Phone: (413) 727-8897 email:

Tuesday, December 27, 2011

Food Cost Software Follow Up

We had a huge response to the food cost software newsletter.  I'd like to respond to everyone who wrote to me by category:

Why purchase a sophisticated (complicated) software tool?

The answer for this question depends not just on the complexity of your business but also on your use of the word SIMPLE.  Often in technology you will find it is very expensive to get a simple solution.  The iPad is a great example.  Apple spent many hours in development to get a light weight, fast, easy to use solution.

In accounting software (food cost control is based on a cost accounting model), you need to define the reports you want to receive first.  Then you need to imagine how complicated your operating environment is for an outsider to learn.  Pretend you are hiring someone who needs to know everything you know regarding food production.

If you have a 100% from scratch menu, you may want a sophisticated package.  As long as you prepare the same items each day, you would see a benefit.  If you go to the market everyday to shop around, I wouldn't bother.  You need a fast recipe card system to quickly get a feel for what you need to charge.

Every organization with multiple concepts and/or multiple profit centers, may be disappointed in the long run if they go with a cheap solution.  Profit center accounting is demanding and requires a solid structure designed to handle the comparison and history reports.

I have never used this type of software before.  Should I spend thousands of dollars to get the reports I need?

Unfortunately, food cost control software tends to become shelfware (not used) for many companies.  They build the original database and get excited about the recipe costing capability.  Many stop cold at this point.  These light users may return once a year to update menu prices.

The decision to invest heavily in cost control software depends on your willingness to constantly enter details of invoices each day.  On a POS system, the wait staff is performing your data entry work as they send orders to the kitchen and bar.  There is no data entry staff in your back office performing up-to-the-minute updates.  If you want a perpetual inventory system to control theft in real time, the purchase data needs to be as fresh as the POS data.

I am telling you there is a need to hire or train a cost control person or team.  Once you begin to see a much better return on the labor cost and time spent on cost control by switching to a comprehensive solution, the investment may make sense.

Are the low cost solutions the most simple to use?


Are the high cost solutions the most difficult to setup?


If you were in my position, would you buy a food cost control solution?

Yes.  100% sure.

To wrap up this follow up, I did receive emails from people using various solutions with a common concern.  It seems customer support is poor for many of these solutions.  I can tell by the tone of these emails the sales team over sold the prospect.  Most of the complaints were from people who found the project was anything but SIMPLE.

Marilyn Chapman's Positive View

After 3 rather tepid years the Holiday Catering Season came back full throttle in fourth quarter 2011 leading us all to ask, "Is Special Events Catering a new economic indicator"?  

Full service parties blossomed after several years of cancellations and attempts at "Do it Yourself" Events.   The clients' comments were repeatedly "we are just to busy to do this ourselves!"  This indicated a renewed desire to entertain. a confidence in the economic future and an acknowledgment that professional catering is a valuable, cost effective service.  

Sell out weekends in October, November and December resembled the seasons before the Recession with lavish menus and larger guest counts.   We hired staff for the first time in several years and had to use Social Media to get enough help. 

Maybe most significant - New Year's Eve is sold out!  

I would love to hear from other regions to know if this is a pattern. 

Marilyn Chapman
Wedding Event Coordinator

Delectables Fine Catering, Inc.
"The Bay Area's Most Prestigious Caterer"
969 Virginia Avenue, Inc.
Palm Harbor, FL  34683


Phone: 727-781-1200
Fax: 727-789-3401

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Friday, December 23, 2011

Pleasures of the Table

If you live in the Mid-Atlantic (or are planning a visit) and you enjoy a fantastic meal, you may wish to check out David Smelson's Pleasures of the Table blog.  He is a Micros POS wizard and he loves to go to lots of different restaurants.

Sunday, November 27, 2011

Reader Questions - Food Cost Software

I received lots of follow up emails regarding food cost control software options this month.  At the current time, there are many good choices available to restaurant operators.

Single unit operators with small menus can take advantage of the many low priced options.

Although I have only worked with a few of these systems, I have heard of good results from people who use CostGuard, Optimum Control and ChefTec.

If you work in a complex operation (casino, major sports arena, ski resort, large beach resort, four season mountain resort, restaurant with a major catering component, etc.), you generally will look at battle tested, server based systems since you need many people on the same database.  I am biased toward the FoodTrak solution due to many years working closely with clients.

Many of the companies who decided to work with me over the years took a look at Eatec.  My first database implementation project ever was an Eatec recipe costing system I setup for a caterer in Lewisburg, PA.  I know the Las Vegas casinos have a bias toward Stratton Warren.  I do not have any experience with this system.

Although FoodTrak handles many complex tasks, two of my clients moved from even more complicated solutions (CBORD MMS and Eatec) because they did not need many of the reports.  It's important to know your top priority report needs before going on these websites to get information.

When I moved from Canada to New York in 1990, I found American operators had not settled on a back office accounting solution.  My background included auditing jobs before I became a controller and later the CFO in a remote site feeding company.  We used AccPac Plus in Canada because the product was widely supported by consultants and chartered accountants in every province.  In the US back in 1990, there were many accounting products and a few systems specifically designed to handle recipe costing and inventory control.  QuickBooks had not been invented at this time.  Today, every system seems to have a QuickBooks interface.

I began working with FoodTrak in 1992 after I had been unsuccessful in persuading 3 companies to use AccpacPlus.  All 3 had chosen FoodTrak.  They each had a different accounting package (DacEasy, One Write Plus and Cougar Mountain).  FoodTrak had (and still does today) lots of interfaces.

Today, many operators are willing to put their entire accounting system on the Compeat solution.  No doubt, the many experiments with interfaces and software updates just wore out the IT departments.  Windows has so many different versions to support.  You'll find many IT departments who insist on staying with older versions of their software for dependability issues.

From a hands on viewpoint, I have worked with Eatec, FoodTrak, ReMACS, Foodtech, iPRO, CBORD, Optimum Control, CostGuard and EZChefSoftware (listed in chronological order).  Every system has strengths and weaknesses.  I find the number one issue today is survival.  There are so many solutions it's tough to decide who will be here in 2020.

ReMACS was merged into Radiant prior to their merger with Aloha.  Aloha had merged with MenuLink just before the Radiant merger.  So unless you know a rock solid ReMACS DOS consultant in your town, you won't get support.  Foodtech was merged into Micros who used some of the reporting as inspiration for their own back office suite.  They then became the inventory solution for Aloha for a short time.  Today, I never hear of this system.

Agilysis purchased both Eatec and Stratton Warren.

Will your solution be merged into another company?  Will support be available in the future?

The inability to answer these basic questions leaves me in a unique position.  Although I love working with many inventory control solutions, at this time I have decided not to endorse any company.

I have an implementation plan which will help any operator with any system.  Most companies fail to achieve success with food cost control software due to a poor initial implementation plan.  They simply do not invest the time and resources necessary to succeed.  Regardless of your choice, you need to spend the time it takes to do an excellent job on the setup.

Wednesday, November 09, 2011

Food Cost Control Software Question

Dear Joe,

I have finally decided to stop working so hard to breakeven and take the time and effort to properly cost out all of our recipes and then do it all over again for the catering division.

Years ago I looked into FoodTrak and ChefTek (?) and wonder what you would recommend for a small operation (less than 1.5 million in sales). I am also looking to take over another location and implement our menu and "brand" but surely don't want to do that until I have properly costed out and determined the best menu with the most effective profitability.

Please help!


I would choose Chef Tec if my annual sales were less than $1.5 Million. FoodTrak is a superior system but it is designed for complex operations with many simultaneous users (think of an active ski resort). Generally, single person food cost control operators use Excel as the default. Before you spend a dime, make sure you are going to continue to use the software beyond the initial recipe cost cards.

As FoodTrak moved from a budget level DOS solution to a pricier Windows solution, profit center level reporting was added in early 2000. The software became relatively high priced for low volume operations. Complex operations found a home and the new FoodTrak customer community expanded into sports venues, resorts, clubs and contract catering companies.

Although I have never used Chef Tec, my understanding is the software was designed specifically for operations with no standard recipe cards. Chefs and food and beverage controllers could purchase the software for a fair price and achieve their limited objectives. The popular price allowed the company to add features and they have become the logical choice for small restaurants.

As ReMACS and Foodtrak left the door open in the late 1990s, many POS systems and 3rd party developers stepped through and created a fragmented marketplace. Recently, some developers decided to study the actual system usage and found many companies only used the software to cost their current menu. They only use the software after this chore is completed when they look at future menu changes. EZChefSoftware (uses Excel macros) and MenuMax (web-based solution) come to mind when I think of menu pricing projects.

Friday, October 21, 2011

Theoretical Food Cost Question

Do you have a simple explanation (formula) for Ideal (Theoretical) Food Cost?

Have a great day,


Director of Training and Development

Restaurant Chain with 120 Locations

Thanks for the question Tabitha!

The simple side of the ideal cost calculation involves multiplying the cost to sell a menu item by the number sold in a given period. This analysis may be accomplished for the entire menu, a specific category or a specific menu item. The result of the formula is divided by the sales to arrive at a theoretical food cost percentage.

Ideal Food Cost Per Menu Item = Menu Item Cost X Number Sold

Sales Per Menu Item = Selling Price X Number Sold

Gross Profit Per Menu Item = Sales Per Menu Item - Ideal Food Cost Per Menu Item

Ideal Food Cost Percentage = Ideal Food Cost Per Menu Item / Sales Per Menu Item

The complexity behind this simple formula involves proper weighting of category and summary statistics. By following the formulas above, you will avoid most of the improper weighting problems since the number sold is a key component in the equations.

Some companies never successfully develop an ideal usage model due to the considerable time involved in developing proper recipe cards. The "Menu Item Cost" for each item needs to be calculated using standard recipes and cost data. Depending on the menu size and complexity, this task may very well take months. It is possible to progressively build the recipe model which will guarantee benefits before the final recipe cost card is complete.

Review your sales data and identify the menu items with the highest dollar sales and the menu items with the highest number sold. Some menu items will fall into both groups. These are referred to as Stars. Stars are popular menu items which generate a high percentage of your dollar sales. These items should be analyzed first.

The menu items which are very popular but do not make the list of top items in terms of dollar sales are referred to as Plowhorses. These items should be analyzed next. By their nature, there is a premium on tight cost control since the number ordered is relatively high but the dollars of revenue are low.

Finally, you can complete the recipe model by developing recipe cost cards for all the unpopular items. I like to do these recipes last. Start with the menu category with the highest dollar sales and proceed in order until you are finished.

Once you have the recipe costs complete, you will probably want to run the ideal food cost percentage for the entire menu. You will find out what your food cost should be since the Menu Item Cost data is now available for the entire menu.

Most people wait for the entire menu to be complete. I prefer to incrementally build the model. You'll get actionable reports as you go beginning with the high impact menu items and categories.

Sunday, September 25, 2011

Food Cost Template Question

Good afternoon

I was wondering!
I am soliciting for a new job in a wonderful Hotel in Amsterdam as a purchasing manager

But i need some templates in English, such as daily food cost control and other foodcost control templates.
Also i am looking for good templates of purchase orders, RFI, RFP etc etc in English.
Can you help me with this? Thanks in advance

Yours sincerely
Cor N.

Thanks for the email Cor.  I would checkout Ken Burgin's Profitable Hospitality website:

Food Cost Q&A September 2011

Hello Chef,

This is Chef Dixit, how are you?

I know you are obviously fine.
Chef I need your help. I want few reports like how to maintain costing report, what is the hotel cost and what is the resort food cost?

If you don't mind sir, please send sir, I want to learn something different to improve my knowledge.

Thank you

Thanks for the email Chef Dixit.  I am doing well.  Thanks for asking me.

I see a department level report as the solution to your needs.  If your property utilizes a central kitchen, you need to allocate usage to the various food and beverage outlets.  There are several ways to allocate costs to each department. 

With central kitchens, you have to decide if the time and expense of costing food shipped out to each department is justified by the cost improvement.  For example, a 3% reduction in cost on a $1,000,000 is $30,000.  If you could lower your cost by 10%, the effort will definitely have a positive payoff.  Completely costing every recipe produced in a complex operation will allow you to accurately allocate costs.

Make sure the benefit allows this much tighter method.

Wednesday, August 31, 2011

Food Cost Control Framework Part 2

The table below recaps the information required for all items with an Impact rating of A (A, B, C scale).  At the bare minimum, you will want to know the correct specifications.  The table can also include multiple purchasing specifications if you use more than one supplier.  Some suppliers sell meat by the box with the weights written on the side.  Other suppliers sell by the piece with the weights on the packages.  It is very important to understand your options and then make an effort to restrict your purchases on these key items.

You won't want the specifications to be loose since these items (by their nature) have a very big impact on your food cost results.

The consistency issue is number one with regard to your key items.  Your customers make the trip to your restaurant specifically to order these popular items.  They expect a consistent portion size and quality level.  You can't expect a highly consistent end product if you buy different quality or specification each time you order.

The portion size information will help you forecast the number of cases or boxes to purchases.  I have seen certain pieces of meat used to cut steaks with a high yield variance.  In one example, the yield was 62% for the high and 54% for the low.  The average yield was 60%.  If you receive an entire box of meat with a low yield, you could require an extra piece of meat.  This is rare but possible.  Definitely mention the poor yield results to your supplier.  You may be entitled to a credit.

We will be exploring the purchasing model in the Part 3 section.

Friday, August 12, 2011

Theoretical Food Cost In Dispute


I own a QSR pizza franchise in Ontario, Canada.  According to the franchisor, my standard food costs should be 39 - 40%.  My food costs based on the franchisors standard recipe is 1 - 3% below this standard consistently.  What is an acceptable margin for error in arriving at this calculation?  As you know, there are many variables which affect the food cost.  One of which is we have a medium one topping pizza which sells for $4.99 which has a food cost of 55%.  This is obviously a good seller and raises the standard.  How can I interpret these results?  On average, we process over 1200 orders per week with a time guarantee or its free. Every pizza is made by hand, no pre-measurements of any toppings with the exception of cheese cups and in my opinion not very accurate when you are in a hurry.  Personally, I feel I am over using and that their standard is far too high.  I feel their calculation is designed to increase their own profitability because all of our inventory is purchased from them.  The profit margin has disappeared.  How can I tackle this issue? I look forward to your response and I thank you in advance.


Thanks for your question Mirella!

Let's take a look at the issues:

Franchisors View:
1.  Consistent portion size across the entire company.
2.  Profit motive has a link to franchisee purchasing behavior in your organization.

Franchisees View:
1.  Profit motive is highly correlated with a consistently low food cost.
2.  Portion control is a critical factor in achieving a consistently low food cost.

Taking the franchisor's side briefly, I would be unhappy if my franchisees had agreed to buy dough balls, pizza sauce and cheese from my commissary and they decided to purchase these items from alternative sources.  There would be consistency issues on each of these critical components.  They need to monitor ratios to prevent this activity.

It is evident from your letter you are watching your costs very carefully.  The franchisor's ratios may have built in inefficiency numbers.  If you run your operation more efficiently than the norm, you would beat their ratios.

I favor pre-portioning for cheese and dough balls.  In addition, all pizza bakers should use standard ladles for the pizza sauce.  The reason I favor pre-portioning is due to the peak period factor.  A tremendous percentage of sales volume is achieved during peak periods.  Sloppy portion control during these high volume periods can be very costly.

You have a second motive in pre-portioning the cheese.  The accurate portion control records may be used to support your case against the franchisors actions.

The portion work should be done during down time.

Wednesday, July 27, 2011

Food Cost Control Framework Part 1

The essential table required to begin a professional food cost control system is the item list.  This table needs to have the same information you see on the order guides from any national distributor, storage information and vendor information.  In addition, I add several columns to help classify the manner items are purchased including frequency, bid (buy from lowest bidder) and impact.  Impact data can be simplified into the classic A B C model.

The A items are high volume and high cost per pound or volume, the B items are either high volume or cost but not both, and the C items are low volume and cost.  You will see a higher return on your invested time spent controlling A items.

A typical food item would have the fields below for each record:


Category:  MEAT
Purchase Unit: CASE
Pack/Size:  12/5#UP
Catch Weight: YES
Weight/Case (AVG): 72.0
Cost/Pound: $8.00
Storage Method: REFRIGERATED
Inventory Location:  WALKIN COOLER 1
Frequency: 7
Primary Supplier:  Premium Meat Company
Bid: NO
Alternate Suppliers:
Impact:  A

This records tells us we have a high impact meat item which is ordered by the case and invoiced based on catch weight.  We use a single supplier and we order weekly.  Based on our contract, we now pay $8 per pound.  The tenderloin is stored in the main walkin cooler.

These essential fields help us with the food cost control in several ways.  Beef tenderloin is a high volume item for this restaurant and the $8/pound is a relatively high cost.

This data is sufficient for general information.  We would want to add fields to help out the staff working on ordering the meat.  Demand forecast data is preferable to a par stock level for your A items.  If you expected to serve 2,000 covers and on average 25% of patrons choose beef tenderloin, you need 500 portions of filet mignon for the week ahead.  Depending on the size of the steaks, this case will yield either 72 steaks or 60 steaks.  Our data shows 60% of patrons will choose the smaller steak (72/case) and 40% will choose the larger steak (60/case).  We'll need 3 1/3 cases for the larger steaks and 4 1/6 cases for the smaller steaks.  Since we can't order fractions of a case without a split penalty, we would order 8 cases.

Seasonal operators should not rely on par stock averages to purchase any A items or high volume B items in their inventory.  Accurate forecasts are essential.  Fortunately, the counts in your busy season will be higher and more reliable.

We will develop a data table to recap the information required to analyze A items in the next article - Food Cost Control Framework - Part 2.

Thursday, July 21, 2011

Higher Food Costs Can Lead To Higher Profits

As commodity prices have leveled recently, we have consumers modifying their food purchases due to much higher prices for many staples.  The financial press has featured plenty of articles on the high prices for gold, oil, corn and other key commodities.  Many restaurant chains have increased their menu prices to offset the higher cost of goods sold.

In the short term, savvy restaurant managers can boost profit through strategic menu engineering analysis.  Imagine your food purchases are 5% higher for the same sales level.  If you raise selling prices by 5%, you can cover the higher cost of sales and increase profits by holding overhead and labor costs low.  With a check average of $18 and a 33% food cost, your cost of sales is $6 and your gross profit is $12.  Raising the $18 by 5%, you would expect a check average of $18.90.  The cost of sales would go to $6.30 in the same 5% rise.  Your gross profit would increase by $0.60.

In terms of the original $18 check average, this $0.60 is an additional 3.3% of gross margin.

Flash Report Question

Thanks to Felix for his recent email.

Hi! Joe,

I read your comments concerning the weekly flash report in and indeed it was a great information on financial perspective.
I'd be more happy if you could post me the weekly flash report format to cross check the one I'm doing.

Appreciate it Joe.

Thank you.--
A pessimist sees the difficulty in every opportunity, an optimist sees the opportunity in every difficulty.

Every flash report should meet the number one need - timely information.  

Critical operations data should be summarized including the following items:

Forecasted Sales (by category)
Actual Sales (by category)
Scheduled Labor (by department)
Actual Labor (by department)
Purchase Targets (by category - based on forecasted sales)
Purchase Recap (by category)
Overhead Estimate

You can profile the report in columns comparing the actual results to your plan figures.  A variance column with appropriate explanations is a plus.

Don't waste time reporting every single accounting transaction.  A breakdown of cash, credit card charges, house account charges, etc. will help management forecast cash flow.  Labor costs are a prime cost item and you will find excellent tools to manage this activity.

Above all else, make sure the report is published on a timely basis.

Tuesday, June 28, 2011

Mid-Year Review 2011

We started the year in rally mode, hit the breaks in spring and enter the third quarter with the first signs of a correction in gas and corn prices.  We expect our employment improvement forecast in the Outlook for 2011 will be achieved despite the seasonal bumps in the road.

The Dow Jones Restaurant Industry Index is up 10% since January 1st. 


Corn prices, which have risen steadily for a year, corrected recently and this helped the restaurant index regain momentum.  We should be above 700 by year end.


If you haven't raised your menu prices to cover the costs, you will continue to experience downward pressure on gross profit.  We'd need oil prices below $75 to become optimistic.  This is possible but not a lock by any means.

As we see a renewed search for productivity gains, tech companies serving the industry should find the phones ringing in the second half of 2011.  The iPad has helped to create some buzz with menu and ordering apps joining wine list tools in the App Store.

Seasonal summer resorts should benefit from pent up demand for real vacations.  With geopolitical unrest abroad, the old fashioned American road trip could get a deep discount as gas prices fall post-Memorial Day.

Friday, June 24, 2011

Social Media Connections

I'd like to thank everyone who has sent me invitations to link with them on a variety of social media sites.  Due to time restrictions, I am only able to stay active in a small selection of sites.  Over time, I find my time is best spent on LinkedIn and the blog.  I will be writing articles for 3 industry sites.

Although I initially enjoyed Facebook, the high number of Facebook related game site traffic pushed me away.  I recently deactivated my Facebook account.  I will update my status on the blog if I decide to return. 

My time on Twitter is now way less than when I first discovered the micro-blog service.  I still enjoy reading tweets using an email delivery service called Nutshell.  As I become a better user of Nutshell, I will increase my retweet activity.

When Ning went to a pay-to-play model, we kept the Foodservice Club for a year.  If we decide to recreate the club, we will most likely build a Facebook page.

The excellent site Hotel Trends has developed groups which have added a forum for their readers.  They remain my favorite site for industry news.  A close second is which has market reports.  If you need intensive market reporting and analysis, you can't beat American Restaurant Association which requires a paid subscription.

You can study the ups and downs of over 4,000 restaurant chains on which produces lots of Top 10, Top 50, etc. style reports.  They also offer a paid subscription service with advanced queries.

Although I have registered for many other sites, I have decided to remain inactive on most.

Sunday, June 19, 2011

Great Week For Our Industry

Prices for crude oil settled at a 4 month low this week.  As many of you know, the sales pickup stalled when crude oil prices began spiking earlier this year.  Moving in lock step with crude oil, corn futures began to dive from recent heights.

Source:  CME Group

Lower prices for corn and crude oil as we hit the busy summer season is welcome news for restaurants, hotels and caterers.  Patrons will be able to fill their tanks for less money.  Your invoice prices for meat and grain products will be lower.  There's enough volatility in the markets to cover any recent menu price increases.

We could use a few more weeks like this end of spring gift.

Thursday, June 02, 2011

The Profitable Butcher - Part 3

With the recent rapid increase in meat prices, operators are discussing the merits of smaller portions.  If they serve an 8 ounce steak, they may be considering a 7.5 ounce portion.  For operations with large portions, the change may be from 16 ounces to 15 ounces.

A change from 8 to 7.5 ounces is a 6.25% reduction.  Everyone is familiar with the coffee cans at the local market.  It is rare to find a one pound can.  Actual weights are often less than one pound.  Sometimes, the size of the can stays the same but the net weight changes.

Would your customers notice their serving is only 93.75% as big as last time?

They may not notice a small change in the serving and they may not care.  If you notice the plates coming from the dining room have uneaten meat or fish, your current portion size may be too large.  Consider a slight drop in size.  The profit potential is significant.

Take a look at the big picture.  If you use 800 pounds per week at $6 per pound, a drop from 8 to 7.5 ounces will save $300 (around $15,000 per year).

This strategy should not be combined with an immediate and significant price increase.  Raising the price and decreasing the portion size doubles the risk of your customers objecting to your strategy. 

[For my loyal readers, the bakery I wrote about when flour prices went through the roof is now under new management.  They made the changes too obvious.

The size of the loaves decreased by 20% for the same price which was perceptible.  They eventually raised the cost per loaf by 15%.  Traffic suffered and they never regained their gross margin.]

The Profitable Butcher - Part 2

Tracking butcher yields is essential if you decide to trim your meat and fish rather than buying portion cuts.  Too often, managers treat the process with a lackadaisical attitude.

"We use the trim in ravioli.  They're free."  "This week's meat was fatty."  "Our butcher doesn't slice the steaks evenly."  "We only pay $6 per pound and the portion control cuts would cost $7."  "Nothing is wasted.  We make all of our stocks from scratch."

The common theme is a lack of clarity.  You can't afford to butcher meat in your operation if you do not closely track the process.  Butcher yields can fluctuate widely.  The differences in yields need to be monitored closely.

I know an operator who carefully tracks each batch.  The starting weight and number of pieces of meat are recorded.  The log contains the cost per pound paid to the meat supplier.  After trimming the meat and slicing the steaks, the butcher records the number of steaks, usable trim and waste.  All costs flow from the starting weight and cost per pound.

This person has a well documented 3-ring binder with each butcher batch sorted by date.  I went through the history and found the overall yield was very close to the restaurant's standard.  More importantly, the yield from batch to batch varied by plus or minus 5%.  This is a 10% spread.

Most operators do not keep these records.  The time to record the batch is minimal and the gain in information is tremendous.  Understanding your standard yield is key to tracking usage and gross profit.

Wednesday, June 01, 2011

The Profitable Butcher - Part 1

Our goal is to keep the cost per portion as low as possible while maintaining the current standard.  The focus is on the center of the plate.  Most people break down their current meat and fish using a cost per ounce model. 

There are many limitations to this approach.

Your cost per ounce may be 50 cents.  If you take a piece of meat which costs $6 per pound and you lose 25% in unusable trim, your cost per pound is $8 and your cost per ounce is 50 cents.

Our first issue is the 25% unusable trim.  This implies a 75% yield when we focus on our center of the plate portion.  What happens if a particular piece of meat yields 80%?

Instead of 50 cents per ounce, we would only pay 46.875 cents per ounce.  Is this meaningful?  Do people actually see the impact?  I would argue they don't see the impact clearly.

If the piece of meat weighs 10 pounds, the 50 cent per ounce model assumes 120 ounces.  We would expect to yield 15 - 8 ounce steaks.  The 80% yield would increase the number of steaks from 15 to 16.  The same numbers are in play with only a slight change in yield.  The piece of meat weighs 10 pounds and the cost per pound is $6.  Only the yield changes from 75% to 80%.

The extra steak is the true benefit.  Monitoring a 3.125 cents per ounce change won't be easy to explain in meetings.  "we should have a slightly better profit this weekend because our cost per usable ounce decreased by 3.125 cents..."

The extra steak would cost $4 using the 75% standard at $6 per pound.  Our goal is to save this $4.

Perhaps we could find a supplier who usually delivers meat which yields 80%.  If we expect to purchase 10,000 - 10 pound pieces per year, we would save $40,000.  The savings would occur 1 steak at a time as we gain the extra steak from each batch.  Using our POS system, we can make sure we get the sales for the extra steaks and the gross profit increase will appear in our bank account.

Rather than tracking 3.125 cents per ounce, we can track these extra steaks.

Sunday, May 01, 2011

What Should My Food Cost Be?

Every month, I receive emails asking for benchmark information in every segment of our industry.  Benchmarking food cost is a meaningless pursuit.  Every menu has a unique set of criteria which have an impact on the gross margin.  Rather than looking for a target number outside your organization, I would suggest a simpler and much more accurate way to answer the question:  What should my food cost be?

People really want a method to bring their gross profit back to previous levels.  

The first step in finding the answer lies in your current sales mix, food purchases and the resulting gross margin.  Nobody offering a diverse, a la carte menu to their guests can expect to have a food cost % close to a utopian figure.  Also, this means your competition is far from perfect.  Don't focus on an unobtainable goal.

Review your purchasing data thoroughly including a month by month analysis of all key items (typically your top 25 items ranked by purchase volume in monetary terms).  I would go so far as to construct a matrix to track the purchase cost of these key items on a monthly chart.  Look for sharp shifts (inflection points) on the chart.  Can you find the logic behind these shifts?  Perhaps you have significant seasonal price changes.

You will definitely see a major shift higher in any items which require consumption of grains in their production.  This is not just baked goods but also the protein items.  Our animals consume the same grains we now see used in the production of the fuel we consume at the gas stations (ethanol is anywhere from 10% to 85% of the fuel at most service stations).

Find the top trends in these key items.  Apply the findings to your food cost formula.  If the top 25 items account for 40% of your purchases, a 10% shift higher in the cost of these items will produce a 4% increase in your purchases.  If your purchases have actually increased 5.5%, the 1.5% implies the other 60% of your purchases have increased 2.5%.  Every operation will have a unique profile.

Start with your top 25 items and try to cover the 4% increase in purchases.  Can you lower the figure through tighter controls?  Weigh the cost of tighter control against the potential gain.  Implement these controls whenever the benefit outweighs the cost.

Carefully monitor waste, spoilage, theft, portion size and purchasing trends.

In the example above, a sales increase of 1.65% would cover the 5.5% increase in purchase costs if your target food cost % was 30%.  You don't need to raise menu prices 5.5% to cover the increase if your goal is to maintain gross margin.  A food cost % of 31.14% would produce the same gross profit as before if your cover count  is stable and your check average increase hits your 1.65% target.

Wednesday, April 27, 2011

Reader Question on Food Cost in Health Related Lodging

Dear Joe,

I have a question regarding Food cost in the Hotel, specializing on the Medical treatments (more like a Sanatorium).
They have a 3 times a day big buffet style meals - all inclusive.
All guests (patients) are assigned to different diets and picking up food according to their diet class.
I am Financial Controller of this hotel and when I see Food cost equal to 46% every month – I feel that it is very high for the buffet food.
Please advice if there are any benchmarks for this kind of Hotels – sanatoriums (All inclusive).

Thank you in advance,

Your 46% food cost may still deliver a profit, Maria.  If you have a very reliable (close to 100% accurate) revenue forecast due to the nature of your business, a higher cost of goods sold may be the industry norm.  Generally, everyone dines in the hotel and the buffet is a fixed price.  This creates the environment for the highly reliable forecast.

The buffet style of service keeps dining room staff size low.

We would have to know the cost dynamics in the front desk, marketing, rooms and housekeeping operations.  Is the 46% based on food sales?  Or based on total sales?

If the 46% food cost percentage equals food cost of sales divided by food sales, you will still be profitable.  This is not a benchmark issue.  Most hotels depend on last minute reservations, walk in guests and local dining guests to hit their sales targets.  They use the room count to forecast revenue but the forecast variance in sales is higher than an operation in your niche.

I use a 10% factor for food cost improvement.  In your case, we would use a 4.6% drop as our goal.  This is simply 46% times 10%.  To achieve a 4.6% improvement in a buffet style operation requires effective production controls.  If you offer a selection of protein choices, this is the best place to start.

Closely monitor the production of all buffet pans with protein.  Observe how the expected guest count and preference factors are used to forecast consumption of each menu selection.  Monitor the actual portions produced, served, left over, and/or discarded.  Over time, the numbers will help your culinary team reduce waste due to over production.

Tuesday, April 05, 2011

Can Higher Sales Offset The Rapid Food Cost Inflation?

As operators find more diners in their restaurants, they are seeing major increases in their invoices for food and supplies.  Higher prices for food, utilities, gas for vehicles, paper, linen and other supplies are shrinking margins.  Can your higher sales numbers offset the rapid rise in food cost?

A 10% rise in your invoices will cost you 3.5% of sales at a 35% previous food cost level.

This may be too much to take if you rely heavily on coupons and discounts to attract patrons.  On the other hand, most operators would gladly part with 3.5% of sales to see more revenue.  Many of these people will eat the cost increases for some time.  They will follow their competition in any price increases.  Fearing a drop in business just as they see a pick up, restaurant managers are holding prices in check at many locations.

Is this a good strategy?  Happy to have survived the recent bloodbath, many people I speak with are happy to wait the competition out.  They quote $5 foot longs, 2 entrees and an appetizer for $20, 2 pizzas for 1 nights, and numerous competitors offering a meal with full service for $9.95.  Patrons have downsized from prime steaks to upscale burgers.  Burger places are popping up everywhere I go.

If you decide to lead in the price increase game, I would expect your competition to follow pretty quickly.  Everyone sees higher prices at the supermarket and gas pump.  Many patrons expect increases.  By taking the lead, you can set your own pace for price increases.

Friday, April 01, 2011

Economy Continues Adding Jobs in March 2011

As we continue to dig out from the Great Recession, it is great to see the economy adding jobs. The March unemployment rate dropped to 8.8% on a nationwide basis. Even the relatively high oil prices are helping the jobs outlook. The recent news on liquefied natural gas and oil shale production points to significant employment potential.

During my 9 years working in the oil patch here in North America, I remember excellent wages at all levels. Our dishwashers and housekeeping staff in Northern Alberta and Alaska were earning over $60,000 a year in 1989.

My prediction of an unemployment rate below 8% by year end looks safe. Momentum is the key to a sustainable rate. With all the negative news recently, employers are still hiring workers.

Restaurants benefit from 2 income families who often have no time to cook and have the additional disposable income. Our industry is healing faster than the construction industry.

Tuesday, March 29, 2011

Restaurant Profit and Loss Statements 2011

As predicted in our Outlook 2011, we are experiencing an upside bias in the grain markets. The current global uncertainty has driven oil prices higher. Grains are highly correlated to oil prices.

In the most recent month, the impact of higher grain prices is hitting the bottom line in a negative fashion at many restaurants. What we see in our client's P&Ls (profit and loss statements) are higher cost of goods sold percentages. Generally, the rise has been in the 1 to 2.5% range depending on the menu.

This increase in costs has hit restaurants in their challenging winter season. Usually, we expect lower oil prices in this slow travel period and much higher prices around Memorial Day weekend in late May.

You may be experiencing the double negative of higher % labor costs due to lower seasonal sales and the increase in cost of sales. Margins are tight and some operations are seeing red ink again.

What are the options available? To get the picture framed properly, you need to be aware of your local competition. The Plan A option is to go with an across the board price hike for your menu items. This may not be the right time to take this step. Plan B involves further cost cutting actions. Many restaurants have been continuously cutting fat since late 2008. Should you cut portion sizes? If the smaller portion is offered at the current menu price, the answer is NO.

My recommendation is to disconnect from the percentage view and look at dollars. Find the dollar increase in cost of goods sold. The goal is to cover this increase or absorb the increase in a very visible marketing campaign designed to increase market share. Definitely let your customers know you have decided to absorb the increases if this is your decision.

For those who wish to cover the increases with higher selling prices, I would spread the dollar increase in cost of goods sold over each entree, sandwich, entree sized salad and appetizer on your menu.

For example, if you expect the cost of sales to increase by $5,000 (2.5% of $200,000) each month and you sell 20,000 menu items in the categories above, the increase is 25 cents per item. Make sure you use a lower labor target % since labor costs do not fluctuate with the oil markets. Maybe it's time to increase your profit margin. Add additional amounts to cover this need at the same time. If you want to cover the cost of sales increase and produce another $4,000 in gross margin, raise your prices 45 cents (using the same example).

This "cover your butt strategy" is easy to implement. You need a forecast of menu items sold in each of the target categories, and the increase in cost of goods sold in dollar terms. Simply divide the cost increase by the item count to get the increase per menu item.

Sunday, March 06, 2011

Is My Food Cost Too High?

Some of this month's emails have questions regarding a food cost benchmark. Generally, you will meet many operators who have been trained to cost their menu items with all garnish, sides, and sauces. They then multiply the cost by a factor of 3 to achieve a 33% food cost. This method won't maximize profit.

If you use a 33% food cost target, how do you treat monthly price fluctuations, shifts in guest preferences, and a myriad of other variables which impact the food cost formula?

Use the food cost target as your projected food cost but take a hard look at the actual results. Your food cost is too high if you haven't implemented tight portion control. Maybe your garbage bags are loaded with spoiled food due to ordering too much product. Your cost is too high. Try to locate all the food cost issues in your restaurant. These are opportunities to improve.

Your food cost percentage does depend on your menu pricing strategy. Your pricing factor may not be 3 times the recipe cost. There are sophisticated menu pricing models which are designed to increase gross profit in dollar terms. Before the ink on the new menus is dry, the recipe costs used in your model will have changed.

Use your current food cost as the guide. Look for ways to improve. Create simple action plans. Improve by executing the plans.

Economy Showing Positive Signs

The weather in many regions was tough in February but the economy showed an advance over last year. Grain prices have risen tremendously and many operators are wondering whether to pass the higher costs along to guests. This is a difficult call to make nationally since competition varies by region, city and even by neighborhood.

If you decide to pass along the higher costs by raising your menu prices, there are 3 ways to cover the increase:

1) Increase the price of major entrees by an amount which will cover just the additional cost.

2) Increase the price of all menu items across the board to cover just the additional cost.

3) Strategically increase prices over several quarters to cover costs and produce a profit large enough to cover the risk of further price volatility.

Many operators wonder whether they should lower the prices when the commodity markets retreat. I wouldn't let the commodity markets dictate pricing policy in the long term. As the economy heats up, energy consumption increases will produce additional volatility. Constantly changing menu prices up and then down with each shift is a mistake.

If you decide to establish a policy of steady and more gradual price increases over several quarters, your guests won't see you twisting in the wind. Competition will guide you in determining how much of an increase the market will allow.

Many restaurants have been offering reduced entree prices of $9.95 and below. Should you go over $10 if your menu fits this profile? I'd recommend a move now above $10. With the press reporting the big run up in grain prices, many people have been conditioned to expect price increases.

10 Ways to Reduce Your Food Cost

I'd like to thank Ron and RoseAnne from ReedExpo for inviting me to speak at the International Restaurant Show in New York City this week. The show was well attended and there was excellent energy. This show is without question THE New York City restaurant show.

We had a great group attend the presentation "10 Ways to Reduce Your Food Cost Without Jeopardizing the Guest Experience" and I want to thank all the attendees.

In the New York tradition, the 10 slides are presented in reverse order, #10, #9, #8, #7, #6, #5, #4, #3, #2, and the Number 1 way to reduce your food cost:

Tuesday, February 01, 2011

Eliminate Fraud and Theft With Tight Food Cost Control

Thanks for your loyalty! This is the 300th post and I am happy to report annual readership has grown from 50,000 to over 70,000 readers. It takes a bad recession to get restaurateurs focused on cost control.

If you want to get down into the numbers, Paul Hewitt, CA has an excellent blog for Canadian Restaurant Owners. Paul's current post is the first in a series and the theme can help restaurateurs anywhere in the world. Check out Restaurant Fraud and Theft, Part I for a great look at ordering, purchasing, and my favorite, receiving issues. In my public speaking appearances, I frequently mention the missing truckload of eggs at the Syncrude operation in Northern Alberta. Locating this fraud was the key to my promotion at the time.

It is always possible for an individual to change from honest to dishonest if they stay too long in the same position. If you suspect a problem and you can't find a logical answer, you may have a thief or worse. I have argued over the years with owners who just could not be convinced a particular issue could only be explained by theft. Usually, there is a trusted employees with years of experience and a huge level of responsibility at the center of the theft ring.

Frequent unannounced inventories of specific items help isolate the problem. Check your POS data and invoices carefully. Look for major variations which can't be solved with minor portion control episodes and spoilage. Check the quality and sniff through protein stocks to eliminate the chance your operation is the garbage can for the delivery driver who has had a day of rejections on the way to your restaurant. This is a problem on long routes for the locations towards the end of the shift. It is a hidden form of fraud. You can be routinely sold food which has expired or will only last a day.

Sunday, January 30, 2011

Wine Stock Management for Restaurants

David Kesmodel's article, Snooty? Not Today's Wine Drinkers, in the January 20th Wall Street Journal studies the new trends in the wine market.

A few of the findings I found interesting point to continued strong wine sales. The big shift down is in the price per bottle.

After trading down in the recession, many consumers are staying with lower-priced wines. The fastest-growing segment is $9-$12 a bottle.

Mid-priced bottles are the life of the party. Last year, unit sales of wines priced at $9 to $12 a bottle rose 12% in food, drug, convenience and other stores, a faster growth rate than in other price segments, according to market-research firm Nielsen Co.

Jordan Vineyard & Winery, whose wines are often found at high-end steakhouses, enjoyed a 5.5% increase in overall sales last year, and projects an increase of 6% to 7% this year, according to Chief Executive John Jordan. The Healdsburg, Calif., vintner's wines retail for between $28 and $55, and run anywhere from $65 to $125 per bottle in restaurants.

For most restaurants, this could produce much lower beverage cost % since the mark up on higher priced bottles is often lower than the popular house options. Of course, the gross profit per bottle will trend lower. This shift may allow some restaurants to end the practice of acquiring legacy wines just to remain on a list. As the value of the wine inventory drops, the turnover will improve.

If you have a large inventory of aging wine in the $100 per bottle range, you may want to take a write down. The accounting principle of lower of cost or market provides the justification for the write down. Cut the expensive wine inventory valuation by half and you may get a tax benefit in 2011.

Managing the Coming Increase in Food Costs

As the recovery starts to filter down to more discretionary spending at restaurants, we are facing a major shift higher in many key commodities. Oil will most likely go well North of $100 a barrel in 2011. We can expect grain prices to trend higher as the demand for ethanol increases. Grain feeds livestock. Flour, corn, beef, pork, chicken and other key items will be increasing in price.

The upscale dining segment has really had a tough time during the recession. Demand for prime beef has declined. Demand for expensive wine has declined. Demand for 50 year old cognac has declined. Restocking the shelves may not make sense for this segment. As the number of these restaurants has declined, the market may find an equilibrium sometime this year. The survivors will see the 20% plus sales declines end. In fact, sometime this year the upscale market will hit bottom.

How much of a bounce can we expect at the bottom of this curve?

I work with some operators who have seen 4 or 5 of these down cycles. They all say this is the longest and deepest for them ever. These operators are not raising menu prices. Too much competition from the next rung down on the dining ladder. With higher food cost prices, they have decided to rely on higher guest counts to make their budget work.

Monday, January 03, 2011

Outlook for 2011

I expect 2011 will usher in a new wave of job creation. This wave will take the unemployment rate down below 8% by year end. Some of the job growth will take place in the Rust Belt.

During the holiday season, I traveled to Upstate New York. The General Electric plant in Schenectady was all lit up and there were way more cars in the lot than recent years. GE will be producing batteries. AMD will be opening a brand new chip factory in Malta. The roads have been re-engineered with rotaries to handle the expected traffic volume.

Restaurant dining has become less formal in recent years. I expect this trend to continue with greater speed. Diners want to get out more often than the past few years and they want to be recognized by the management.

On our drive back, we stopped at a restaurant in Binghamton and the owner stood near the door greeting every guest. He was there as we left and we felt the traditional "Thanks for coming! Was everything OK?" seemed 100% genuine. I told him I really enjoyed the salad dressing and rolls. We ordered our salads with oil and vinegar and they offer guests a nice quality extra virgin olive oil and balsamic vinegar.

I'm going to try and patronize independently owned restaurants more this year.

There is a growing awareness of waste in the country. We will see the concern for wasted energy and clean water spread to food. Smaller portions and healthier options will be popular. Whole grain pastas, brown rice, whole grains in bread and rolls and locally grown produce will continue to get visibility in menus.

McDonald's starts the year with $1 for all sizes of coffee and soft drinks. The price pressure on non-alcoholic drinks will continue. Expect your guests to scrutinize their checks looking for prices on specials and drinks. If you price your soft drinks modestly and include the pricing on your menus, the move to complimentary tap water may start to shift back to revenue generating drink options.

With any economic uptick, we can expect market prices to increase. We ended 2010 with higher prices for gas and grains. These markets will be volatile with an upside bias.

I expect the comparable unit sales statistics to be positive in 2011. The strong concepts will see 5% plus growth. Don't expect an immediate turnaround. January is the month of New Year's resolutions which tend to give way around Super Bowl time.

Restaurant Data Pros

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