Everywhere you go this year, restaurants are featuring locally sourced foods. You'll find lots of locally grown produce when in season. Here in Northern Virginia many area artisans sell their vegetables, fruits, cheeses, breads and pies at the excellent weekend farmer's markets.
We recently enjoyed breakfast at the Silver Diner in Springfield. Here guests find a smooth blend of 1950s diner decor and all the hot food trends. While waiting in line, guests are entertained by a singer who is letting them know the biscuits are coming out of the oven. The diner has a bakery on the premise. Silver Diner has made a commitment to healthier food. They feature nitrate-free bacon and sausage from local suppliers, agave sweetened fruit toppings, organic produce, free range poultry raised without antibiotics, and farm fresh eggs raised by an Amish farmer. The terrific coffee was freshly brewed with locally roasted beans.
Our check came to $60 for four people. Everyone was very pleased with the food quality and the service was excellent.
The locally sourced trend began heating up in 2010 and is very much a factor in many menus. Organic produce is everywhere now and many guests restrict their restaurant visits to places with an all organic policy. These trends are popular in every style of service from QSR to fine dining and continue on a path of solid growth.
Do restaurants featuring higher quality, locally sourced foods experience higher food costs?
The answer is yes if you focus on the cost of food per guest. Some ingredients may cost three times more than a mass produced alternate. To offset the higher cost of food per guest, a restaurant needs to sell the menu items for higher prices to enjoy the same profit margin. Local competition and guest perception of quality will determine just how high you can raise your prices.
I personally appreciate the high quality coffee served at the Silver Diner. I'm willing to pay extra for the hot, fresh beverage, and the aroma of properly roasted beans used in the brew. We all enjoyed the jelly produced with sugar cane and the organic ketchup. We let the singing baker know his biscuits were wonderful. The $15 check average seemed reasonable for the quality of both the food and the service.
The line we stood in shows other people feel the same way. I estimated the cost of serving each of our four breakfast meals at between $2.50 and $3.50. Using an average of $3.00, the food cost % would be 20%. Breakfast traditionally has a lower food cost %. Frequently, the labor cost % is higher for breakfast.
The labor cost was clearly higher than many local competitors. They run the bakery on premise. The fresh produce used in the menu items needs to be prepped. All meals are prepared to order and the wait staff encourages their guests to speak up regarding special requests or allergy restrictions.
In summary, I feel the use of locally sourced, higher quality, healthier food ingredient options will cause your food cost per guest to increase. If your operation is fighting with competition on price alone for market share, you need to understand the risk involved with a substantial increase in menu prices. Your market may demand locally sourced items. Make sure you cover your higher costs with higher menu prices. Try to feature menu items and beverages which your guests can readily notice the quality. A positive customer perception is critical.
Wednesday, December 18, 2013
Sunday, November 17, 2013
Food Cost Control Tips
If you own or manage a restaurant, you know controlling your food, beverage and labor costs are critical to success. Labor costs have been inching up during the recovery and this has put increased pressure to lower food cost. Many operators specialize in one or more techniques to lower their cost of goods sold.
Some companies focus on purchasing and employ competitive bids and tight par level trigger points to help buy high quality food as cheaply as possible. The excellent POS systems make perpetual inventory and theoretical cost calculations possible. Many companies now link their POS system to their purchasing and inventory systems. Monitoring batch recipe production is the specialty of many regional chains and they save money by producing in bulk at a commissary.
It is important to understand the true goal. You want to lower your food cost by spending less for food for a given sales volume. You can spend less by finding a lower price and by consuming the proper amount of food with minimal waste.
It helps to analyze your menu item counts monthly. This is a standard report in most POS systems. There are two scans you should do to get the most from this report. Look for high dollar volume items which will generally include your most popular entrees and sandwiches. Also, look for items with the highest counts regardless of sales volume. These items will include complimentary bread, salads, coffee, starches and modifiers. Identify all these high volume items.
Focus your cost control activities on these items.
If you are spending tremendous time bidding on food items and placing orders based on par stocks, save some effort and increase your efficiency. You can buy better by analyzing fewer items. I have seen companies utilizing sophisticated software and frequent inventory counts on items which have a very low impact. Find a reliable grocery supplier who can meet your needs for all your staples and give them your business. It makes very little sense to get 3 bids for a spice or condiment used sparingly in your operation.
On the other hand, you need to aggressively bid for all high volume protein items. Par stocks on these items should vary with day of the week and season of the year. This is the best place to spend time and effort controlling waste and getting the absolute lowest prices.
Commissaries should never become warehouses for all items consumed in your operation. The major suppliers have superior inventory control and you can save on power, shipping costs, delivery personnel and warehouse theft. Use your commissary to strip out labor cost from major prep items. You should strive for the best consistency and lowest cost on these high volume batches.
Make sure your store level staff execute all high volume activities well. Coffee should be produced so your guests enjoy a freshly brewed cup with a minimum level of waste. Salad mixes should be ordered frequently to minimize spoilage. Portion control on all complimentary items is a great way to improve your food cost results. You should vary the bread basket by the number of guests at a table. Ask guests ordering a sandwich if they want complimentary bread. Many will say no.
High volume meal periods are the key to success. You need the proper staff level, a well stocked line, easy to use portion control devices and a well trained expediter. Executing orders in an efficient manner during your peak meal periods will have the greatest impact on your food cost results.
Some companies focus on purchasing and employ competitive bids and tight par level trigger points to help buy high quality food as cheaply as possible. The excellent POS systems make perpetual inventory and theoretical cost calculations possible. Many companies now link their POS system to their purchasing and inventory systems. Monitoring batch recipe production is the specialty of many regional chains and they save money by producing in bulk at a commissary.
It is important to understand the true goal. You want to lower your food cost by spending less for food for a given sales volume. You can spend less by finding a lower price and by consuming the proper amount of food with minimal waste.
It helps to analyze your menu item counts monthly. This is a standard report in most POS systems. There are two scans you should do to get the most from this report. Look for high dollar volume items which will generally include your most popular entrees and sandwiches. Also, look for items with the highest counts regardless of sales volume. These items will include complimentary bread, salads, coffee, starches and modifiers. Identify all these high volume items.
Focus your cost control activities on these items.
If you are spending tremendous time bidding on food items and placing orders based on par stocks, save some effort and increase your efficiency. You can buy better by analyzing fewer items. I have seen companies utilizing sophisticated software and frequent inventory counts on items which have a very low impact. Find a reliable grocery supplier who can meet your needs for all your staples and give them your business. It makes very little sense to get 3 bids for a spice or condiment used sparingly in your operation.
On the other hand, you need to aggressively bid for all high volume protein items. Par stocks on these items should vary with day of the week and season of the year. This is the best place to spend time and effort controlling waste and getting the absolute lowest prices.
Commissaries should never become warehouses for all items consumed in your operation. The major suppliers have superior inventory control and you can save on power, shipping costs, delivery personnel and warehouse theft. Use your commissary to strip out labor cost from major prep items. You should strive for the best consistency and lowest cost on these high volume batches.
Make sure your store level staff execute all high volume activities well. Coffee should be produced so your guests enjoy a freshly brewed cup with a minimum level of waste. Salad mixes should be ordered frequently to minimize spoilage. Portion control on all complimentary items is a great way to improve your food cost results. You should vary the bread basket by the number of guests at a table. Ask guests ordering a sandwich if they want complimentary bread. Many will say no.
High volume meal periods are the key to success. You need the proper staff level, a well stocked line, easy to use portion control devices and a well trained expediter. Executing orders in an efficient manner during your peak meal periods will have the greatest impact on your food cost results.
Tuesday, November 05, 2013
Food Cost Control CBA
Any food cost control project or organization should be designed to produce a positive outcome. You want your cost savings to be greater than your control costs. Cost benefit analysis (CBA) is the name given to the simple formula. We can see our actual net benefit by subtracting the expenses we incur in tracking food costs against the improvement in food costs.
CBA has some assumptions which can be tightened or relaxed depending on your organization. The first assumption is the cost control environment from the previous period would produce the same results in the future period if there are no changes. Any marginal changes in the cost control system, including investment in technology, measurement equipment, security cameras, increases or decreases in staff allocated to the tasks and management efforts, should be budgeted and closely tracked. These marginal expenses will be compared to the food cost results.
My preference is to use dollars of investment in cost saving resources vs. dollar savings in food cost.
If an operation with $2,000,000 in food sales experienced a food cost percentage of 36% in the previous year, their food cost is $720,000.
This same operation invests in a cost control system with interfaces to the POS system and their top supplier's online ordering system. The investment includes equipment, software, implementation costs and a cost accountant. If the turn key system costs are $30,000 and the useful life is 5 years, we have a marginal technology cost of $6,000 per year. Most systems need support and 20% or $6,000 should be budgeted to handle this need.
Our cost accountant has a cost of $60,000 which includes a base salary, health care insurance, workers compensation insurance, employer's share of social security and medicare, holiday and vacation pay, etc. If you already employ a cost accountant and you are arming this person with the new tool, you can eliminate this expense from your marginal analysis.
Assuming we need to hire a new person, our total annual cost for this increase in control is $72,000. We would need to buy 10% less food for the same revenue level to break even. On the other hand, the cost to provide an ill equipped accountant is only $12,000 per year. We start providing a net benefit once our costs decline by the same $12,000 or 1.67%.
I recommend investing the necessary money in this type of cost control system if your operation enjoys at least $2,000,000 in annual food sales. For operations with no cost control at the present time, you will reap the biggest reward. Routine savings average over 10%. I have seen declines of 25% in food purchases in out of control restaurants.
For operations with a hit or miss spreadsheet cost analysis, you will find the total cost to provide a professional cost control system will be repaid in a fraction of a year. The entire investment of $30,000 and the annual support will be covered by the expected savings. From experience, I would conservatively estimate an annual savings between $60,000 and $90,000 in an operation of this size.
CBA has some assumptions which can be tightened or relaxed depending on your organization. The first assumption is the cost control environment from the previous period would produce the same results in the future period if there are no changes. Any marginal changes in the cost control system, including investment in technology, measurement equipment, security cameras, increases or decreases in staff allocated to the tasks and management efforts, should be budgeted and closely tracked. These marginal expenses will be compared to the food cost results.
My preference is to use dollars of investment in cost saving resources vs. dollar savings in food cost.
If an operation with $2,000,000 in food sales experienced a food cost percentage of 36% in the previous year, their food cost is $720,000.
This same operation invests in a cost control system with interfaces to the POS system and their top supplier's online ordering system. The investment includes equipment, software, implementation costs and a cost accountant. If the turn key system costs are $30,000 and the useful life is 5 years, we have a marginal technology cost of $6,000 per year. Most systems need support and 20% or $6,000 should be budgeted to handle this need.
Our cost accountant has a cost of $60,000 which includes a base salary, health care insurance, workers compensation insurance, employer's share of social security and medicare, holiday and vacation pay, etc. If you already employ a cost accountant and you are arming this person with the new tool, you can eliminate this expense from your marginal analysis.
Assuming we need to hire a new person, our total annual cost for this increase in control is $72,000. We would need to buy 10% less food for the same revenue level to break even. On the other hand, the cost to provide an ill equipped accountant is only $12,000 per year. We start providing a net benefit once our costs decline by the same $12,000 or 1.67%.
I recommend investing the necessary money in this type of cost control system if your operation enjoys at least $2,000,000 in annual food sales. For operations with no cost control at the present time, you will reap the biggest reward. Routine savings average over 10%. I have seen declines of 25% in food purchases in out of control restaurants.
For operations with a hit or miss spreadsheet cost analysis, you will find the total cost to provide a professional cost control system will be repaid in a fraction of a year. The entire investment of $30,000 and the annual support will be covered by the expected savings. From experience, I would conservatively estimate an annual savings between $60,000 and $90,000 in an operation of this size.
Wednesday, October 30, 2013
Sales Volatility - Impact on Food Cost
Revenue swings exert a tremendous influence on food cost results. We can find these swings in almost every operation.
Dinner houses in the suburbs often enjoy a full house on Fridays and Saturdays. The same locations may be empty on a early weekday night. Sundays and holidays often vary by the season. Resorts and restaurants in tourist areas experience tremendous moves up and down as they change from the peak season to off season.
Urban restaurants often see steady business from Monday to Friday with a major drop on weekends. There are exceptions when a center city zone has affordable housing options. A strong Sunday brunch can help utilize the week's leftovers.
Generally, the greater the sales volatility the higher the cost of sales. The highest food cost results come to restaurants who rely on a busy season or a major event whenever the volume is lower than expected. Operators of Monday to Friday luncheonettes generally see lower sales volatility and even food cost numbers.
Better than expected sales levels can have a very positive impact on food cost results. Waste and spoilage will decline as safety stocks are used to create more items for sale. Employee meals cost declines as a percentage of sales as revenue increases.
Major weather events can cause sales declines. The forecast team needs to pay attention to the 5 day forecast.
If you have a great sales week and a lower food cost percentage, your gross profit can increase dramatically. These weeks can happen for many in May due to Mother's Day, Cinco de Mayo, milder weather, graduations and outdoor dining options. If managed properly, your gross profit in May can equal twice as much as in a down month like January. Ski resorts can flip these 2 months since they are busy in January and fading or closed in May.
The number one issue in tracking food cost results in volatile operations is to maximize gross profit when conditions are in your favor. Don't be content to have a good month. Try hard to achieve a great month.
Many operators are quite good at slashing staff and closing dining rooms when business is slow. Since it may be difficult to pay the bills, everything is scrutinized carefully and costs are tightly controlled.
You should have a well rehearsed plan in place to help maximize gross profit when sales are at or near peak.
Dinner houses in the suburbs often enjoy a full house on Fridays and Saturdays. The same locations may be empty on a early weekday night. Sundays and holidays often vary by the season. Resorts and restaurants in tourist areas experience tremendous moves up and down as they change from the peak season to off season.
Urban restaurants often see steady business from Monday to Friday with a major drop on weekends. There are exceptions when a center city zone has affordable housing options. A strong Sunday brunch can help utilize the week's leftovers.
Generally, the greater the sales volatility the higher the cost of sales. The highest food cost results come to restaurants who rely on a busy season or a major event whenever the volume is lower than expected. Operators of Monday to Friday luncheonettes generally see lower sales volatility and even food cost numbers.
Better than expected sales levels can have a very positive impact on food cost results. Waste and spoilage will decline as safety stocks are used to create more items for sale. Employee meals cost declines as a percentage of sales as revenue increases.
Major weather events can cause sales declines. The forecast team needs to pay attention to the 5 day forecast.
If you have a great sales week and a lower food cost percentage, your gross profit can increase dramatically. These weeks can happen for many in May due to Mother's Day, Cinco de Mayo, milder weather, graduations and outdoor dining options. If managed properly, your gross profit in May can equal twice as much as in a down month like January. Ski resorts can flip these 2 months since they are busy in January and fading or closed in May.
The number one issue in tracking food cost results in volatile operations is to maximize gross profit when conditions are in your favor. Don't be content to have a good month. Try hard to achieve a great month.
Many operators are quite good at slashing staff and closing dining rooms when business is slow. Since it may be difficult to pay the bills, everything is scrutinized carefully and costs are tightly controlled.
You should have a well rehearsed plan in place to help maximize gross profit when sales are at or near peak.
Wednesday, June 19, 2013
Innovative Uses to Increase Your Return on Investment in Technology
Most restaurants with revenue above $1 million have invested in a POS system. These systems track the entire sales cycle and provide tremendous reports to help managers understand their business.
Popular reports show customer counts, server productivity, menu item popularity and scheduling efficiency. Since all customer orders are tracked by time of day, the same data can be used to track arrival rates and average service time. This information combined with your seat count can be used to predict the length of lines on busy nights. Your host staff needs this data when communicating approximate wait times.
Guests counts by day of the week can be used to improve your orders for highly perishable items purchased daily. If you offer a complimentary bread basket, you can use the information to reduce waste. Standard recipes can be combined with expected menu item sales counts to help forecast demand for expensive protein items.
There are reports which show menu item counts by meal course. Dividing these category counts by your covers will provide percentage data which can be used in developing a customer profile.
Restaurant chains have developed pricing strategies built around a dinner for two including one split appetizer and two entrees. The data used to develop this strategy comes from the menu item reports. You can use the recap sales by meal course to find out what percentage of your guests choose a dessert. A server contest could help raise this percentage and your POS system will provide the name of the winner. Menu item sales may be tracked by server.
For longer periods of time, including weekly, monthly and annual reports, the system tracks your check average. This number equals the total revenue divided by the total number of guests served. Some systems allow you to enter the number of seats. The total number of guests served divided by the total number of seats equals the turnover rate for your dining room.
Sales equal the number of seats times the number of turns times the check average. Should you expand your dining room? What will help raise the check average? Are we losing business? These questions can be answered with standard reports used together to see the whole picture.
If you track the number of prospective guests who decide not to wait for a table during busy periods, decisions regarding your capacity can be made using this data. This information is particularly important for restaurants in resort areas or which depend on sales from just one day a week.
Many restaurants build their menu each day using items available in the local marketplace. A significant share of the daily revenue is derived from sales of specials. If your chef has an eclectic approach, you will find it more difficult to predict customer behavior. Your covers forecast may be accurate. However, you won't have a wealth of data on specific menu item popularity. Expect a higher number of sold out entrees and greater spoilage despite the use of market fresh ingredients.
POS systems can be setup to track more than just Special 1, Special 2, Special 3, etc. You can create galleries of specials to track the preferences for specific entrees. This data can be used to create seasonal menus which will reduce the number of daily specials while simultaneously offering the most successful menu choices. This menu approach can help chefs and managers improve forecasts and increase guest satisfaction.
Focused menus are generally used by ambitious companies with a national strategy. It is much easier to order food for a limited menu built around burgers, pizza, chicken, burritos, or stir fried Asian combinations. Your POS system manufacturer may offer enterprise reporting with many of the best reports available for a region, state, metropolitan area or the entire company.
These restaurant management groups track benchmark statistics including average unit volume, food cost percentage, labor cost percentage and gross profit. Stores which are not meeting company objectives receive more attention from the headquarters staff. The enterprise data can be sliced in more creative ways to make comparisons more meaningful.
The location profile can be used to create logical groupings including interstate exit stores, airport stores, mall food court stores, urban locations, locations near schools, etc. Using targeted benchmark data can provide useful information for improving operations results and in selecting future sites for expansion.
Popular reports show customer counts, server productivity, menu item popularity and scheduling efficiency. Since all customer orders are tracked by time of day, the same data can be used to track arrival rates and average service time. This information combined with your seat count can be used to predict the length of lines on busy nights. Your host staff needs this data when communicating approximate wait times.
Guests counts by day of the week can be used to improve your orders for highly perishable items purchased daily. If you offer a complimentary bread basket, you can use the information to reduce waste. Standard recipes can be combined with expected menu item sales counts to help forecast demand for expensive protein items.
There are reports which show menu item counts by meal course. Dividing these category counts by your covers will provide percentage data which can be used in developing a customer profile.
Restaurant chains have developed pricing strategies built around a dinner for two including one split appetizer and two entrees. The data used to develop this strategy comes from the menu item reports. You can use the recap sales by meal course to find out what percentage of your guests choose a dessert. A server contest could help raise this percentage and your POS system will provide the name of the winner. Menu item sales may be tracked by server.
For longer periods of time, including weekly, monthly and annual reports, the system tracks your check average. This number equals the total revenue divided by the total number of guests served. Some systems allow you to enter the number of seats. The total number of guests served divided by the total number of seats equals the turnover rate for your dining room.
Sales equal the number of seats times the number of turns times the check average. Should you expand your dining room? What will help raise the check average? Are we losing business? These questions can be answered with standard reports used together to see the whole picture.
If you track the number of prospective guests who decide not to wait for a table during busy periods, decisions regarding your capacity can be made using this data. This information is particularly important for restaurants in resort areas or which depend on sales from just one day a week.
Many restaurants build their menu each day using items available in the local marketplace. A significant share of the daily revenue is derived from sales of specials. If your chef has an eclectic approach, you will find it more difficult to predict customer behavior. Your covers forecast may be accurate. However, you won't have a wealth of data on specific menu item popularity. Expect a higher number of sold out entrees and greater spoilage despite the use of market fresh ingredients.
POS systems can be setup to track more than just Special 1, Special 2, Special 3, etc. You can create galleries of specials to track the preferences for specific entrees. This data can be used to create seasonal menus which will reduce the number of daily specials while simultaneously offering the most successful menu choices. This menu approach can help chefs and managers improve forecasts and increase guest satisfaction.
Focused menus are generally used by ambitious companies with a national strategy. It is much easier to order food for a limited menu built around burgers, pizza, chicken, burritos, or stir fried Asian combinations. Your POS system manufacturer may offer enterprise reporting with many of the best reports available for a region, state, metropolitan area or the entire company.
These restaurant management groups track benchmark statistics including average unit volume, food cost percentage, labor cost percentage and gross profit. Stores which are not meeting company objectives receive more attention from the headquarters staff. The enterprise data can be sliced in more creative ways to make comparisons more meaningful.
The location profile can be used to create logical groupings including interstate exit stores, airport stores, mall food court stores, urban locations, locations near schools, etc. Using targeted benchmark data can provide useful information for improving operations results and in selecting future sites for expansion.
Tuesday, June 18, 2013
See Your Menu Through the Eyes of Your Customer
Pretend you are dining at a restaurant for the very first time. You have just opened the menu handed to you by your host. The front cover has a picture of a boat, the name of the restaurant in large font, and the family name of the owners. A short subtitle contains the words seafood, fine and dining printed in italics. The back cover explains the restaurant's history, the address, phone number and the same information for a sister restaurant.
Opening the menu, you unfold an 11" x 17" sheet of paper. Each side offers 8.5" x 11" of space. The half inch margin all around offers 150 square inches of space. The restaurant owners use this space to create a guide to help you through the order process. They want you to enjoy your experience.
Where do you begin to look for information? The center feature box on the right side? Maybe you direct your eyes to the upper left hand corner. You may scan the entire document quickly to make sure the term fine dining promised on the front cover doesn't mean too expensive. Once the pricing scheme is mastered, you'll try to solve the main puzzle. What should I order?
The menu may have photos, feature boxes bordered in bold colors and other eye catching magnets to grab your attention. One of these feature boxes may offer specialties of the house or family favorites. Perhaps, the menu reflects a Mediterranean theme. It is common to see the various meal courses in separate boxes including appetizers, entrees, salads, soups and side dishes.
In a short time, your waiter will arrive and ask if you have any questions. In addition, they may describe the specials of the day. They should ask if it's your first time dining in the restaurant. Hopefully, they will make you feel at home while describing the popular dishes and cooking techniques employed in the kitchen.
Normally, you will be given a few moments to make your preliminary short list. The waiter will return and ask if there are any other questions or possibly a simple "Are you ready to order?"
Depending on your selections, there will be different options and you will be asked to make more decisions. Options will include desired dressings, toppings, side dishes (complimentary and additional charges), cooking method and temperature.
Remember, the owners want to help you truly enjoy your dining experience. They have a major investment in the marketing tools used to get you through the front door. They designed the menu to insure their guests order and receive great meals, return again often and tell others of their excellent dining experiences.
If the owners accomplish their objective, you have an excellent chance of enjoying your meal including the atmosphere, your food and the companionship of your fellow diners.
Some restaurants do a great job accommodating parties wishing to share their selections. They offer their guests additional plates and silverware. Restaurants specializing in shellfish dishes often offer bibs, special equipment and instructions for separating the food from the shells.
Since the number one financial objective of the restaurant is to make a profit, your entire experience will be designed to help you spend money. Generally, starters (including appetizers, salads and soups) are more profitable on a % basis than the entrees. Guests who are made to feel welcome may linger for a dessert course.
The dessert course is more profitable than the starters. Commonly, you will be handed a separate dessert menu and the waiter may have strong opinions. Everyone wants you to leave with a great taste on your tongue.
Some restaurants use the valuable space in the menu to highlight additional charges for splitting entrees, minimum dollar limits, and charges for items generally offered for no additional charge. You may see a $10 charge for splitting an entree. Bleu cheese dressing may cost you an extra $1. Guests seeking a meal during the dinner period may be asked to spend at least $25 each.
Seafood market prices can change significantly from week to week. Some restaurants use the phrase "market pricing" on dishes which feature raw ingredients with the most volatile prices. Lobsters and whole fish may be sold by weight. Other shellfish may be sold by the dozen. A three pound whole fish sold for $25 per pound will show up as a $75 charge on the check.
Your guest check may seem too high for the meal you were served. Take a look at the line items with the highest prices. I have been charged $100 for a mixed shellfish appetizer in a restaurant featuring entrees between $25 and $40. The waiter never mentioned the price when describing the presentation and optional sauces.
Ask for a full accounting if anything appears to be amiss prior to handing over your credit card or cash.
Monday, June 03, 2013
Managing Wait Time in Food Service Operations
A restaurant can significantly impact both sales and profit results through effective management of the guest experience. Specifically, the number of guests served is dependent on the number of people who arrive at your restaurant to have a meal and the service time required to prepare and deliver great meals.
Restaurant patrons spend lots of time waiting for service. They may wait to speak with the hostess. After negotiating with the hostess, there is often a wait to be seated. Once seated, guests wait for the server to explain specials, take preliminary drink orders and answer menu related questions.
Once the guests have decided what they wish to order, there is a wait to place the order and another wait while the food and drinks are being prepared. The initial delivery starts a process of enjoying the meal and giving the wait staff feedback.
There could be a second order if the initial order was limited to appetizers and drinks. Guests wait again for the main course to arrive. Often there are waits for food to be cooked again or for a requested condiment.
At the end of the main course, many guests are interested in either a dessert or an after dinner drink. These items arrive faster than the main course and patrons interested in the dessert course are often not in a rush to leave. On the other hand, some patrons just want a cup of hot coffee delivered quickly along with the check.
Once the final course is over, the guest will look for the wait staff to request the check. Time waiting for the check to arrive should be short. Too often, guests wait for many minutes before the check presentation.
Picking up the cash or credit card and completing the transaction also takes time.
Out in the kitchen, the number of orders in the queue can get out of control. Busy dining rooms produce hundreds of printed orders to be filled. Delays in the appetizer course can dramatically impact the customer experience. Attention to customer preferences often impacts the success of the main course execution. Communication between the wait staff and the kitchen staff is documented on POS system printouts. Expediters may see special instructions on when to fire an order.
Excellent servers are true artists. They anticipate the guest's needs and insure the overall experience is top notch. At the same time, these servers tend to understand the link between efficient service and their compensation which is predominantly provided by diners.
If your operation offers very large entree portions and generous side dishes, your guests may not have room for dessert. Often guests will be willing to stand in line to receive great value for their dining dollar. Portion size and food quality are key factors in the decision to stand in a long line.
Restaurant revenue in a value operation is highly dependent on table turns. The faster tables are turned, the more guests are served per hour. Since these guests have waited in the long line, they are expecting a different service environment than a fine dining experience.
It is possible to push guests through early plate pick ups, dropping the check earlier than expected and other speed tactics. Don't make your guests feel they are being processed. Service should be efficient but not rushed.
Buffet guests avoid many wait time issues. They may have to wait to be seated. Normally, there is a wait for the beverage order. Once the beverage order has been placed, they may find another line at one or more buffet stations. Some buffet operators handle the checkout before the guest is seated. This tactic eliminates the wait for a check from the server.
Restaurant patrons spend lots of time waiting for service. They may wait to speak with the hostess. After negotiating with the hostess, there is often a wait to be seated. Once seated, guests wait for the server to explain specials, take preliminary drink orders and answer menu related questions.
Once the guests have decided what they wish to order, there is a wait to place the order and another wait while the food and drinks are being prepared. The initial delivery starts a process of enjoying the meal and giving the wait staff feedback.
There could be a second order if the initial order was limited to appetizers and drinks. Guests wait again for the main course to arrive. Often there are waits for food to be cooked again or for a requested condiment.
At the end of the main course, many guests are interested in either a dessert or an after dinner drink. These items arrive faster than the main course and patrons interested in the dessert course are often not in a rush to leave. On the other hand, some patrons just want a cup of hot coffee delivered quickly along with the check.
Once the final course is over, the guest will look for the wait staff to request the check. Time waiting for the check to arrive should be short. Too often, guests wait for many minutes before the check presentation.
Picking up the cash or credit card and completing the transaction also takes time.
Out in the kitchen, the number of orders in the queue can get out of control. Busy dining rooms produce hundreds of printed orders to be filled. Delays in the appetizer course can dramatically impact the customer experience. Attention to customer preferences often impacts the success of the main course execution. Communication between the wait staff and the kitchen staff is documented on POS system printouts. Expediters may see special instructions on when to fire an order.
Excellent servers are true artists. They anticipate the guest's needs and insure the overall experience is top notch. At the same time, these servers tend to understand the link between efficient service and their compensation which is predominantly provided by diners.
If your operation offers very large entree portions and generous side dishes, your guests may not have room for dessert. Often guests will be willing to stand in line to receive great value for their dining dollar. Portion size and food quality are key factors in the decision to stand in a long line.
Restaurant revenue in a value operation is highly dependent on table turns. The faster tables are turned, the more guests are served per hour. Since these guests have waited in the long line, they are expecting a different service environment than a fine dining experience.
It is possible to push guests through early plate pick ups, dropping the check earlier than expected and other speed tactics. Don't make your guests feel they are being processed. Service should be efficient but not rushed.
Buffet guests avoid many wait time issues. They may have to wait to be seated. Normally, there is a wait for the beverage order. Once the beverage order has been placed, they may find another line at one or more buffet stations. Some buffet operators handle the checkout before the guest is seated. This tactic eliminates the wait for a check from the server.
Labor Costs and the Affordable Health Care Act - Sole Proprietors
Many employers have focused like a laser beam on the penalty clause for not providing minimal essential coverage. These employers may be subject to a penalty. The penalty is significant and employers need to carefully craft a strategy to avoid the cost associated with non-compliance.
For sole proprietors with a single restaurant, the penalty most likely will not apply. There is no penalty for not covering part-time employees. Most server staff employees work part-time on high volume shifts starting on Friday and ending on Sunday. The kitchen may also employ part-time general help for the busy shifts.
Full-time employees, including management, make up the backbone of the restaurant team. Taking the view of avoiding the penalty, sole proprietors would need to have at least 31 full-time people with none covered to be subject to any penalty.
The penalty provision requires employers with more than 30 full-time employees who are not offered health care coverage to pay a penalty.
Penalty= (Total number of uncovered full-time employees - 30) x $2,000
For example, a restaurant with 33 full-time employees who were not offered coverage would pay $6,000. This works out to $182 per full-time employee or nine cents per hour.
Let's take a look at employee morale. Savvy companies, who realize they have an opportunity to attract top talent, will offer key employees better pay and health insurance coverage. It's not too difficult to imagine hard working part-time staff striving to attain full-time status. Health care coverage and a bigger paycheck are their reward.
What about growing beyond the first location? Will the new law inhibit small business growth?
As a company grows from a single restaurant into a small regional chain, management should review their organization options. Often chains use separate corporations or LLCs to limit the risk of one restaurant weakening the financial health of the entire group. Every restaurant is a separate company. The management group is also setup as a separate company. This same risk avoidance strategy works well with the health care act's penalty clause. Few restaurants need more than 30 full-time employees.
For sole proprietors with a single restaurant, the penalty most likely will not apply. There is no penalty for not covering part-time employees. Most server staff employees work part-time on high volume shifts starting on Friday and ending on Sunday. The kitchen may also employ part-time general help for the busy shifts.
Full-time employees, including management, make up the backbone of the restaurant team. Taking the view of avoiding the penalty, sole proprietors would need to have at least 31 full-time people with none covered to be subject to any penalty.
The penalty provision requires employers with more than 30 full-time employees who are not offered health care coverage to pay a penalty.
Penalty= (Total number of uncovered full-time employees - 30) x $2,000
For example, a restaurant with 33 full-time employees who were not offered coverage would pay $6,000. This works out to $182 per full-time employee or nine cents per hour.
Let's take a look at employee morale. Savvy companies, who realize they have an opportunity to attract top talent, will offer key employees better pay and health insurance coverage. It's not too difficult to imagine hard working part-time staff striving to attain full-time status. Health care coverage and a bigger paycheck are their reward.
What about growing beyond the first location? Will the new law inhibit small business growth?
As a company grows from a single restaurant into a small regional chain, management should review their organization options. Often chains use separate corporations or LLCs to limit the risk of one restaurant weakening the financial health of the entire group. Every restaurant is a separate company. The management group is also setup as a separate company. This same risk avoidance strategy works well with the health care act's penalty clause. Few restaurants need more than 30 full-time employees.
Thursday, May 30, 2013
User Friendly Financial Statement Analysis
Assets burn cash. Loans, credit lines, credit card balance transfers and shareholder investments produce cash.
Managing the sources and uses of cash is crucial to surviving in any
business. Most restaurants fail due to inadequate capital infusion
during the start-up phase. Some people never get the door open for
business due to lack of cash.
Cash is king for many restaurants. Many managers and owners do not understand how to read a balance sheet. Assets other than cash require cash. If your receivables, inventories and prepaid expenses increase your assets go up but your cash goes down.
Many restaurants have a difficult time paying suppliers on a timely basis. The impact is significant. Suppliers will add late payment fees, offer tighter credit terms, charge higher prices and in the worst case scenario require cash payment on or before delivery.
For those readers who do not love accounting and financial statement analysis, there are a few key ratios and formulas which can bring a big benefit with a small effort.
Working Capital Considerations
Ability to pay suppliers is often difficult due to the nature of cash flow in the restaurant industry. Sales turn into cash on the spot or a few days later as credit card charges are wired to bank accounts. Employees are paid with a 7 to 10 day lag (sometimes longer) and suppliers are paid in 30 days.
Using employee and supplier financing works OK until the sales tax payment is due. Cash is plentiful until these statutory payments come due (often with big late payment penalties). If your company has a rough time making the sales tax payment, a beginner's level grasp of financial statement analysis can help.
Where do you go to help monitor this important issue? Balance Sheet
The current ratio is calculated by dividing the current assets total by the current liabilities total. Unfortunately, inventory bloat makes the current ratio useless in our industry.
Avoid over stocking your shelves to improve cash flow and reduce spoilage. Substitute the Quick Ratio for the current ratio.
Quick Ratio = (Current Assets - Inventories)/Current Liabilities
A quick ratio below 1.0 is very dangerous. A good ratio is 1.25 or higher.
Capital Expenditures and Financing Options
Capital expenditures are made in the operation to produce a positive future value. Increases in liabilities, including longer times to pay suppliers and employees, increase cash flow. Liabilities are a risky way to finance your business. Managing financial risk will help you grow your business at a sustainable rate.
Compare your equity accounts (common stock, paid in capital, retained earnings) with your total net fixed assets (property, plant and equipment net of depreciation). A company with a low financial leverage will have more shareholder's equity than net fixed assets. If a company employs financial leverage, they will have a long term debt figure which reflects loans required to invest in the company. There are two ratios which you can use to monitor your long term financial health.
Debt to Equity Ratio = Total Liabilities/Shareholder's Equity
Try to stay below 1.0 if possible. A major manufacturing company (auto plant) may have a ratio of 2.0. Restaurants should be much lower. There are publicly held restaurant companies with a debt-to-equity ratio above 10.0. These companies want to maximize return on equity by using financial leverage to acquire assets. They may be buying restaurant companies or opening lots of new restaurants.
Fixed Assets Ratio = Net Fixed Assets/Long Term Debt
Picking an ideal fixed assets ratio depends on your appetite for debt financing and your business health. One company may have a ratio of 1.0 where the long term debt equals their net fixed assets. In theory, the ability to repay the debt is high. I recommend removing net leasehold improvements from your net fixed assets. If you lose a leased premise, the value of these improvements may be very low. Equipment may be worth far less than the book value due to a vibrant after market for restaurant equipment.
By performing simple division using a handful of numbers on your balance sheet, you can determine your ability to pay suppliers on a timely basis and keep your long term debt in line with the money raised from shareholders while prudently investing in fixed assets needed to run your restaurant business.
Cash is king for many restaurants. Many managers and owners do not understand how to read a balance sheet. Assets other than cash require cash. If your receivables, inventories and prepaid expenses increase your assets go up but your cash goes down.
Many restaurants have a difficult time paying suppliers on a timely basis. The impact is significant. Suppliers will add late payment fees, offer tighter credit terms, charge higher prices and in the worst case scenario require cash payment on or before delivery.
For those readers who do not love accounting and financial statement analysis, there are a few key ratios and formulas which can bring a big benefit with a small effort.
Working Capital Considerations
Ability to pay suppliers is often difficult due to the nature of cash flow in the restaurant industry. Sales turn into cash on the spot or a few days later as credit card charges are wired to bank accounts. Employees are paid with a 7 to 10 day lag (sometimes longer) and suppliers are paid in 30 days.
Using employee and supplier financing works OK until the sales tax payment is due. Cash is plentiful until these statutory payments come due (often with big late payment penalties). If your company has a rough time making the sales tax payment, a beginner's level grasp of financial statement analysis can help.
Where do you go to help monitor this important issue? Balance Sheet
The current ratio is calculated by dividing the current assets total by the current liabilities total. Unfortunately, inventory bloat makes the current ratio useless in our industry.
Avoid over stocking your shelves to improve cash flow and reduce spoilage. Substitute the Quick Ratio for the current ratio.
Quick Ratio = (Current Assets - Inventories)/Current Liabilities
A quick ratio below 1.0 is very dangerous. A good ratio is 1.25 or higher.
Capital Expenditures and Financing Options
Capital expenditures are made in the operation to produce a positive future value. Increases in liabilities, including longer times to pay suppliers and employees, increase cash flow. Liabilities are a risky way to finance your business. Managing financial risk will help you grow your business at a sustainable rate.
Compare your equity accounts (common stock, paid in capital, retained earnings) with your total net fixed assets (property, plant and equipment net of depreciation). A company with a low financial leverage will have more shareholder's equity than net fixed assets. If a company employs financial leverage, they will have a long term debt figure which reflects loans required to invest in the company. There are two ratios which you can use to monitor your long term financial health.
Debt to Equity Ratio = Total Liabilities/Shareholder's Equity
Try to stay below 1.0 if possible. A major manufacturing company (auto plant) may have a ratio of 2.0. Restaurants should be much lower. There are publicly held restaurant companies with a debt-to-equity ratio above 10.0. These companies want to maximize return on equity by using financial leverage to acquire assets. They may be buying restaurant companies or opening lots of new restaurants.
Fixed Assets Ratio = Net Fixed Assets/Long Term Debt
Picking an ideal fixed assets ratio depends on your appetite for debt financing and your business health. One company may have a ratio of 1.0 where the long term debt equals their net fixed assets. In theory, the ability to repay the debt is high. I recommend removing net leasehold improvements from your net fixed assets. If you lose a leased premise, the value of these improvements may be very low. Equipment may be worth far less than the book value due to a vibrant after market for restaurant equipment.
By performing simple division using a handful of numbers on your balance sheet, you can determine your ability to pay suppliers on a timely basis and keep your long term debt in line with the money raised from shareholders while prudently investing in fixed assets needed to run your restaurant business.
Should You Use Last Year or Budget in the Profit and Loss Statement?
Most accounting programs produce comparative reports using pre-built templates. Restaurant operators need a compass to guide them through the year's tremendous number of ups and downs. Two excellent comparisons are the most popular profit and loss statement formats: Current Year/Last Year (or Prior Year) and Current Year/Budget.
My strong preference is to use Current Year/Budget. The reason I prefer this format is the implicit need to actually construct a budget. Most budgets actually begin with the previous year's figures.
Many companies work on next year's budget at the end of the third quarter (or slightly earlier). They use the results from current year's operations as the foundation for the budget. By making educated guesses for the remaining months in the current year, they obtain a full year profit and loss estimate.
All budgets should address every line in the P and L. For restaurants, the most important number in the budget is revenue. At a minimum, you should break the revenue into food, beverage and other. Beverage revenue may be more detailed with Beer, Wine, Liquor and Soft Drinks sub-totals in the beverage total.
If possible, I recommend using both Revenue - Food Catering and Revenue - Beverage Catering for restaurants with significant catering volume.
Cost of goods sold is a very important budget issue. Food cost and beverage cost are prime costs. QSR and Fast Casual concepts with a high percentage of take-out business should also include disposables in their cost of goods sold.
Direct labor is a high profile item for 2014 budgets.
The federal health care affordability laws will impact direct labor expenses when they go into effect next year. Companies are grappling with issues involving the total number of employees, percentage of part-time employees, seasonal hiring quotas, etc. Because of the magnitude of the health care legislation, comparisons to prior year will not be as effective as comparison to budget.
When you begin getting the budget team prepped this summer, try to get a head start on many key issues: do we have a strategy for company health insurance coverage? what will the additional cost be to offer health care to valued employees who are not covered now? do we need to raise menu prices to cover these costs?
If you decide to retain talented people by offering a top flight health care plan, the premium cost can be used in salary negotiations. Most uninsured or under-insured employees will gladly take a pass on this year's salary bump once they know the cost of their premiums.
If menu prices are required, you need to calculate the impact on check averages, covers and total revenue. Restaurant diners have recently spent less in reaction to increases in fuel costs, higher payroll taxes and slower income growth. Of course, restaurants could benefit from their customers having more disposable income due to their own benefit from new company health care coverage in 2014.
Newly covered people who had been struggling to pay for individual health care premiums will see increases in their income net of taxes and health care premiums.Some uncovered self-employed individuals will have to cover themselves or pay a higher tax.
Understanding your customer base is critical.
Higher menu prices should translate into a lower cost of goods sold %. If you felt the impact of health care coverage could raise your labor costs by 10% and your current labor costs are 30% of sales, you need to budget for a 3% sales increase just to break even.
If your cost of goods sold is 33%, you would expect a decline of 1% since 33% divided by 1.03 is 32%. Again, you would need to carefully budget all expense categories (every line on your profit and loss statement). I'm using the prime costs and revenue figures because of their relative impact on the bottom line.
I see 2014 as a great year to shift from a current year vs. prior year statement format to a current year vs. budget format.
My strong preference is to use Current Year/Budget. The reason I prefer this format is the implicit need to actually construct a budget. Most budgets actually begin with the previous year's figures.
Many companies work on next year's budget at the end of the third quarter (or slightly earlier). They use the results from current year's operations as the foundation for the budget. By making educated guesses for the remaining months in the current year, they obtain a full year profit and loss estimate.
All budgets should address every line in the P and L. For restaurants, the most important number in the budget is revenue. At a minimum, you should break the revenue into food, beverage and other. Beverage revenue may be more detailed with Beer, Wine, Liquor and Soft Drinks sub-totals in the beverage total.
If possible, I recommend using both Revenue - Food Catering and Revenue - Beverage Catering for restaurants with significant catering volume.
Cost of goods sold is a very important budget issue. Food cost and beverage cost are prime costs. QSR and Fast Casual concepts with a high percentage of take-out business should also include disposables in their cost of goods sold.
Direct labor is a high profile item for 2014 budgets.
The federal health care affordability laws will impact direct labor expenses when they go into effect next year. Companies are grappling with issues involving the total number of employees, percentage of part-time employees, seasonal hiring quotas, etc. Because of the magnitude of the health care legislation, comparisons to prior year will not be as effective as comparison to budget.
When you begin getting the budget team prepped this summer, try to get a head start on many key issues: do we have a strategy for company health insurance coverage? what will the additional cost be to offer health care to valued employees who are not covered now? do we need to raise menu prices to cover these costs?
If you decide to retain talented people by offering a top flight health care plan, the premium cost can be used in salary negotiations. Most uninsured or under-insured employees will gladly take a pass on this year's salary bump once they know the cost of their premiums.
If menu prices are required, you need to calculate the impact on check averages, covers and total revenue. Restaurant diners have recently spent less in reaction to increases in fuel costs, higher payroll taxes and slower income growth. Of course, restaurants could benefit from their customers having more disposable income due to their own benefit from new company health care coverage in 2014.
Newly covered people who had been struggling to pay for individual health care premiums will see increases in their income net of taxes and health care premiums.Some uncovered self-employed individuals will have to cover themselves or pay a higher tax.
Understanding your customer base is critical.
Higher menu prices should translate into a lower cost of goods sold %. If you felt the impact of health care coverage could raise your labor costs by 10% and your current labor costs are 30% of sales, you need to budget for a 3% sales increase just to break even.
If your cost of goods sold is 33%, you would expect a decline of 1% since 33% divided by 1.03 is 32%. Again, you would need to carefully budget all expense categories (every line on your profit and loss statement). I'm using the prime costs and revenue figures because of their relative impact on the bottom line.
I see 2014 as a great year to shift from a current year vs. prior year statement format to a current year vs. budget format.
Sunday, May 26, 2013
Food Cost Variances in Regional Chains
Many of my regional restaurant clients show significant differences in the food cost % from unit to unit. It is always easy to find anecdotal excuses for these variances. Examples include: customers at each location have different dining habits, higher sales volume hides some mistakes which surface at lower volume locations, and the higher volume locations have better personnel.
Which units should be used as a benchmark? Should the lower volume units be par? Or are these units below the standard?
For purposes of growing a chain, I would use the higher food cost % in projections. If a chain always look at the best case scenario in five year plans, they will never hit their target figures due to rosy assumptions.
High Beef Prices Will Impact Food Cost
The drought from 2012 and the major storm damage in both 2012 and 2013 is causing record high beef prices. Current prices are close to levels during the mad cow disease outbreak. As contracts wind down for major chains, decisions will need to be made whether to go long at higher prices or just play the commodity markets using short term future contracts.
I just returned from the National Restaurant Show in Chicago. Chicago has plenty of upscale steak houses and most of these restaurants charge enough to offset some of the food cost increase. Value based menus will be impacted as ground beef prices are well above recent years.
Tuesday, April 16, 2013
Professional Recipe Model - Forecasting Key Items
Many companies stop cold once they build a standard food cost recipe model. These operators are happy to see the true food cost of each menu item. They benefit from the ability to see the change in recipe cost totals whenever they update ingredient prices with current purchase data.
I recommend a phase two project once the initial recipe model is complete. It is possible to build a powerful forecasting tool with a fraction of the effort required in phase one.
Hopefully, your software allows you to build a new recipe using a recipe already in the system. Many programs have this feature. You simply load the base recipe, edit the name and ingredients, and save the new recipe.
Before you dive into the recipes, take a look at all ingredients in your item list. Every item should be classified as a par stock item or a volume dependent item. An example of a par stock item is all purpose flour. This shelf stable item needs to replenished whenever the reorder trigger is pulled in your inventory model.
Many items are not ordered based on a par stock system. Several examples involve high cost, perishable food ingredients including protein featured in popular entrees and specials, fresh fruits and vegetables, baked goods and special order items. Protein items include meats, seafood, dairy and poultry products. These perishable items need to be ordered more carefully than all purpose flour.
When you load a current recipe in your editor, change the name by placing an "F - " at the beginning of the current recipe name. For example, a recipe for Shrimp Scampi would be changed to F - Shrimp Scampi. The "F" stands for forecast.
Now load the ingredients editor. Delete every ingredient which is ordered based on a par stock model. Salt and pepper can be deleted along with all other dry spices. If your scampi is served on rice or pasta, you can delete the starch ingredients. Shelf stable garlic, butter and olive oil can be deleted.
The goal is to have a skeleton recipe with only volume dependent items. Shrimp 16-20 would definitely remain. Save the new recipe once all the deletions are completed.
Repeat this process for all recipes needed for entrees, appetizers, salads, soups and protein rich side dishes. Desserts are optional. Once you have a full set of recipes with the prefix "F" in your tool kit, you can harness the power of the recipe model.
The next phase varies depending on whether you have a POS system or a catering oriented system. Those who use a system for catering cost control will have an banquet event order orientation. The forecast will be entered using a BEO form. The form will only call recipes beginning with "F" to prevent ordering shelf stable par stock items.
To generate a forecast for your volume dependent ingredients, simply enter a sales mix using your best estimate for each menu item. Don't worry about safety factors in this stage. Run the purchase requirements report for this "event" and you will see the counts for each perishable ingredient.
Companies with POS systems and a la carte menus have ideal usage reports. We want to use the ideal usage report to help us order food in advance. Using previous product mix reports, current covers forecast and a list of specials, do your best to estimate the sales counts for each item. If you are about to order food for the weekend, use your weekend item sales forecast to create the sales mix.
The mechanics of entering the sales estimates will vary depending on your software. Every system has a method for manually entering a sales order. The goal is to enter the estimated sales counts to use the ideal usage report. The report's ideal column will show the quantities required to order.
We used this method to forecast purchases in a high volume college football stadium for the luxury suites orders. The reports accurately calculated the quantities needed based on preliminary orders and management estimates. Last minute game day emergency trips were dramatically reduced.
I recommend a phase two project once the initial recipe model is complete. It is possible to build a powerful forecasting tool with a fraction of the effort required in phase one.
Hopefully, your software allows you to build a new recipe using a recipe already in the system. Many programs have this feature. You simply load the base recipe, edit the name and ingredients, and save the new recipe.
Before you dive into the recipes, take a look at all ingredients in your item list. Every item should be classified as a par stock item or a volume dependent item. An example of a par stock item is all purpose flour. This shelf stable item needs to replenished whenever the reorder trigger is pulled in your inventory model.
Many items are not ordered based on a par stock system. Several examples involve high cost, perishable food ingredients including protein featured in popular entrees and specials, fresh fruits and vegetables, baked goods and special order items. Protein items include meats, seafood, dairy and poultry products. These perishable items need to be ordered more carefully than all purpose flour.
When you load a current recipe in your editor, change the name by placing an "F - " at the beginning of the current recipe name. For example, a recipe for Shrimp Scampi would be changed to F - Shrimp Scampi. The "F" stands for forecast.
Now load the ingredients editor. Delete every ingredient which is ordered based on a par stock model. Salt and pepper can be deleted along with all other dry spices. If your scampi is served on rice or pasta, you can delete the starch ingredients. Shelf stable garlic, butter and olive oil can be deleted.
The goal is to have a skeleton recipe with only volume dependent items. Shrimp 16-20 would definitely remain. Save the new recipe once all the deletions are completed.
Repeat this process for all recipes needed for entrees, appetizers, salads, soups and protein rich side dishes. Desserts are optional. Once you have a full set of recipes with the prefix "F" in your tool kit, you can harness the power of the recipe model.
The next phase varies depending on whether you have a POS system or a catering oriented system. Those who use a system for catering cost control will have an banquet event order orientation. The forecast will be entered using a BEO form. The form will only call recipes beginning with "F" to prevent ordering shelf stable par stock items.
To generate a forecast for your volume dependent ingredients, simply enter a sales mix using your best estimate for each menu item. Don't worry about safety factors in this stage. Run the purchase requirements report for this "event" and you will see the counts for each perishable ingredient.
Companies with POS systems and a la carte menus have ideal usage reports. We want to use the ideal usage report to help us order food in advance. Using previous product mix reports, current covers forecast and a list of specials, do your best to estimate the sales counts for each item. If you are about to order food for the weekend, use your weekend item sales forecast to create the sales mix.
The mechanics of entering the sales estimates will vary depending on your software. Every system has a method for manually entering a sales order. The goal is to enter the estimated sales counts to use the ideal usage report. The report's ideal column will show the quantities required to order.
We used this method to forecast purchases in a high volume college football stadium for the luxury suites orders. The reports accurately calculated the quantities needed based on preliminary orders and management estimates. Last minute game day emergency trips were dramatically reduced.
Tuesday, February 12, 2013
Professional Recipe Model - Substitutes and Sides
It is very important to understand your POS setup with regard to the many items which do not have a selling price. Buried in the data, you will find counts on substitutes, extras, holds, etc. Customer choices, for starches, sides, toppings, dressings and condiments, attract the attention of the experienced eye.
A popular substitute can be exploited. One of my clients offered a lackluster potato salad with any burger or sandwich. The wait staff would ask their guests a simple question: "Would you like fries instead of the potato salad?" Most regulars knew the correct answer was "Yes." The shoestring fries were excellent. The fries substitute was an upgrade which added $1.25 to the check. If you decided you should have ordered the fries once your sandwich arrived, the same up charge price of $1.25 would appear on your check.
When building the recipes to handle the burger and the fries upgrade, I prefer to approach the task from the view of my favorite POS report - Product Mix (PMIX). The counts from the POS tally will be used to calculate ideal usage and to update perpetual inventory counts.
Let's start with the burger platter. The plate consists of a dressed burger patty on a bun, the potato salad, two leaves of iceberg lettuce, a tomato slice, three pickle chips and a sprig of parsley. I create two sub-recipes to handle the batch of potato salad and the burger setup. The burger setup can then be used to create recipes for cheeseburgers, pastrami burgers and bacon burgers, etc.
The burger menu item would be tied to 1 burger setup, 1 portion of potato salad and 1 portion of average condiment usage.
Moving forward, we need to address the fries upgrade. This substitute has a separate key on the POS. We will get the exact count of substitutes ordered for any given time period. In this operation, it is possible to order fries as an a la carte side dish for $2.95. The recipe for the substitution requires 1 portion of fries. This portion would include shortening and salt used in the preparation and 1 ounce of ketchup. To account for the substitute, you should subtract 1 portion of potato salad.
If the net cost of the fries minus the salad is $0.25, the cost of sales is 20%. More importantly, your burger customers are contributing an extra dollar of gross profit.
This approach calculates the ideal usage perfectly since the potato salad is counted in the burger order and subtracted in the substitute. The net potato salad consumption is zero in the real world and in our recipe model.
A popular substitute can be exploited. One of my clients offered a lackluster potato salad with any burger or sandwich. The wait staff would ask their guests a simple question: "Would you like fries instead of the potato salad?" Most regulars knew the correct answer was "Yes." The shoestring fries were excellent. The fries substitute was an upgrade which added $1.25 to the check. If you decided you should have ordered the fries once your sandwich arrived, the same up charge price of $1.25 would appear on your check.
When building the recipes to handle the burger and the fries upgrade, I prefer to approach the task from the view of my favorite POS report - Product Mix (PMIX). The counts from the POS tally will be used to calculate ideal usage and to update perpetual inventory counts.
Let's start with the burger platter. The plate consists of a dressed burger patty on a bun, the potato salad, two leaves of iceberg lettuce, a tomato slice, three pickle chips and a sprig of parsley. I create two sub-recipes to handle the batch of potato salad and the burger setup. The burger setup can then be used to create recipes for cheeseburgers, pastrami burgers and bacon burgers, etc.
The burger menu item would be tied to 1 burger setup, 1 portion of potato salad and 1 portion of average condiment usage.
Moving forward, we need to address the fries upgrade. This substitute has a separate key on the POS. We will get the exact count of substitutes ordered for any given time period. In this operation, it is possible to order fries as an a la carte side dish for $2.95. The recipe for the substitution requires 1 portion of fries. This portion would include shortening and salt used in the preparation and 1 ounce of ketchup. To account for the substitute, you should subtract 1 portion of potato salad.
If the net cost of the fries minus the salad is $0.25, the cost of sales is 20%. More importantly, your burger customers are contributing an extra dollar of gross profit.
This approach calculates the ideal usage perfectly since the potato salad is counted in the burger order and subtracted in the substitute. The net potato salad consumption is zero in the real world and in our recipe model.
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