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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.

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