Better Food Cost Control Using POS Information

Earlier this month, I had the privilege of speaking with Ken Burgin via Skype.  Ken is a seasoned food service industry veteran.  He has a website, Profitable Hospitality, which is loaded with useful forms and other restaurant management tools.

Our conversation is available for download as a podcast(or for play online).CLICK HERE TO GO TO THE PODCAST

Ken and I worked on an outline before the discussion:

Questions for discussion:

•    How has POS capability and use changed in the last few years – what have you noticed?
•    What are the most useful reports for your work when you ask for POS data from a client?
•    What are the reports every operator should be watching on a daily or weekly basis?
•    What are some useful ones that most operators are NOT watching?
•    You said your favorite POS report is Product Mix (PMIX) – please expand.
•    Best ways to use POS data for forecasting?
•    Linking POS to inventory systems – how is that best done?
•    Linking POS to recipe costing – how are smaller operators doing this best?
•    Linking POS with bookkeeping systems – what is best practice?
•    Using POS data to track staff sales and calculate bonuses – any good examples you’ve seen?
•    Tracking theft and errors – best reports?
•    If you could make some changes to the way most people use their POS, what would you advise?
•    New POS systems using iPads are becoming popular – is the data analysis behind them still more or less the same?

Can a Losing Restaurant Become a Profitable Business?

Dear Sir,

Trust you are well & fine? This is Sanjeev from Bahrain, Arabian Gulf. 

I'm working as Cost Control Manager. We are connected through linkedin and I'm taking the privilege to write to you.

One of our board members, who is a business man here in Bahrain, runs a small restaurant which is showing a big loss. 

What could be the basic reasons for it? 

Please see the details of the restaurant below:

Seating Capacity - 12 to 15 pax
Average sale per day - $335
No recipe costings or selling margins have been established.
Total staff :- Kitchen (4) & Front (2)
*Kitchen cost is very high at the moment.
All purchases are from local suppliers.
Salary (All Staff - $2,660)
Rent - $2,393

I would appreciate if you could give me some ideas or bullet points to improve this restaurant's business & making it profitable.

Thanks a lot for your valuable time. Take good care.
Sincere regards & yours truly,
Sanjeev

Thanks for the question Sanjeev!  I know the restaurant has opened recently and I appreciate the urgency.

At this time, costing recipes and calculating gross profit per menu item takes a back seat to marketing and promotion activities.  Sales are too far below the minimum level required to produce a profit.  This is the reason so many restaurants close in the first year.

If the monthly sales are $10,000 and the rent is $2,400, our occupancy cost is 24% of revenue.  This indicates sales need to double for the restaurant to be a going concern.  Keep in mind a 12% occupancy cost is still relatively high.  The goal is 10% or lower.

The breakfast strategy could be part of the solution.  In addition, you could create a carry out menu and search for delivery customers in the vicinity.

Keep the staff level as tight as possible.  The current 26% is good.  As your sales rise, you may be able to reduce the labor % to 25%.

Your cost of goods sold needs to stay below 35% of sales.

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.