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Wednesday, March 28, 2012

Impact of Service Style on Food Cost Percentage

Hi Joe:

I teach Quantity Food Production for a Dietetic Technician Program, and have a question about something I read on your blog.

You said that, within the commercial foodservice industry, generally, the faster the service, the lower the food cost %. Can you explain this a little more? If the food cost % is low, isn't the labor % higher, and for the faster service, wouldn't there generally be cheaper labor with the faster service? Or, is it because you're using "cheaper" food as input to begin with? Or, am I looking at it completely wrong?

Thanks--Cindy Pierce, MS, RD, CDN

Assistant Professor/Clinical Coordinator

Food & Nutrition Programs

LaGuardia Community College

Thanks for the question Cindy. This issue is important to many of our readers.

Let's start with the QSR service style. Take out orders dominate this industry segment. The high cost of disposables demands a low food cost percentage. When the cost of disposables is added to the food cost, the QSR segment has an overall cost of sales closer to a casual restaurant.

I'd like to go to the other end of the service style spectrum and focus on a fine dining restaurant with expensive raw ingredients, top level service and a professional chef. These operations run a high cost of sales percentage due to the relatively high cost per ounce of the center of the plate portion and a large gross profit per plate. The chefs are willing to accept a higher food cost % because they want the $15 to $20 gross profit per entree.

Buffet service often runs a high food cost percentage since there is no need for a large wait staff. The competition in the buffet segment is fierce in many regions.

Fast casual operators get to charge higher prices for their menu items. Customers like the fast service and are willing to pay for the quality. The menu prices need to cover the cost of disposables. Your "cheaper" food question is at the heart of the QSR/Fast Casual value proposition. There are many chains moving to a dual identity.

McDonald's has added improved coffee drinks, smoothies and Angus beef options. Service is a bit slower for the new cafe drinks and smoothies. Quality is definitely higher. Have you ordered a pizza from Domino's lately? They now offer artisanal pizzas. Wendy's uses sea salt on their fries and Burger King has improved the quality of their burgers and fries. The traditional fast food fare has now found it's way to a separate "value menu" with smaller portions and no Angus beef.

Casual dinner houses tend to be dominated by the 3X menu price model. These operators cost out the complimentary food, center of the plate entree portion and most popular sides. They multiply the total cost by 3 in hopes of achieving a 33% food cost. You will find lots of options around $19.95 at these restaurants. During the recession, there was a shift downward in the number of extras ordered by patrons. Some chains began to offer a split entree or dessert at a bargain price. With guests moving away from bottled water, casual dinner houses have to work hard to achieve their food cost % targets.

Hotels do run a relatively low cost of goods sold in their room service, cafes and bars. They run higher costs in the high volume buffets and in the fine dining operation. With over 50% of the volume in catering and buffets, the overall cost of sales is below most casual dinner houses due to the great gross profit % in the non-buffet venues. When events are scheduled mainly in the morning, food cost percentages tend to be lower.

Wednesday, March 21, 2012

Recipe Book Bible Question

Dear Joe,

My name is Koti, working as a Head of operations for a group of restaurants in India.

I read your blogs which were interesting, I would really love to make a RECIPE BOOK BIBLE for my Restaurants.

I do have knowledge of food costings and all. Please give some ideas and suggestions in this regard.

Thanks & Regards,

Koti, Head of Operations

I love the great recipe tools we have to work with Koti. I find many companies do the bare minimum with the available technology. In fact, the typical approach is often dangerous. Many companies use the recipe cost software to produce a "ideal food cost" which is anything but ideal.

To begin the project, I would divide recipes by the intended use. We would start with the classic recipe card project. Start with your current menu and get all the recipes for these items. After sorting the cards by category (soups, salads, entrees, etc.), make a list of all the menu items in a spreadsheet. Enter the category in the next column. Some menu items need to be prepared before the meal service and other items are made to order. In the next column, enter BATCH or PORTION to highlight the preparation method. The next column will have the number of portions the recipe yields. The BATCH recipes will have a number greater than 1 and the PORTION recipes will use 1.

Now go through all the cards and find any other batch recipes which need to be prepared in order to produce the menu item. You will produce a list of sauces, dressings, mixtures, cakes, pies, breads, casseroles, stews, etc. Add all these recipes to the spreadsheet. The category should reflect the process. For example, BAKERY would be used for cakes and pies and GARDE MANGER would be used for salad mixes and dressings. Most of these recipes will be BATCH oriented. Enter the yield data with a number and a unit of measure. For example, a soup may yield 5 gallons.

Go back to the expanded stack of recipe cards and search for any ingredient which requires preliminary prep work. All items which are butchered, trimmed, sliced, diced, ground, etc. would be added to our spreadsheet. These mise en place items can be categorized by their production process or simply use the category PREP. When you setup the BATCH yield, we are looking for the amount produced (not the amount required). You may have Steamed Rice which tends to expand. Enter the weight of the final steamed product not the raw rice required to produce the finished product. Conversely, your butcher and trim items will produce less than the raw ingredient weight required to produce the steaks and clean vegetables.

A 2.5 kilo beef tenderloin may produce 6 large steaks. The Beef Tenderloin is the raw ingredient purchased, stored and use in recipes by weight. The steaks would be in our PREP items and the yield data would be in PORTIONS. Filet Mignon with Sauce au Poivre may be a menu item in the ENTREE category with the focus on a single PORTION.

If you start with this design phase, you will have a strong foundation. Once the recipes are fleshed out, there are many unique and very helpful variations I like to build. Think in terms of the management tasks every chef or food and beverage director needs to perform: forecasts, par stock determination, line production, purchase orders, banquet event plans, etc. You will find many ingredients are not restocked based on the menu. Shelf stable items are typically ordered based on a par stock model. I like to make a separate set of recipes for ordering the menu driven items like high cost, perishable meats, seafood, produce and dairy. My second set of recipes could have a slightly different name. For example, the Filet Mignon recipe could have a copy with the name X Filet Mignon. The category could be FORECAST. The number of portions would be the same - one.

For my recipes used in forecasts, I strip them of all ingredients ordered using a par stock model. The survivor ingredients will all be your key items. Management can forecast the number of portions they expect to sell (or produce) and the model will produce a purchase requirements report.

If we take a look at the line cook position, the same base recipes need procedures, photos and possibly videos. Think of an operations manual designed to produce consistently prepared menu items. Make a gallery of photos and, if available, a gallery of videos. The menu procedures can be scanned from your recipe cards or entered into a word processing file. Most recipe software programs allow you to attach files and cut and paste (or import) text into the procedures box. This window dressing phase can be accomplished by a second team if you are in a hurry.

Monday, March 19, 2012

Food Cost Benchmark Question

Dear sir,

I found your website very interesting. Please, kindly could you explain the cost of current food from kitchen (also banquet & f&b). What's the percentage food cost target for each?

I got a little confused whether it's 32% or 33% or 35%. (and also is banquet 24% or 28%?)

Thank you,

The target food and beverage cost percentages differ depending on your specific company's budget. Generally, it is wise to run an overall cost of goods sold of 30% or lower. Take all costs of both food and beverage and divide by the total food and beverage revenue. I believe 35% would be too high.

Historically, many operators have set a food cost target of either 32 or 33% and a alcoholic beverage cost target of 18 or 20%. If 3/4 of your volume is food sales, you would achieve the 30% or lower objective.

The reason banquet food costs are often much lower is the inclusion of many non-food items in the contracted BEO revenue. Personally, I like to calculate a profit per guest on BEO reports. Ideally, the revenue for each event should be sufficient to cover all costs (including flowers, music, special decorations, etc.) and allow for a fair profit.

Restaurant Data Pros

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