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 16, 2008
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Thursday, March 20, 2008
Restaurant Prime Cost Savings
With the government now announcing a recession (vs. slow growth scenario), we can officially start looking for more ways to cut costs. Will the consumer continue to spend 48% of their food dollar in restaurants? Maybe. But a slip to 40% would mean a 17% cut in volume for the industry.
Our mailbox is loaded with coupons here in metro Washington DC. Anywhere from a $1 off to free sandwiches, entrees and desserts. Lots of 10% off coupons.
If you are experiencing a 20% drop in food sales, your storage areas may have some newly freed capacity to take advantage of during the downturn. Try to schedule fewer production batches on your popular batch recipes. For example, an Italian concept could produce enough marinara sauce on Thursday to last through the entire week. Most places produce enough for the weekend. Since you would be making roughly the same amount as before, only the usage on the line would change. You could save an entire production run. This labor cost saving is significant.
Try to look for other activities which may reduce your fixed labor costs. You'll still need to clean everything each day so look elsewhere: napkin/silverware wraps could be handled 4 times a week by wait staff prior to meal service instead of daily. Shelf stable mixes and prep may be handled on busy days only.
Restaurant employees often yearn for the elusive two days in a row off. What's wrong with 3 in a row? In my college years, they scheduled me 10 hours a day every day. Good way to save for school but not much time for a social life. You may be able to cut down on overall pay, overtime, and the number of missed shifts (employee illness and emergencies). It never hurts to ask your employees directly.
Utility costs are going nuts all across the country. Try an extra degree on the thermostat during hot months and one less in cold months. Every little change adds up to more dollars. It's good for the environment too!
Click Here For More Information
Our mailbox is loaded with coupons here in metro Washington DC. Anywhere from a $1 off to free sandwiches, entrees and desserts. Lots of 10% off coupons.
If you are experiencing a 20% drop in food sales, your storage areas may have some newly freed capacity to take advantage of during the downturn. Try to schedule fewer production batches on your popular batch recipes. For example, an Italian concept could produce enough marinara sauce on Thursday to last through the entire week. Most places produce enough for the weekend. Since you would be making roughly the same amount as before, only the usage on the line would change. You could save an entire production run. This labor cost saving is significant.
Try to look for other activities which may reduce your fixed labor costs. You'll still need to clean everything each day so look elsewhere: napkin/silverware wraps could be handled 4 times a week by wait staff prior to meal service instead of daily. Shelf stable mixes and prep may be handled on busy days only.
Restaurant employees often yearn for the elusive two days in a row off. What's wrong with 3 in a row? In my college years, they scheduled me 10 hours a day every day. Good way to save for school but not much time for a social life. You may be able to cut down on overall pay, overtime, and the number of missed shifts (employee illness and emergencies). It never hurts to ask your employees directly.
Utility costs are going nuts all across the country. Try an extra degree on the thermostat during hot months and one less in cold months. Every little change adds up to more dollars. It's good for the environment too!
Click Here For More Information
Wednesday, March 12, 2008
Slow Day vs. Busy Day
In my early days with Sodexo, I spent days in frigid Northern Alberta analyzing costs at our largest North American project - Syncrude. If you have a bundle of determination, a study of your slowest day vs. your busiest day is a phenomenal exercise. Since I was specifically paid to improve profits at our Syncrude project, this is where I began.
Slow Day/Busy Day requires taking four inventories in one week for every cost center. The time clock hours need to be available for each of the two days as well. You need to know every employee's job title and department.
Calculate the total sales, labor cost, food cost, beverage cost, linen, paper, chemicals and other supplies. You won't be able to analyze electric power, water, telephone, sewage, garbage pickup, etc. Assume these costs are either fixed or 100% variable. I prefer to let these costs vary with sales.
Start a spreadsheet with all of these sales and expense categories as the left column. Feel free to split labor into Management, Kitchen, Service and Office. Include an estimate for burden (employer's FICA, FUTA, SUTA, Health Care, 401K match, etc.) in your labor expenses. We always had our burden cost available for each project. Make a column called BUSY and another column called SLOW. Enter in all the data from your analysis.
The next two columns are DIFF and VARIABLE. The values in the DIFF column are the difference between BUSY and SLOW. In the VARIABLE column express each value in the DIFF column as a percentage of the sales total in the DIFF column. The VARIABLE percentages are your variable costs as a percentage of sales.
The final column is FIXED. The calculation is a bit trickier but still straight forward. Multiply the sales in BUSY by the percentage in VARIABLE and subtract the result from the BUSY value for the component. For example, if your busy day sales were $10,000 and the variable labor cost is 21%, the variable labor expense is $2,100 for the busy day. If the total labor cost for the busy day is $2,800, the FIXED value is $700.
Go to the bottom of the table and sum the expenses in every column.
A fantastic estimate of your break even point is now possible. Subtract the VARIABLE total from 1 and divide the total FIXED by the result. For example, if your VARIABLE total is 72% and the FIXED total is $1,400, your break even sales is $5,000 or about $1.8 million annual.
The cost of performing this exercise is typically recovered promptly. Everyone in the operation will know you are serious about cost control. Remember, this requires four inventories of all consumables in one single week. Don't waste the effort with bad counts. I used to wake at dawn and return at close after midnight on the slow and busy days.
Slow Day/Busy Day requires taking four inventories in one week for every cost center. The time clock hours need to be available for each of the two days as well. You need to know every employee's job title and department.
Calculate the total sales, labor cost, food cost, beverage cost, linen, paper, chemicals and other supplies. You won't be able to analyze electric power, water, telephone, sewage, garbage pickup, etc. Assume these costs are either fixed or 100% variable. I prefer to let these costs vary with sales.
Start a spreadsheet with all of these sales and expense categories as the left column. Feel free to split labor into Management, Kitchen, Service and Office. Include an estimate for burden (employer's FICA, FUTA, SUTA, Health Care, 401K match, etc.) in your labor expenses. We always had our burden cost available for each project. Make a column called BUSY and another column called SLOW. Enter in all the data from your analysis.
The next two columns are DIFF and VARIABLE. The values in the DIFF column are the difference between BUSY and SLOW. In the VARIABLE column express each value in the DIFF column as a percentage of the sales total in the DIFF column. The VARIABLE percentages are your variable costs as a percentage of sales.
The final column is FIXED. The calculation is a bit trickier but still straight forward. Multiply the sales in BUSY by the percentage in VARIABLE and subtract the result from the BUSY value for the component. For example, if your busy day sales were $10,000 and the variable labor cost is 21%, the variable labor expense is $2,100 for the busy day. If the total labor cost for the busy day is $2,800, the FIXED value is $700.
Go to the bottom of the table and sum the expenses in every column.
A fantastic estimate of your break even point is now possible. Subtract the VARIABLE total from 1 and divide the total FIXED by the result. For example, if your VARIABLE total is 72% and the FIXED total is $1,400, your break even sales is $5,000 or about $1.8 million annual.
The cost of performing this exercise is typically recovered promptly. Everyone in the operation will know you are serious about cost control. Remember, this requires four inventories of all consumables in one single week. Don't waste the effort with bad counts. I used to wake at dawn and return at close after midnight on the slow and busy days.
Thursday, February 28, 2008
Playing The Market
Do you try to time the market for your top center of the plate items?
Tolerance for using frozen protein items may be the key to your response. I have seen operators with huge outdoor freezers receive a truckload of meat shipped directly from Chicago. Prior to placing the order, they studied the Urner Barry Yellow Sheets and pulled the trigger at a favorable time.
This article is written for the other type of market play. Operators may receive calls from their meat and seafood suppliers in up markets asking if they want to lock in a high price before it goes higher. Some take the bait and lock a bad price for their busiest season. No freezer needed in this scenario. You simply agree to pay a high price for your key ingredients during your busiest period of the year.
Commodity markets climb when demand outstrips supply. Those who follow the futures markets look at long term trends like herd size and seasonal weather predictions. Recent gains in corn prices have made items sensitive to grain prices quite high.
These markets are typically difficult to trade for new entrants. Unless you have excellent information and see a major market anomaly, I would not recommend placing a futures hedge bet.
Let's look at some of the trends in the grains markets. I'm using information from Daily Futures including these charts:
Corn
Soybeans
Wheat
Both Corn and Soybeans are up strongly since October and the Wheat curve is parabolic. Will the markets for these grains redouble? Probably not. With the summer grilling season coming soon, it may not be a terrible time to stock your freezers. Certain beef items and grades are still a deal. Upward price pressure is still evident.
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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!
Tolerance for using frozen protein items may be the key to your response. I have seen operators with huge outdoor freezers receive a truckload of meat shipped directly from Chicago. Prior to placing the order, they studied the Urner Barry Yellow Sheets and pulled the trigger at a favorable time.
This article is written for the other type of market play. Operators may receive calls from their meat and seafood suppliers in up markets asking if they want to lock in a high price before it goes higher. Some take the bait and lock a bad price for their busiest season. No freezer needed in this scenario. You simply agree to pay a high price for your key ingredients during your busiest period of the year.
Commodity markets climb when demand outstrips supply. Those who follow the futures markets look at long term trends like herd size and seasonal weather predictions. Recent gains in corn prices have made items sensitive to grain prices quite high.
These markets are typically difficult to trade for new entrants. Unless you have excellent information and see a major market anomaly, I would not recommend placing a futures hedge bet.
Let's look at some of the trends in the grains markets. I'm using information from Daily Futures including these charts:
Corn
Soybeans
Wheat
Both Corn and Soybeans are up strongly since October and the Wheat curve is parabolic. Will the markets for these grains redouble? Probably not. With the summer grilling season coming soon, it may not be a terrible time to stock your freezers. Certain beef items and grades are still a deal. Upward price pressure is still evident.
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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, February 25, 2008
Time For Burgers and Fries
Current market data for February 22, 2008 shows a better environment for restaurants with menus dominated by burgers and fries. Using a pub sized portion for the burger (8 ounces) and the french fries (8 ounces), these operators have picked up 3 cents since last year.
The price of soybean shortening has doubled. This unfavorable trend is offset by stable prices for frozen potatoes and ketchup and a decline in the ground beef price.
Market Data from Foodservice.com (www.foodservice.com) - An Online Community for Foodservice Operators was used in creating the chart.
Operators looking for greener grass in the other vegetable oil markets won't find much relief. Canola oil and corn oil are both way up since February 2007. I'm using Wenzel Menu Maker's oil-to-fries ratio of 8 pounds oil per 100 pounds of potatoes. The Wenzel model uses fresh potatoes. With today's innovative oil solutions, some operators may have an additional edge.
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!
The price of soybean shortening has doubled. This unfavorable trend is offset by stable prices for frozen potatoes and ketchup and a decline in the ground beef price.
Market Data from Foodservice.com (www.foodservice.com) - An Online Community for Foodservice Operators was used in creating the chart.
Operators looking for greener grass in the other vegetable oil markets won't find much relief. Canola oil and corn oil are both way up since February 2007. I'm using Wenzel Menu Maker's oil-to-fries ratio of 8 pounds oil per 100 pounds of potatoes. The Wenzel model uses fresh potatoes. With today's innovative oil solutions, some operators may have an additional edge.
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, February 18, 2008
Food Prices Are Way Up!
In today's SmartBrief, there's an article about wholesale price increases for food quoting the National Restaurant Association data. The prices for food at the wholesale level have risen 7.3% since this time last year.
Although the article focuses on a sole proprietor who has found it difficult to raise menu prices, they mention the efforts of publically traded Panera Bread. It's too bad they didn't interview a pizzeria owner or a Mexican concept. The current market statistics available to subscribers at Foodservice.COM show Mozzarella Cheese has increased 49% in market price since last year.
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!
Although the article focuses on a sole proprietor who has found it difficult to raise menu prices, they mention the efforts of publically traded Panera Bread. It's too bad they didn't interview a pizzeria owner or a Mexican concept. The current market statistics available to subscribers at Foodservice.COM show Mozzarella Cheese has increased 49% in market price since last year.
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!
Wednesday, February 13, 2008
Prime Market Follow Up
In my recent post Prime Market Deal , the moves in the market prices for prime beef tenderloin were highlighted. We now have a new update.
The recent market update available at Foodservice.COM shows the market anomaly of the week ended 2/1/2008 reversed course in the following week. A 10.8% gain in the price for prime beef tenderloin wiped out most of the short term opportunity. It is possible to now place the 2/1/2008 market opportunity in better perspective.
Prime beef tenderloin market priced below $11 per pound is a bargain when put in the context of recent market activity. As I compose this post, oil prices are falling close to the $90 level. Since the grains market is linked to oil now due to the increased ethanol production, further volatility is likely.
It appears these short term weaknesses in prime beef prices represent a clear buying opportunity. Now is a good time to check your delivered price per pound and put it in relationship with the market.
Click Here For More Information
The recent market update available at Foodservice.COM shows the market anomaly of the week ended 2/1/2008 reversed course in the following week. A 10.8% gain in the price for prime beef tenderloin wiped out most of the short term opportunity. It is possible to now place the 2/1/2008 market opportunity in better perspective.
Prime beef tenderloin market priced below $11 per pound is a bargain when put in the context of recent market activity. As I compose this post, oil prices are falling close to the $90 level. Since the grains market is linked to oil now due to the increased ethanol production, further volatility is likely.
It appears these short term weaknesses in prime beef prices represent a clear buying opportunity. Now is a good time to check your delivered price per pound and put it in relationship with the market.
Click Here For More Information
Saturday, February 09, 2008
Prime Market Deal
Market prices for prime beef tenderloin has plummeted from last year's $14 plus levels to below $11 a pound. These are market prices so you won't see anything close to $10 on your invoices. It's possible for savvy high end operators to find a sweet spot. Normally, a Beef Tenderloin yields 6 nice steaks from a 6 pound piece. This is a huge drop in the cost per portion (almost 25%).
If a typical operation serves 1,000 steaks a week from the tenderloin, the savings is $3,500. Major dollars. Two factors seem to be in play. Oil has declined from the $100 per barrel level and the supply/demand mix has changed. Fewer people are buying prime filet in relation to the supply. I see this as logical. During the period of rising prices, many operators shifted from prime to choice. The market statistics on the excellent industry portal Foodservice.com for the week of February 1, 2008 support this observation.
The change in average price per pound for choice is down only 4.4% from last year's figure. This is a minor drop which can be accounted for in the modest recent energy cost improvement. In sharp contrast, the average price for prime is way down - over 24%.
How much would you pay for a wonderful prime Filet Mignon steak? For fantasy purposes, let's pretend our restaurant is right next to a major beef producer and we can get market prices. We'd need a selling price of $35 to offer the meat with some rolls and butter at a 33% food cost percentage. Back a year ago, we would need to offer the same steak for over $45 to obtain the 33% result. Many operations have increased their selling prices over the year. If they are charging the $45 plate charge, a 25% food cost percentage is possible.
Back to reality, most operators live far from the huge beef producers and pay a fair markup. The food cost percentages are far above my fantasy example. Regardless, if you locked in for the quarter with your supplier last week, you may have pulled the trigger at a great prime market time. Let's stay tuned to see if it was a good deal.
Click Here For More Information
If a typical operation serves 1,000 steaks a week from the tenderloin, the savings is $3,500. Major dollars. Two factors seem to be in play. Oil has declined from the $100 per barrel level and the supply/demand mix has changed. Fewer people are buying prime filet in relation to the supply. I see this as logical. During the period of rising prices, many operators shifted from prime to choice. The market statistics on the excellent industry portal Foodservice.com for the week of February 1, 2008 support this observation.
The change in average price per pound for choice is down only 4.4% from last year's figure. This is a minor drop which can be accounted for in the modest recent energy cost improvement. In sharp contrast, the average price for prime is way down - over 24%.
How much would you pay for a wonderful prime Filet Mignon steak? For fantasy purposes, let's pretend our restaurant is right next to a major beef producer and we can get market prices. We'd need a selling price of $35 to offer the meat with some rolls and butter at a 33% food cost percentage. Back a year ago, we would need to offer the same steak for over $45 to obtain the 33% result. Many operations have increased their selling prices over the year. If they are charging the $45 plate charge, a 25% food cost percentage is possible.
Back to reality, most operators live far from the huge beef producers and pay a fair markup. The food cost percentages are far above my fantasy example. Regardless, if you locked in for the quarter with your supplier last week, you may have pulled the trigger at a great prime market time. Let's stay tuned to see if it was a good deal.
Click Here For More Information
Tuesday, January 22, 2008
Spread Too Thin?
In a recent post, I explained the profile photo for this blog. The hat I'm wearing in the blog profile photo is from Pick Up Stix. Carlson (owners of TGIF) acquired Pick Up Stix from their founder, Charles Zhang, in 2002. The commissary manager gave me the hat on a visit I paid to Charlie's commissary in San Clemente, CA.
There's a recent story in the Sacramento Business Journal about a huge number of closings in the Pick Up Stix units in California, Nevada and Arizona. Having observed the well run commissary in San Clemente, I think the concept benefits from the central production facility. I wonder if the new owners utilize the San Clemente commissary for units in Northern California, Nevada and Arizona. Perhaps, the high cost of transportation is an issue. I'm speculating since I haven't been involved with Pick Up Stix in the Carlson era.
There's a recent story in the Sacramento Business Journal about a huge number of closings in the Pick Up Stix units in California, Nevada and Arizona. Having observed the well run commissary in San Clemente, I think the concept benefits from the central production facility. I wonder if the new owners utilize the San Clemente commissary for units in Northern California, Nevada and Arizona. Perhaps, the high cost of transportation is an issue. I'm speculating since I haven't been involved with Pick Up Stix in the Carlson era.
Friday, January 18, 2008
Offer Dessert Early in the Meal
Years ago, my brother Paul invited my wife Jackie and I to dinner at the American Bounty Restaurant. The restaurant is run by the students at The Culinary Institute of America. They have a great program where you take a student to dinner and Paul was our student guest. Although the entire dinner was exceptional, I still remember the dessert over a decade later. It was a delicious Berry Cobbler served fresh from the oven.
After our server greeted us he promoted this special dessert option. He said he needed to take the order NOW because the fresh baked cobbler required over 20 minutes in the oven. We ordered the cobbler and the locally produced wine he recommended. He rushed to the kitchen to put in our dessert order while we read the menu.
The entire meal was marvelous. After our entree dishes were cleared, the warm cobbler was served with ice cream. It was excellent and I told many friends about the meal.
Out of curiosity, I recently ran a Google search ("American Bounty" "Culinary Institute" cobbler dessert) to find out if they still offered dessert early in the meal. They still have this policy in place. A restaurant review of American Bounty mentioned the dessert order policy:
This policy is ideal for fine dining operations with long meal times. The guest orders a high profit item with plenty of add on potential immediately after being seated. We all ordered coffee later when the cobbler arrived. In addition, we tried a local dessert wine. The dessert course produced 25% of our total tab. Our check increased by 33% through the dessert course we decided on at the beginning of the meal.
After our server greeted us he promoted this special dessert option. He said he needed to take the order NOW because the fresh baked cobbler required over 20 minutes in the oven. We ordered the cobbler and the locally produced wine he recommended. He rushed to the kitchen to put in our dessert order while we read the menu.
The entire meal was marvelous. After our entree dishes were cleared, the warm cobbler was served with ice cream. It was excellent and I told many friends about the meal.
Out of curiosity, I recently ran a Google search ("American Bounty" "Culinary Institute" cobbler dessert) to find out if they still offered dessert early in the meal. They still have this policy in place. A restaurant review of American Bounty mentioned the dessert order policy:
"Rick's dessert was an apple cobbler with cinnamon ice cream they made him order with his entree because they bake it fresh right then."
This policy is ideal for fine dining operations with long meal times. The guest orders a high profit item with plenty of add on potential immediately after being seated. We all ordered coffee later when the cobbler arrived. In addition, we tried a local dessert wine. The dessert course produced 25% of our total tab. Our check increased by 33% through the dessert course we decided on at the beginning of the meal.
Thursday, January 10, 2008
What Would You Like To Drink?
As margins keep shrinking due to higher energy and corn prices, operators are carefully analyzing their menus. My clients often are taken aback when they first calculate the recipe cost% of popular entrees and appetizers. It's very common for a popular entree's cost to creep up to 40%.
With competitors dropping prices, you may want to look for dollars elsewhere. A fountain soft drink or a cup of coffee is a great place to start. Both of these selections are very profitable. Use these key beverage sales to improve your total food cost results.
Typically, these beverages require very little preparation time. Make sure you deliver top quality beverages to the customer. Put the right amount of ice in soda, iced tea and other cold drinks. Brew a fresh pot of coffee frequently. Give the tea lovers a choice of flavors and make the experience special.
If the customer asks for tap water, bring a freshly poured glass as soon as possible. As credit tightens, I've noticed customers going for tap water instead of a bottle. Don't make the mistake of ignoring the table. Treat these customers well and refresh their water glasses frequently.
It's great to have clients who really love bottled water. Growing up in Saratoga Springs, I remember the State Drink Hall on Broadway. Tourists lined up to taste a variety of mineral waters from the local springs. Each source had a unique taste. Today's bottled water lovers may appreciate a selection. Personally, I prefer water in a glass bottle.
Most dinners begin and end with a beverage. Make a great first and last impression. Hopefully, you'll get repeat business and see improvement in your food cost%.
Click Here For More Information
With competitors dropping prices, you may want to look for dollars elsewhere. A fountain soft drink or a cup of coffee is a great place to start. Both of these selections are very profitable. Use these key beverage sales to improve your total food cost results.
Typically, these beverages require very little preparation time. Make sure you deliver top quality beverages to the customer. Put the right amount of ice in soda, iced tea and other cold drinks. Brew a fresh pot of coffee frequently. Give the tea lovers a choice of flavors and make the experience special.
If the customer asks for tap water, bring a freshly poured glass as soon as possible. As credit tightens, I've noticed customers going for tap water instead of a bottle. Don't make the mistake of ignoring the table. Treat these customers well and refresh their water glasses frequently.
It's great to have clients who really love bottled water. Growing up in Saratoga Springs, I remember the State Drink Hall on Broadway. Tourists lined up to taste a variety of mineral waters from the local springs. Each source had a unique taste. Today's bottled water lovers may appreciate a selection. Personally, I prefer water in a glass bottle.
Most dinners begin and end with a beverage. Make a great first and last impression. Hopefully, you'll get repeat business and see improvement in your food cost%.
Click Here For More Information
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