Phone: (413) 727-8897 email:

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.

Restaurant Data Pros

web counter