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,

Maria

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.

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.

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.