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Thursday, April 01, 2010

Impact of Beverages

Most of my clients love to see the cost of their entrees, appetizers and sides come to light as we build the database. After completing the entrees, it is common to hear the managers state: "So our food cost % is in line."

The ideal cost of the entrees tend to be equal or slightly higher than the actual food cost %. Actual food cost % should be higher than ideal food cost % since no operation is perfect. If your actual food cost is below your ideal cost, your recipes need work.

Before answering the benchmark question, I like to ask whether non-alcoholic beverages are included in food sales or beverage sales. If the coffee, tea and soft drinks are included in the calculation of food cost %, the ideal food cost % will be much lower. As an example, a steak house with an overall food cost of 38% actually had an ideal entree food cost of 41%. The wait staff did a terrific job selling a low cost dessert course with pastries and hot beverages.

The overall ideal food cost was 35%.

Entrees tend to have a much higher ideal food cost % since they bear the cost of complimentary items like rolls and butter and they use large portions of the expensive protein items. Non-alcoholic beverages typically produce a favorable impact on food cost % when they are included in the calculation.

The answer to the "in line" question in the example was NO. Their 38% actual was lower than the 41% ideal entree cost. They should have been closer to the overall 35% target. Any number above 36.4% would mean a 4% variance or higher.

Should you eliminate non-alcoholic beverage sales from the calculation of food cost % each period? This will require some extra time evaluating use of milk, cream, sweeteners, lemons, etc. I find it is worth the effort. There are 2 benefits. You'll find some lost revenue in the non-alcoholic beverages category due to unauthorized comps. Food cost variances in the critical entrees won't be hidden by the impact of non-alcoholic beverages.

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