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Monday, December 30, 2013

Outlook 2014 - American Food Service Industry

We can expect more major weather events in 2014.  These events will have a major impact on some pieces of the food cost puzzle.  In 2013, the early South Dakota blizzard had a huge impact on beef prices during the fall.  Corn crops rebounded from the 2012 drought to record an above average harvest.

The weather was kinder to New Jersey and Long Island in 2013.  The hurricane season was relatively mild when compared to recent years.  Here in the Mid-Atlantic states, we are experiencing a cold finish to 2013.

I expect the unemployment rate to continue declining due to several factors: the trickle of early baby boomers electing early retirement; the recent budget deal approved by Congress; increasing capital projects by US corporations; and, a shift in service sector labor force composition to more part time workers and fewer full time workers.  A one percent improvement is likely.  We may see a 6% rate by early 2015.

The political battles for control of the House and Senate should help media companies.  It's incredible how much a hard fought campaign for a Senate seat costs.

Government is a major employer in my region.  Restaurants took a hit during the shutdown.  Hopefully, 2014 will have no adverse impact from a shutdown.  If uncertainty wanes, the entire country will benefit from higher confidence - both consumer confidence and corporate confidence.

As the employment picture brightens, the restaurant segment will see higher demand.  Health care coverage remains a very hot topic with restaurant owners and partners.  Demand for labor saving equipment should see excellent growth in the near term.  Increased selling prices, productivity improvements and flexible staffing will help keep margins from crashing due to the increase in health insurance costs.  Many disagree but I do not envision a crisis.

Thursday, December 26, 2013

Reader Question - Average Per Cover Calculation

Dear Sir,

Hope you are doing well, i need one clarification. When we calculate the Average Spend for the Food and Beverage, if the guest consumes Food and Beverage whether we take the cover only for food or both?

If we calculate the cover twice (both for food and beverage) it will be duplicate when we calculate the total F&B spend? or If we take for food only then the beverage average spend wont be correct?

Can you please check and let me know,what is the best practice followed in the Industry.

Thanks & Best Regards,


Thanks for the question, Harees.

The revenue per guest, commonly referred to as the average revenue per cover, includes both food and beverage.  It is perfectly acceptable to report the average food revenue per cover, the average beverage per cover and the average revenue per cover.
  In fact, I prefer the components to be reported along with the total revenue. 

We can see the method more clearly with an example.  A restaurant has total sales of $2,000,000 comprised of $1,400,000 of food sales and $600,000 of beverage sales.  They served 100,000 guests.

Our average food sales per cover is $14.00 and our average beverage sales per cover is $6.00.  The Average Spend per Cover is $20.00.

We use the same denominator in all 3 calculations.

The reason we use the same denominator is we always have the same number of covers.
  A guest could spend nothing on beverages and still be included in our cover count.

Wednesday, December 18, 2013

Does Going to a Locally Sourced Strategy Lead to a High Food Cost?

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.

Monday, December 02, 2013

Using Food Cost for Menu Pricing

Dear Mr. Dunbar,

I am a bit confused about my menu pricing.    I have a small BBQ trailer in DE and do all the labor myself. 

I have been pricing items by way of food cost x 2.5 to 3 depending on the item. 

As I read online about pricing, I fear I may be too low on some things.  In your opinion, if I have a pulled pork sandwich that costs me 1.90 to make:  How much should I charge?   

It always amazes me how cheap BBQ joints sell food for.  How do they make money with so many people working there?  

I have been doing this for 2 years now and I'm still getting new customers as well as my repeats.  Just doesn't seem like I'm making any money (just able to pay bills and maybe a little pocket change).  Any advice would be appreciated.    Thank you.
Thanks for the question, Eric.  I'm sure you can improve your results.  You may not be able to rely on the truck as your sole income source.  At the heart of this issue is your break even point sales level.  The break even point should include direct labor expense.  I would build in $10 base rate plus benefits for $12 per hour.

Make a spreadsheet with all your annual expenses except food cost and disposables (napkins, straws, etc.).  Add the labor cost for yourself using the $12 per hour rate times your hours.  Add a profit of $500 per month to the total.  This will cover any negative surprises.  You can treat this total as your nut.

Do your best to calculate the number of customers you serve per year.  Divide this number into the total from the above formula.  For example, if your annual expenses net of food and disposables were $54,000 and your profit is $6,000, the total is $60,000.  If you serve 15,000 customers per year, you need $4 of gross profit for each customer. 

Cost out each sandwich and add $4 to the cost of food and disposables.

I would not sell chips and soda separately.  Create bundles with a sandwich, chips and soda for a value meal price.  Add $5 to the cost of each bundle.

Your pulled pork sandwich would be priced at $5.95 in this example.  ($1.90 + $4.00 plus $0.05 extra).

The key to success is the customer count.  If you use this formula and you do not envision enough customers to pay yourself a modest income, you need to change the concept to attract more customers.

Restaurant Data Pros

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