major forecast errors. Management typically over staffs and over produces prior to the shift. Employees know the drill. They report for work expecting an early night. They can call friends on their cell phone if they get a surprise. How long would you stay at a job if you had no way to predict your weekly income level? Certainly, these operations experience tremendous turnover.

One way to help with the forecast certainty is to include a few catered affairs at your restaurant. Caterers have contracted guest counts. They staff for a specific party size. The guests choose their menu selections prior to the event. No over staffing and demoralizing early shift exits occur for these events. The food production exactly meets the contract. Huge advantage!

If you do not have a separate party room or conference salon, consider the investment. Many of my clients receive over 50% of annual revenue from special event orders. The impact on income is quite favorable. You can groom new wait staff at these events. Since the guests have already made their menu choices, timing is easier and the staff is more focused on quality control issues.

Ordering food is greatly simplified. The chef knows exactly how much food to prepare and a very small safety factor is required. You may even be able to include some chef specials in the event offerings. These specials allow some creativity and the ability to use in season ingredients.

Arizona Republic Article-Small Portions

Cynthia Benin of the Arizona Republic called me last week to discuss the smaller portion menu options at TGIF.

Saturday, July 19, 2008

A Time To Listen To Your Guests

Whenever the economy turns down and discretionary income declines, the advantage shifts from hot new concepts to established names. The recent strike in Hollywood left many new programs without writers. These shows were just starting to build an audience. The strike put plenty of these shows out of the lineup when the strike ended too late. Previous winners survived.

Our industry is similar and the current downturn certainly hurts the hot start ups with huge recent cash outlays. Established restaurants, hotels, resorts and caterers have had years to help cover their start up investments.

Well established operators need to listen to their guests. Competition is fierce in many markets. This is an opportunity to regain lost market share. Broaden your base by listening to your loyal guests. If you know everyone by name, be sure to ask friends about lost regulars. Try to find out why you lost their loyalty.

I can remember several favorite spots I abandoned over time. Typically, I'm most sensitive to a drop in food quality or service. Some of my friends get tired of a concept due to menu stagnation. This would not be high on my personal list. I like to visit specialty restaurants with highly consistent quality.

I always encourage clients to eliminate dog menu items. However, I admit I stopped dining at a pizzeria in the New York metro area when then removed my favorite pie. This pizza was at the bottom of the printed menu and suffered from name confusion.

They decided to call a thin crust pizza with artichokes, salt cured olives, anchovies, fresh tomatoes, a dusting of cheese, thyme and olive oil - The Sicilian. We loved the pie and were disappointed when they dropped it. I'm sure they had many complaints from patrons expecting a thick crust square pizza with light tomato sauce and an avalanche of shredded mozzarella. When I told the manager he should try to revive the pie using a new name, he blew me off.

I'd go back in a New York minute if they offered this pizza again. They'll never know why I left. I am a silent complainer. Too many fantastic options are available. Many of your steady guests don't complain to management at all. They vote with their feet and go elsewhere.

The unusual nature of general ledger accounting is the inadequacy of the reports for identifying a disastrous week. Imagine your chef quits unexpectedly and you fly solo for a few weeks without a pro at the helm. The sales will not show the impact. Your books will reflect a lower management cost and a slightly higher profit.

In the dining room, patrons expecting the high quality they received in the past will leave disappointed. They may wait too long to receive a mediocre meal. A frustrated waiter informs regulars of the chef's departure. You have a major problem which will take a month or two to show up in the books. Over many years, the repeat of these bad weeks takes its toll.

People who demonstrate pure loyalty to a restaurant know the operation well. They know in advance when key staff members are on vacation. These guests know the nights of the week when their favorite wait staff member is not on duty. They know when to have a drink at the bar before sitting down in the dining room.

Now is a great time to greet and listen to your regulars when they come to your place. Find out what they order and if there is anything which could be done to improve their experience. Focus on consistently pleasing these loyal patrons.

Wednesday, July 09, 2008

Profitable Special Events

One hint I have shared with my special event catering clients is the use of cost per guest statistics (vs. a % of sales). Catering is a very different business. Using restaurant metrics is a mistake. Contract caterers say: "We take dollars to the bank not percentages."

Since the caterer's guests often buy a complete package, it is helpful to detail the list of offerings and services provided and cost each one. Many of the line items are straightforward. You can use your previous cost data to fill in the blanks. The key to success is an accurate account of paid guests (or covers).

We'll take a look at a sample company's budget process. The left hand side is the current results and the right hand side assumes we raise the price per guest $5. I use both Per Guest and % of Sales statistics. You need to use the contracted guest count since the final counts are often lower (due to no-shows). Since the fixed costs are covered by revenue per contracted guest, this is a better divisor. Many caterers expect a lower count and prepare less food. Other companies prepare enough food for 100% attendance.

(Note: Click on image to expand the size.)

The use of cost data per guest makes sensitivity analysis (what if?) easier to present to your management team. Each line item may be changed to see the impact on profit. In the example above, I assumed costs would remain constant and the entire $5 increase would make it to the bank.

Saturday, June 28, 2008

Be A Pillar Of The Community

As you fight through the current economic downturn, try to find simple ways to improve profits. Recent articles suggest the higher cost of living has resulted in diners who tip less and buy fewer extras (double whammy for servers). When your recently seated guests turn down bottled water or another beverage, ask them if they'd like a nice pitcher of ice water.

If you see someone more than twice a week, offer complimentary dessert. Its cheaper than a coupon war.

As a frequent traveler, I often dine alone in off season tourist locations. Since I build inventory control databases, I see these locales at their lowest traffic levels. You get a first hand view of the baseline business. The patrons are very much friends and are treated like royalty. Its not unusual to see a guest jump behind the bar and stand in when the owner takes a restroom break. In return, these friends are often offered a complimentary drink or asked to sample a new menu item.

People in these towns frequent each other's restaurants and there is a strong community feel. The cooperation is viral. When you return to the same towns years later, you will find the core network still in place. Turnover in the other spots is tremendous.

You see this type of cooperation in urban neighborhoods. There are blocks in New York's Greenwich Village or Upper West Side with this spirit. Similar treatment of loyal patrons and other restaurateurs in the neighborhood is evident.

As the folks on Wall Street abandon companies left and right due to missed earnings estimates, now is a great time for independents to focus on their loyal guests. Whether you are a single unit operator or run a growing chain, try to become a part of your community.

There are many major chains who get it. You see their names as sponsors of many charitable events.

These are times when payback comes for Little League sponsorships, your pizza served to the kids on the local swim team, and sending food to the Special Olympics. Encourage your loyal patrons to spread the word to their friends. Let everyone know you want the community to florish.

Saturday, June 21, 2008

Keep It Simple Regression

Simple linear regression is an excellent analysis tool for sales forecasting, budgeting and cost efficiency studies. Although the name sounds inviting to many, the number of restaurant operators taking advantage of the power of regression is too small. Today, spreadsheet software performs all the complex calculations required to determine the least square coefficients.

In layman's terms, regression analysis is the process of finding the best straight line through a scatter of data points. Once you take the time to graph your data points, a person with a sharp eye can closely approximate the best fit. The data points in simple regression are plotted on an X-Y graph. The Y axis is the dependent variable and represents the information you are forecasting or analyzing in your model. On the other hand, the X axis contains independent variables.

You may want to plot labor cost as a function of sales. In this example, labor cost depends on sales and is our dependent variable. We would use the Y axis for the labor cost values. Sales would be plotted using the X axis. Most labor cost curves would slope upwards to the right. As our sales increase on the X axis, the labor cost climbs higher. Why would anyone take the time to plot their labor cost as a function of sales? Isn't simple percentage analysis easier and better suited to management meeting discussions?

I believe understanding your fixed labor component is a critical piece of information for any operator. Regression allows you to see both the managerial effectiveness (fixed labor cost) and the staff productivity (slope of the line).

The common formula for the line: Y = a + bX where Y would be our labor cost estimate, a would be our fixed labor expense and b would be the % of sales represented by our variable labor cost. This is a fairly powerful tool and the model requires very little work. A simple list of data points is all you need to feed Excel (Week, Sales, Labor Cost). The formula for calculating the least-square coefficients looks complex and contains Greek alphabet symbols. In reality, its all a matter of finding the best line which a person with a sharp eye can approximate.

Rather than worrying about the mechanics of the formula, trust your eye to show you if the spreadsheet formula worked correctly. Excel has several built-in functions to handle linear regression estimates. The descriptions below are taken directly from Excel's help utility:

INTERCEPT function
Calculates the point at which a line will intersect the y-axis by using existing x-values and y-values. The intercept point is based on a best-fit regression line plotted through the known x-values and known y-values. Use the INTERCEPT function when you want to determine the value of the dependent variable when the independent variable is 0 (zero).

SLOPE function
Returns the slope of the linear regression line through data points in known_y's and known_x's. The slope is the vertical distance divided by the horizontal distance between any two points on the line, which is the rate of change along the regression line.

The INTERCEPT function will answer our fixed labor cost question and the SLOPE function will answer the % of sales spent on variable labor.

Restaurants Attracting Stimulus Dollars

Based on a very unscientific survey of local restaurants, I have noticed a pickup in mid-week traffic. Parking lots have gone from nearly empty in March to spotty on slower nights. Weekends are still jammed here in Northern Virginia.

It helps to offer patrons a lower check average. Operations are getting a bigger share of mid-week diners if they are perceived to be "budget conscious". The newly frugal NOVA consumer is all about value.

Our local traffic jams are legendary and they provide an excellent opportunity to observe vehicles. The fleet seems to be changing in composition from SUV dominant to a more fuel efficient mix. Lots of Toyota Prius drivers here with special treatment in the HOV lanes (single drivers of hybrids are allowed).

I asked a few of my local contacts how business is right now. Most say its the same number of diners as this time last year. In terms of dollars, patrons are spending less. Budget specials are a requirement.

With food cost % skyrocketing due to commodity market volatility (strong upward bias), its tougher to keep costs in line. Offering budget specials which fit the current cost model is key. Pizza seems a tough segment. Lots of coupons for 2-for-1(pizzas) and special low price options (sides). This comes as flour, cheese and now fresh tomatoes are hitting record prices.

The overall restaurant market here is certainly not vibrant but weekends are packed and mid-week patrons have returned to spend those tax refund checks.

Friday, June 20, 2008

Producer Price Index - Farm Products Way Up

The Bureau of Labor Statistics has excellent inflation data on their website. The Commodities data includes index data for Farm Products. The index began to take a second big move up in December and May 2008 reversed the move down in April. With the Mississippi River flood plains under water, food prices will most likely remain high this summer.

Monday, June 16, 2008

Food Cost Under Uncertainty

With the current flooding in Iowa, America's major grain crops will likely have a lower yield in 2008. There are many factors in determining your food cost percentage. Commodity markets play a major roll in your cost of goods sold. Let's take a look at last week's market activity. The information below is provided by Foodservice.Com where you will find excellent market price data. Corn Oil has more than doubled in price since last year.

Friday, June 13, 2008

Concepts of Tomorrow at Red Rock Casino

Restaurant Hospitality is celebrating the 10th anniversary of the Concepts of Tomorrow conference this October in Las Vegas. The 3 day conference will be held at the Red Rocks Casino and Resort.

You can sign up for email updates at their website .

Tuesday, June 10, 2008

Strategy Pays Off For TGIF

TGIF's gutsy "Right Portion, Right Price" strategy has proven successful. Friday patrons have 11 smaller portion choices and these menu items now account for 15% of sales.

Thursday, May 29, 2008

Best of Times?

As many operators fight to make their business model more profitable, the number of operational changes is high. Companies are adjusting staffs, menus, suppliers and equipment. This is a great time to fine tune your operation. Plato stated: "...the true creator is necessity, who is the mother of invention." over 2,300 years ago.

Restaurant operators see lower check averages, lower mid-week guest counts, higher cost of sales and higher energy costs. The world is thinking green and the term "carbon footprint" has entered the lexicon. Your patrons and employees are more sensitive to the impact of energy on the environment. Take a look at deliveries. You are paying more for each trip each supplier makes to your restaurant. Their trucks are burning much more gas for those who insist on daily deliveries.

If you have one of those dining rooms where the patrons need a sweatshirt or jacket when its 90 degrees outside, turn your thermostat up. You could turn ovens off when they are not in use. This saves the energy to heat the oven and you can also save on the air conditioning bill.

A slightly smaller center of the plate portion size can translate to faster cooking times and a lower cost of sales. Fine tuning production will cut costs. Any major over-production produces waste, higher labor costs and bigger garbage bills (in the long run).

Hopefully, many of you are seeing a better sales picture. In May, we've had Cinco de Mayo and Mother's Day. June brings the stimulus checks and Father's Day. Americans have begun adjusting their driving behavior. In today's news, the local radio station quoted an economist who is projecting 10% less gasoline usage this summer (based on Memorial Day weekend 2008 vs. 2007). Urban centers may not experience the typical summer exodus this year. More people are staying in town for their vacation.

The best part about survival tactics is the long term benefit. These are the best of times for making your operation more cost efficient. Future sales increases will bring greater profits.

Thursday, May 22, 2008

Managing The Check Average

Is this a great time to push your average check higher?

For over a decade, the economy has been buoyed by cheap money and big equity gains. Now the consumer sees tight money markets and capital losses. Company T&E reports are being scrutinized. Tourists are staying closer to home. Regulars are showing up less frequently. Dining rooms have lots of mid-week tables available.

When your place is packed this weekend, do you push the expensive entrees? High check averages may attract the same scrutiny as the $75 gas fill ups. This may be the time for a complimentary cup of coffee or even a slice of pie.

These decisions are rough on the food cost percentage. A complimentary menu item on your busiest night is risky. Will the customer return next week? If the strategic move gets a repeat visit, you win. If they go to your competitor or eat at home next week, you missed some marginal profit with no immediate gain.

Playing well on the margin is more art than science. It helps to measure results. If you want to encourage a repeat peak visit, a complimentary coffee and dessert could be offered to guests who reserve a table for the following week. Policy could be changed to make this semi-permanent. There would be very little wrong if the process repeated itself week after week during this economic downturn.

Would you sacrifice a coffee and dessert sale to get a table filled next week?

Typically, the after dinner drink and dessert course is very profitable. This action will have a significant impact on your check average. You can control the cost of this promotional gambit. Restrict the complimentary items to coffee, tea, and low cost dessert options. Loyal guests are the target in this exercise.

Tuesday, May 13, 2008

Major Chain Adopts Smaller Portion Policy

T.G.I.F. has taken a leadership position in the smaller portion size issue. In an article sent to me two hours ago by Casual Dining (NRN publication) Friday's Right Portion, Right Price policy is reviewed. Personally, I believe this policy is solid. I work in many restaurant kitchens and the mounting garbage is proof positive our restaurants are serving guests too much food. With everyone trying to work through the current economic puzzle, buying less food and holding menu prices low seems like a winning strategy.

Sunday, May 11, 2008

Food Cost and Portion Size

Would your restaurant guests welcome smaller portion sizes for a similar check average? After a week on the road dining out each day, I believe the answer is yes. The weakening economy and rising commodity costs have everyone talking about costs.

Before the trip, I ran a few errands. After picking my car up from the garage, getting a haircut, filling the gas tank and picking up some groceries, I was out over $200. My mother spent the better part of $20 stopping for milk, bread, eggs and produce. Costs for gas and every day staples have skyrocketed. People across the country are tightening their budgets and cutting out many extras.

My brother likes to go out to eat each week and has shifted from weekends to mid-week. He mentioned a recent check for $93 for a simple steak dinner for 2 with a couple beers. The portion size was huge and he would have been happy with 25% less meat. The excellent bread basket and great salad (included with the meal) would have been perfect with a smaller steak.

I paid a visit to an old friend who owns a pub. One of the waiters joined the discussion with the restaurant owner. He mentioned his tip income was down. His diners are spending less and ordering fewer extras. The tip percentage is lower and the number of diners has dropped. He now works with the guests to deliver a satisfying meal within their budget.

I brought up the portion size issue at each meal. The unanimous opinion is today's portion sizes are too large. We asked one waitress if there was a smaller rib eye steak option. She checked with the kitchen and explained the meat was pre-portioned for the menu item. They could have served us 1/6 less meat for the same price. With no refrigerator at the hotel, we left between 2 and 3 ounces on our plates.

In New York's Grand Central Station, I sat next to a couple splitting an omelet at breakfast. They ordered the special with a second cup of coffee and left satisfied. A diner nearby left 1/3 of his omelet uneaten. With the heightened awareness of dietary cholesterol, most people would appreciate a two egg option.

If your patrons were served smaller portion sizes at the current menu prices, your food cost would decline for the same sales level. This strategy may achieve better guest retention than a 10% menu price increase. Timid menu planners may want to assemble these smaller portions on a single page "Value Menu" to properly gauge popularity.

Saturday, April 26, 2008

Lagniappe Builds Loyalty

On a recent trip, we made a detour to Philadelphia (about 50 miles out of the way) to have dinner at our favorite Chinese restaurant. This restaurant is in the heart of Philadelphia's Chinatown (near the convention center). The restaurant has a wonderful ginger garlic sauce they bring to the table for appetizers. We just love it and always request more.

This restaurant really gets the concept of lagniappe. Lagniappe is a familiar term in New Orleans and it refers to a small extra given to the customer for free (e.g. an extra beignet if you buy a dozen). I have visited this restaurant on just about every trip to Philadelphia and frequently go out of my way when returning home on Interstate 95. They go out of their way to show guests they are appreciated.

On one visit, I brought my parents and the waiter took the time to describe the preparation of the Chinese broccoli dish to my father (who loves greens). On another visit, our waitress explained how to make the famous sauce. Even though I can make it now myself, I still like to experience the authentic dishes which benefit from a good dollop. Danny, the manager, responded to my wife's compliment this way: "If you don't like the sauce, you don't like this restaurant." He proceeded to fill a small bag with 10 take-out portion cups of the sauce.

As regular customers become more difficult to find in this economy, the concept of lagniappe could help you retain those who decide to try your restaurant.

Thursday, April 24, 2008

Smaller Portions or Higher Prices?

We bought a loaf of fresh baked whole grain bread at a local bakery today. Something about the loaf was different. This loaf was about the same dimension as the loaves purchased previously from the same bakery. The price was the same. The difference became apparent when holding the loaf in my hand. The weight was different - much lighter. I'm guessing they shrunk the loaf between 15 and 20% by weight.

Flour prices have been increasing significantly during the last year. The operator decided to hold prices steady and shrink the portion size. In my opinion, the change in portion size will be perceived by most of the patrons. I love the bread and I'll continue my long term loyalty. Six bucks for a great, but lighter, loaf of bread.

The bakery definitely had fewer employees today. The store traffic seemed slightly less than I remember. I'm guessing the staff has been cut 25% and the number of patrons is down 10%. If I'm close, sales are down 10% (same price per loaf), cost of goods sold are up 5 to 10% (even with the smaller portion) and labor cost has dropped 25%.

Will the patrons remain loyal given the lighter loaves? Possibly. Would they be happier with the same size loaves and higher prices? I'm not sure they would prefer the higher prices. Maybe the baker has struck the right balance for his clientele. He's always at the bakery and he knows many patrons by name. He talks with lots of people and he has a decent read on our local economy.

Whether you try smaller portions or higher menu prices, this may not be the time to do both.

Friday, April 18, 2008

Menu Specials Strategy

The economy continues to make consumers jittery. Discretionary income is in decline in many regions of the country. Restaurants featuring quick and cheap meals are holding their own while formal dinner houses see large drops in check averages and covers.

If a restaurant's sales dropped from $2.5 Million to $2 Million and average ingredients cost increased 15%, their gross profit will plunge - over 25%. Trying to make up the difference in labor is impossible.

As customers watch their check totals closely, it may be tough to sell profitable extras. If your menu concept relies heavily on specials, the answer could be a conspicuous value oriented option each meal period. By changing to menu selections which require lower cost ingredients, you would position yourself to eliminate the impact of higher commodity costs.

There are plenty of moves possible in every segment: Kobe tenderloin to Kobe sirloin; Shrimp Scampi to Linguine with Shrimp; Veal Marsala to Chicken Marsala; Omelets; Steak to Chicken Breast; Chilean Sea Bass to Flounder, etc.

You can close the gross profit gap with smaller portion sizes. Customer friendly, lower check averages result from smaller portion sizes and less costly ingredients. Menu selections should be offered a la carte and as a table d'hote option. The table d'hote choice could include profitable appetizer and dessert choices which can be added for a $5 to $10 bump in price over the a la carte entree price.

Put your free bread basket under a microscope. Lower check averages increase the cost impact of any fixed meal component. Try to keep the perceived value with less costly alternatives. Wheat prices are sky high. On a recent trip to New York, I paid $1.20 for a bagel. You could try baking your own flat breads or foccacia. Shop around for lower cost bread options and mix them into the basket. Every little bit helps.

Wednesday, April 16, 2008

Eggs Up 150% in 7 Years

Today's Washington Post Food Section has an article "It's Waste Not, Want Less for Some Chefs" with comments from local chefs. Gillian Clark, at Colorado Kitchen, told Tom Sietsema her cost for a case of eggs has gone from $13 to $32.50 in 7 years.

Click Here For More Information

In addition to my 100% free Food Cost Control Blog, I have started a second resource which will be offered for a limited time for $100 per year. This online resource will include many posts like Slow Day vs. Busy Day . These articles will not be typical on the free blog. Click the Buy Now button located on the upper left sidebar to join!

Monday, April 14, 2008

Changing Your Break Even Point

After receiving an above average response to my "Do You Know Your Break Even Point?" post, I'd like to answer those who seek ways to lower their number. Since the formula relies on sales and costs, the quickest way to lower your break even point figure is to lower fixed costs.

Governor Jimmy Carter balanced the Georgia budget using zero-based budget techniques. He made department heads justify every cent in their budgets. This is a huge departure from the typical budget process which simply takes the previous year's actual costs and adjusts for inflation and projected revenue increases. Many operators won't see last year's sales volume.

Pressure on sales may require increases in advertising and promotion expenses. If your food and beverage percentage is heading up, now may be a great time to trim your overhead. Motivate top executives with a smaller base pay and a larger bonus potential. Let your key people work hard to find a way to greater profitability and reward them for their effort.

With restaurant operators opening fewer new units across the country, you may find 2008 a great year to renegotiate your lease agreements. Take a look at both real estate leases and business property leases. The Federal Reserve is stimulating the economy with lower rates which may help you when you're talking to leasing firms.

Close all losing units which are nowhere near break even point sales volume. Leaving a money drain open hurts the other viable units.

Once you're through slashing waste and unproductive assets, you can look at increasing sales. Rather than throwing a price increase at customers awash in meal coupons, you could book more banquets. Use banquet sales to cover overhead expenses.

Finally, you may want to schedule major repairs and maintenance activities this year. If you are projecting poor sales during a normally slow month or off season, give your employees an extended vacation and get the repairs done.

Friday, April 11, 2008

Impact of Coupons on Food Cost

Since many of you are trying coupon mailings to increase sales, I decided to review this popular topic. Frequently, I'm asked how to account for coupons in the food cost percentage calculation. This issue has no absolute answer. My preference could change depending on the length of the coupon campaign and the impact on total sales.

In general, my strong preference is to record the total gross sales and treat coupons as a method of payment. This approach provides a consistent base sales for cost % calculation. Net sales may reflect the coupon discount or you may want to record this activity as a promotional expense. It's a good idea to check with your accountant to make sure the treatment is consistent with previous periods.

Should you decide to extend the coupon campaign to a longer term, management should examine the overall impact on the operation. It's possible to keep costs in line with gross sales levels and experience rough times. If coupons represent over 5% of gross sales and the length of the campaign is indefinite, the operation may not be able to cover fixed costs.

A short term coupon campaign is a terrific way to meet new guests. Unit management should be alerted when a guest redeems a coupon. Rather than treating these customers as second class citizens, it's an opportunity to give special treatment to a potential long term patron.

Click Here For More Information

In addition to my 100% free Food Cost Control Blog, I have started a second resource which will be offered for a limited time for $100 per year. This online resource will include many posts like Slow Day vs. Busy Day . These articles will not be typical on the free blog. Click the Buy Now button located on the upper left sidebar to join!

Monday, March 24, 2008

Leaner Menu Equals Lower Food Cost

Many restaurant operators endlessly search for new menu ideas. This strong focus creates bloated menus which are difficult to manage. Forecasting demand per entree item increases in difficulty as the number of protein choices increases. Rather than searching for new items, you may get better results with a review of current menu choices.

Unpopular menu items with relatively low gross profit potential should be eliminated. Some operators avoid removing an unpopular item because a valued guest always orders the item. Take the item off the menu and get even closer to your valued guest. Stock enough ingredients to produce their signature item on the days they enjoy dining out. You'll improve your overall menu performance and you'll get closer to your valued guest.

Another great tool for improving gross profit is wait staff recommendations. When a guest asks "What do you recommend? I've never been here before." the 2 most popular menu items should be promoted. Selling items preferred by your regulars to newcomers is a simple tool ignored in many restaurants.

Try to restrict the number of daily specials. Unless your specials are merely promotions of base menu items, try to limit specials to 3 per meal period. When I visit a new restaurant and the server goes on for several minutes trying to explain the merits of 6 or 7 specials, I get concerned. Are they trying to blowout yesterday's unpopular specials? Maybe they only prepared 4 items tonight and 3 are leftover.

By promoting popular items and eliminating unpopular items, you'll bank more dollars. New menu ideas will come and go over time. Use these trendy items for busy night specials. Always sell your top items to newcomers.

Restaurant Data Pros

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