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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.

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