Purchasing and Food Cost Results

Hi Joe,

Your site is the best thing I've ever found on food cost.

I have a question and was hoping you could help me clarify something:

Is my food cost percentage affected by high purchase amounts? I understand that my Food Cost will be high as the value of my inventory will be high, but in terms of % versus sales does it really affect it?

Let's say theoretically, I do over purchase, but none of what is purchased spoils and I don't waste anything except for my usual amount of waste in production. Essentially my food cost should stay near to where it usually is correct?

Thanks,

Steve
Operations Manager

Yes. Just don't make it a habit. Chronic over ordering will certainly impact your food cost results in a highly unfavorable manner.

Your food cost always equals net purchases. The percentage simply relates the net purchases to your sales volume. In fact, most operators do over purchase food. Their #1 concern is running out of stock. Most ordering models have a safety factor built into the formula.

Problems often show up in an indirect way. I have seen employees served crab cakes and roast filet mignon for lunch. Freezers packed with protein items originally purchased fresh and stored in the refrigerator show a high ending inventory total. "Blowout specials" are used to "burn off" perishable items lowering sales and increasing the food cost percentage.

Like any industry, we suffer from a lack of flexibility anytime our ending inventory is inflated. Simply stated, your chef won't be able to take advantage of future opportunities if he becomes concerned with proper use of the current stock. In fact, this focus can really produce catastrophic results when you start to look at rehashing protein items.

I will offer an extreme example. This example happens to be a true, real-life story. A chef gets a call from a seafood salesman in Alaska. The salesman knows the chef enjoys working with fresh caught Alaskan salmon and halibut. The deal involves an order of 25# of fish with free air shipment.

On the delivery day, the UPS driver was sick and his replacement went to the restaurant at the wrong hour (they are a dinner house). The fish made the complete route tour before landing back in the UPS warehouse.

The chef had a person try to locate the driver on his route most of the afternoon. This employee drove over 30 miles in Friday rush hour traffic. Eventually, he went to the warehouse and waited for the fish. At 6 PM, he got his hands on the box and the chef had the salmon at 7 PM. Of course, he was compensated for his time and gas used.

The wait staff began pushing the salmon special later in the dinner shift since the fish needed to be prepped and the manager needed to add this special to the POS system. The special was not included on the original printed specials page. It was immediately added to the chalkboard. Menu pages were reprinted.

They sold 75% of the fish over the weekend despite the problems. By Monday, the remaining salmon was frozen. Did the chef get a good deal?

To his credit, he did not offer a "blowout special" on the slow Monday. Alaskan salmon changes dramatically in taste and texture once you freeze and thaw the fish. The frozen product was eventually used in a fish soup.

The story illustrates some of the issues you need to consider. A small amount over purchased in your low point of the week will be consumed in a special during the busy times. However, a large buy for the busy days will not be consumed on a slow night. When the salmon was eventually used in the soup, there were plenty of local fish species available for a fraction of the price paid for the air shipment.

As you increase the number of protein options on your menu, the likelihood of waste and spoilage does increase. Your assumptions may not jive with reality once the number of protein options hits 10. If you serve a diverse menu, you expect to live with a manageable level of spoilage and waste. When this level becomes too high, the food cost percentage will suffer.