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Monday, November 18, 2013

Reader Question - Banquet Food Cost Calculation

Dear Joe,
Very good day to you. 
I hope my email finds you well. I just need to know how to calculate the accurate 
food and beverage cost for weddings, banquets, coffee breaks, and breakfasts on hotels. 
I am counting on your support especially since this calculation varies depending on 
consumption volume.
Thanking you in anticipation


Thanks for the question, Elie.

Most hotels experience a significant portion of their food and beverage revenue from special events, banquets and buffets.  For this category, it is common to comprise over 50% of the total volume.

The food cost percentage method often applied to a la carte sales is a poor tool for controlling banquet cost of sales.  It is common to see a flat fee per guest which includes many items beyond food and beverage.  Examples include flowers, entertainment, decorations, ice carvings, special bar arrangements and related services.  Guests may be offered a discount for rooms which is stated in a full package price.

To properly control the costs for special events, I recommend a spreadsheet which would have details of all menu items, beverage options, and all add on items and services.  Enter a budget amount for each line item in total dollars (or local currency).  Find the total cost for the event.

For the revenue component, take the expected final count and multiply the figure by the price per guest.  Deduct the usual room charges from the total revenue.

Finally, you should net your revenue and cost numbers to arrive at a expected profit for the event.

Do your best to keep all the actual expenses for the event separate.  Enter the actual expenses in the column to the right of the budgeted costs.  Calculate the difference for each line item.  Ask for explanations if any line shows a large variance.   

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.

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.

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