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Tuesday, November 25, 2008

Some Good Books For Food Cost Control

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

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

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

Production Operations Management

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

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

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

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

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

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


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

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

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

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

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

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

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

These are just a few examples of commissary allocation issues.

Thursday, November 20, 2008

Menu Engineering Basics

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

Cost Controller (major 4 star hotel)

Thanks for the question!

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

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

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

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

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

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

Friday, November 07, 2008

Budgets vs. Forecasts

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

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

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

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

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

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

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

Restaurant Data Pros

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