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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.

Restaurant Data Pros

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