Operators Are Watching Portion Sizes Carefully

I have been traveling through New England and Upstate New York this summer. While driving on major highways, the meal choices are limited to major chains for the most part. Menu prices tend to be 10% higher at the rest area food courts.

Most of the popular concepts have strict portion control built into their service. I did not notice many changes in portion size. The main observation in the chain concepts was the tight control over complimentary condiments. Gone are the handfuls of ketchup and mustard. Napkins are also being strictly controlled at the grab and go locations. You need to ask for cream for your coffee at every place I visited.

My favorite meals were in off the beaten path locations.   Most operators were watching the portion sizes.

We stopped for a chicken BBQ at a church near Keuka Lake in Hammondsport, NY. For $8, they served one half chicken, one roll, one butter patty, one serving spoon of salt potatoes and one container of cabbage salad (similar to cole slaw).

The utensils and napkin were carefully distributed - one per guest. The lemonade was technically unlimited but the cup size was designed to limit consumption. It was a very satisfying meal and I complimented the pit crew on my exit.

I want to emphasize the portions were carefully controlled. This does not mean they were small. On a trip from Amherst to Concord, MA, we stopped for fried clams. I decided to order one quart for three people. We were overwhelmed with clams but the portion was controlled. The way the operator handles portion size is as follows: a waxed one quart container with flaps for the cover is placed in a paper bag. The server fills the container all the way to the top of the flaps.

We would have been satisfied with a pint. However, I observed the same paper bags at the picnic tables nearby. The amounts seemed exactly the same.  The parking lot was completely full and the seasonal shack had an impact on the local traffic patterns.

The server handed me three containers of tartar sauce (one per person) and let me know more was available if needed. Guests helped themselves to napkins.

We enjoyed a terrific breakfast of Eggs Benedict in Concord. This dish was carefully put together with one english muffin, two poached eggs, two slices of back bacon, a serving spoon of hollandaise sauce and 3 ounces of home fries. We were all offered a second cup of coffee or extra water for the tea. The potatoes were excellent and we all had exactly the same size portion.

Massachusetts has world class ice cream stands and terrific donut shops. It's impossible to travel through the state without stopping at least once for each temptation.

While the medium cup of ice cream would have been called large in the Mid-Atlantic, every customer was served the same overloaded cup. Donuts are easy to portion. The napkins were self-serve at the ice cream stand. We each received a single napkin at the donut shop. Control of napkins, sugar and cream was the norm at several coffee shops we visited.

Amherst, MA is part of the five college consortium between the Berkshire Mountains and the Quabbin Reservoir. Although we were in town when school was out for the summer, the main street shops were open for business.

We enjoyed one of the best roast beef sandwiches in many years at a sub shop and bakery. The fresh baguettes were sliced in half and the freshly sliced beef was weighed (5 ounces). The lettuce and tomatoes and the condiments were all carefully portioned. We received two napkins per sandwich. I noticed the baked goods were all pre-sliced. Some cookies were wrapped in 3-packs.

Our favorite spiedie pit in the Southern Tier area (near Binghamton, NY) serves generous portions. The spiedies are portioned prior to cooking on skewers. The meat is served on a single pita with one spoonfull of sauce. All condiments and vegetables are measured carefully.

We split a large french fries order. They use a bag method similar to the fried clams stand but smaller. All of the patrons at the tables near ours had the exact same bag size filled to the brim. For beverages, they hand you a cup and you can refill the cup.

There is an outdoor market/bazaar operation outside Penn Yann at the top of Keuka Lake. We were told to see the Polish Princess for her pierogies. She was sold out of everything except the pierogies since we arrived near closing time.

We each received five pierogies and we were allowed to spoon on the sour cream and dill sauce. She chatted with us and encouraged us to enjoy the sauce. The orders sold for $5.75 per portion or $1.15 per pierogie.

She looked like she had a busy day.

With so many restaurants wrestling with tactics to lower their food cost this year, it is important to watch your portion sizes like a hawk. Make sure you are consistent. If you are known for generous portion sizes, it is important to meet your customer's expectations.

Food Cost Tips for Excel Pros

Lots of restaurants control their food cost using a target food cost percentage combined with a purchase recap and an ending inventory value.  They use Excel to do the calculations for the ending inventory.

If you use the calendar for inventory cutoffs, you will be counting the stock on various days of the week.  You need to make sense of the count for any given day of the week.  For example, we'd expect to find high inventory levels closer to the weekend and lower levels early in the week at many dinner houses.

One simple exercise can greatly improve your knowledge of how your food cost varies.  You need to get a feel for the 25 items you spend the most amount of money on over the entire year.  Vendor tracking reports and invoice reviews can quickly isolate these items.

Closely track the cases purchased for each of these 25 items in a separate Excel file or worksheet.  The data would include the date, number of cases and the cost (use the extension figure).  Each month, you need to recap the purchases for each item.  All we need is the summary data:  total cases and total cost.

On your inventory matrix, add a column for PURCHASED to the right of the inventory extension column.  For each of the top 25 items, add the total purchases amount in the new column.

Create another column to the right of PURCHASED called DAYS.  For each of the top 25 items, you will divide the inventory total by the purchased total in parentheses and multiply by the days in the month.  For example, if your inventory for burger patties was $1,200 and you purchased $3,000 in a 30 day month, your number of days would equal 12 days.

Put the number of days for each of the top 25 items in context.  Is the item frozen, fresh, canned or dry?  Most fresh items should yield a low number of days.  You would not want to see 45 days of fresh boneless, skinless chicken breasts.  The freezer may have been stocked due to an especially low cost on a small number of selected items.  Make sure the cost per case for all over stocked frozen items justifies the quantity purchased.

Fresh fish, poultry and meat should have less than 7 days in stock.  Remember all over stocked items are using cash which could be used in other areas.

How to Cover the Higher Cost of Food Items

We are in a difficult year for protein purchases.  The bad weather, diseases and continued use of grains in fuel for autos will make 2014 a challenging year for purchasing managers.  If you missed the chance to sign a long term contract before all the bad news, your company will see a significant food cost increase this year.

How should you react to this year's higher cost of food?  The higher prices are not restricted to restaurant operations.  Grocery stores are charging higher prices for many protein items.  Your customers are paying these higher prices along with you.  There is an expectation of higher menu prices.  Major weather events and the porcine epidemic diarrhea virus were front page stories.

The question is not whether to raise your menu prices.  A better question to ask is "How high should I raise my menu prices?"

The answer to this question will depend on your specific market conditions.  Highly competitive restaurant markets offer value menu customers very low prices on many popular menu items.  If you operate in a price sensitive market, you need to be careful with price increases on your high volume items.

One strategy involves a small increase in a beverage ordered by a high percentage of patrons. 

We'll use an example to illustrate.  Our top menu selections include a protein item with a $2 per portion cost.  We expect the cost per portion to increase 10% to $2.20.  Our annual sales of these menu items equals one million portions.  This is a $200,000 increase in our costs.  Our customers purchase two million portions of fountain beverages each year.  If we increased the selling price of fountain beverages by ten cents, we would cover the increase in the protein portions.

If the most popular menu item currently has a selling price of $6, we could raise the price to $6.20 to cover the increased cost of sales in our example.  This price increase will generally have higher visibility than the increase in fountain beverages.  If you sell a high percentage of value meals, I'd recommend leaving the price of the sandwich at $6 and increasing the value meal price by twenty cents.

All of your food and beverage menu items need to be adjusted on a routine basis (either quarterly, semi-annually or annually).  You may operate in a seasonal market.  Timing of the menu price increases should be in sync with these routine adjustments.  Your customers may balk if you increase prices too frequently.

Some restaurant owners and managers fear a major business loss from setting menu prices too high.  I have seen prices freeze near many popular price points including $0.99, $1.99, $4.99 and $9.99.  If you can demonstrate a quality advantage to your customers, they will be willing to pay the new price.  Once you break through these barrier price levels, I think you will find it easier to adjust prices in the future.

Hopefully, we will see better crop conditions this year.  If protein prices take a drop later in 2014, you can put the profits in the bank to cushion you from the next upturn. 

If you are confident in your knowledge of the market, you could find an opportunity to lock in lower prices later this year.  A significant price decline could offer you an opportunity.  Most major distributors and manufacturers can help their customers with these issues.

One mistake to avoid is going long when prices are already high.  This locks the higher prices in for a longer time period.  Be patient and pay the market prices until you see a significant drop.  Pretend you have a huge freezer behind your restaurant.  When would you want to fill the freezer with product purchased on sale?  This is a good way to decide when to go long.

Implications of a High Food Cost Percentage

If you find your self explaining away two consecutive months of poor food cost results, you need to dig into the numbers and locate the problem.  Persistent performance problems can point to a serious issue.

In calculating your food cost percentage, there are three factors:  sales, purchases and inventory change.  Many operators focus entirely on the inventory change when they look for solutions.

While inventory calculation errors are common, a complete focus on the inventory figure can become a distraction.  Lost sales, chronic waste, inconsistent portions and ordering too much food are major problems which need to be identified quickly.  The end of period inventory figure needs to be eliminated as a factor.

The best way to eliminate inventory errors from your food cost formula is to increase the frequency of inventory counts.  If your food cost percentage is too high, switch to weekly inventories if you currently count monthly.

In a typical kitchen, you will find two weeks of usage in the inventory.  If you had to discard your entire stock, the loss is roughly 4% of the entire year's food cost.  You may have a chronic waste issue with perishable protein items.  In an operation with protein items accounting for 40% of the food cost, a 10% waste problem is the same as discarding your entire inventory once a year.

The point is you shouldn't always look for food cost problems in your ending inventory calculation.

Check your labor cost percentages as a check for lost revenue.  If you have a problem with food and beverages being served to guests without a POS system order, you will find both food and labor cost percentages over budget.  Make sure complimentary food and beverages are entered in the POS system with the comp used as a payment method (approved by a manager).  Eliminate the service of desserts, soups, coffee and tea without a documented order.

Honest waste and spoilage winds up in your garbage.  The garbage can also gives feedback on customer satisfaction.  One of the most costly tactics commonly used in casual dining restaurants involves selling an over stocked protein item which is past peak quality.  These menu items are found in the specials.  The POS system will point to a low number served to guests in relation to the line production.  Now the raw ingredient which was over stocked has been transformed into a finished menu item which has been over produced.

Eventually, the walk-in cooler will contain several pans full of these mistakes.  How will this food leave your restaurant?

Generally, leftover food will be served to employees, discarded or reinvented as a new special of the day.  The last option is the most risky tactic.  First, the demand for the protein item was incorrectly estimated.  This error caused the raw ingredient to hit the specials board.  The company loses the wages paid to prepare the original portions which make it back to the refrigerator. 

A second use of kitchen staff to create a new special adds to the labor cost.  Any over production on the second round needs to be discarded.  If any of the unsold food is served at a later date, the chance for food poisoning increases.  Even if no one gets sick, the quality of the meal will be low.  You can lose valuable customers.

When you find your food cost percentage is too high, remember to count more frequently, check for a higher labor cost and always check your garbage cans and walk-in coolers.

How to Calculate Food Waste in Production

Dear Joe,

Good day to you.

I would like to know how to calculate the food wastage percentage in any food production area.  Also, how it is calculated as a deduction from gross sales to determine gross profit in the Profit and Loss statement?

Thank you in anticipation 

Elie

In the production area, the loss in fabrication is a factor in the standard yield calculation.  When you develop a standard yield, it is best to use a large sample.  Keep accurate records of the purchased weight, cost and the net weight.  The standard yield formula is used to properly cost the usable food.

If we buy 10 kg of meat with the bone-in for $10/kg, your cost is $100.  After the meat has been trimmed and portioned,  we have 8 kg of product.  The cost is $12.50 per kg trimmed.  When we count our inventory, the raw, untrimmed meat should use $10/kg and the trimmed meat should use $12.50/kg.

Our cost of goods sold would be calculated as follows:

COGS = BI A.P. + BI E.P. + Purchases - EI A.P. - EI E.P.

COGS is Cost of Goods Sold
BI A.P. is Beginning inventory as purchased (before trim)
BI E.P. is Beginning inventory trimmed (edible portion)
EI is Ending inventory

The gross profit calculation uses the cost of goods sold total as a reduction.

Gross Profit = Revenue - COGS  

If you follow the steps in our meat example for all trimmed items, you will properly account for the standard waste experienced in the process.