Phone: (413) 727-8897 email:

Monday, August 24, 2015

WSJ Article on Chipotle Hiring Plans

Julie Jargon's article, Chipotle Makes a New Kind of Play for Labor, appears on the front page of section B - Business and Tech, August 24, 2015.

She reports on a planned mass hiring day - September 9th.  Chipotle plans to hire 4,000 people on the single day increasing their workforce by nearly 7%.

The article features a graph of wage growth for limited-service restaurants vs. the entire private sector.  The source is Bureau of Labor Statistics.

LSR workers have seen wage growth of 6.77% in the 2.5 year period ended this June vs. 5.37% for the entire private sector.
I checked on the Restaurant Investor Report for closing rates in the first half of 2015 for fast casual Mexican/Latin restaurants.  The closing rate was far below other sectors.
Chipotle's closings are a mere 1/8 of 1% (.00125).  Almost all Chipotle locations remained in business during the six month report period.

Independents and regional chains operating casual dining Mexican/Latin concept closed 4.83%.  The entire Mexican/Latin fast casual chains group saw a closing rate of 1.46%.  Mexican/Latin fast casual independents closed 4.36%.

Saturday, August 22, 2015

Seattle Area Restaurants Face Higher Wages

Fox News ran an interesting article, written by Dan Springer, a month ago on their website in the Politics section:

Seattle sees fallout from $15 minimum wage, as other cities follow suit by Dan Springer

The article focused on the impact of a higher minimum wage - $15 per hour.

In his article, Mr. Springer delved into the actions taken by restaurants:

"Some restaurants have tacked on a 15 percent surcharge to cover the higher wages. And some managers are no longer encouraging customers to tip, leading to a redistribution of income. Workers in the back of the kitchen, such as dishwashers and cooks, are getting paid more, but servers who rely on tips are seeing a pay cut.

Some long-time Seattle restaurants have closed altogether, though none of the owners publicly blamed the minimum wage law."

With regard to the issue of long-time Seattle restaurants closing altogether, there is a tick upward in closings reported by in the new Restaurant Investor Report.

In general, Seattle has a vibrant restaurant industry.  The report is very interesting with regard to independently owned full service restaurants, including regional chain concepts.

As of June 30, 2015, the report showed the 6 month closing rate for long-time (over 3 years in business) full service restaurants increased by 46% from 2.7% in the second half of 2014 to a 3.9% rate in the first half of 2015.

A solid 93.4% of full service restaurants owned by sole proprietors and regional chains remained in business.

Thursday, May 28, 2015

Waste Calculation in Food Cost

Dear Joe,

I hope my mail finds you well.

I would like to know how to take into consideration the waste calculation while determining the food cost %.

Our formula:

Food Cost% =(opening inventory+purchases-ending inventory-staff meals-entertainment)/sales

So where is the place where we can add the calculation of wastage in the above formula?

Thank you. 
Best regards,

Thanks for the question, Elie.  This is a popular issue with many food cost controllers. 

In your operation, the purchased food should be consumed by guests when they order a menu item.

If the actual ingredient used to create a menu item requires fabrication, it is possible to experience a much lower yield than you expect.  You may also purchase too much of a perishable item and suffer a loss due to spoilage.  Finally, you may produce too much of a batch recipe used in a menu item which is not part of the base menu.

All of the food purchased, whether consumed by guests, lost in fabrication and poor yields, or lost due to over production or spoilage, is included in the "purchases" component of the formula.

The goal of the food cost control team is to explain to management the causes of food cost success and failure in the period of the report (week, month, quarter or year).

If you use standard recipes and standard yields, your variance reports will highlight the difference between actual usage and ideal usage.  Focus on the high volume items when you analyze variances.

In order to have the right information available, you should keep records for the ways each key item is used.  Purchases, butcher yield sheets, portion control records, and spoilage sheets are the building blocks for your variance analysis report.

In 2015, the high cost per pound or kilo for protein and fresh fruits and vegetables is a main driver of high food costs.  Only menu price increases can help with the higher purchase costs.

By developing a solid usage analysis for all key items, you will gain an advantage.  Over time, you will see trends in waste and spoilage.  If the management team communicates effectively, waste and spoilage will decline over time.

Monday, April 13, 2015

Restaurant Cost Allocations

Most dinner houses with a full bar have a difficult time deciding how to allocate food, beverages, labor and other expenses.  Since the tight control of cost of sales and labor are critical to success, the allocations in these prime costs are a central focus.

Before you begin to drill down into the truly fine cost details, make sure you define all the individuals who support key activities:  management, financial and administration.  The costs associated with the top management staff should not be allocated to any operations departments.  These operations departments are tougher to control.  There may be several workers who move between the kitchen, bar and dining room.  These flexible employees fill in where they are needed.

Some examples of flexible workers include bartender/wait staff, wait staff/general kitchen helper and bar manager/hostess.  Sometimes, these employees move between departments in a single shift.

The cost of sales issues break down by food and beverage in most restaurants.  The biggest decision involves which department receives the revenue for sales of soft drinks.  If sales of soda, bottled water, coffee, tea, juices and milk are included in food sales, the allocation of cost of sales can be tricky.  The bar will use all of these beverages as mixers and in dessert course beverages.

Most bars use olives, onions, cherries, lemons, limes, celery, fruit and vegetable juices, and many sauces (tabasco, Worcestershire, soy, etc.).  Some bars serve drinks with bacon, bouillon, horseradish, and purees.  Back in the kitchen, many chefs cook with beer, wine, and liquors.

The employee meal decision is a common concern.  Many restaurants allow all employees to enjoy a meal for each shift worked.  A common question involves whether to treat employee meals expense as a labor cost or a cost of sales for the kitchen.

In general, the net cost associated with food used in the bar and alcoholic beverages used in the kitchen will be comparatively low.  A best practice I have seen in my client's operations is to use a different brand of alcoholic beverage for the kitchen.  Examples include wine purchased in a gallon container and an economy brand of vodka which differs from the well brand.

Tracking flexible employees and isolating management and administrative staff are important cost issues.  The treatment of soft drink revenue and expenses is very important.  Employee meals can be a major expense. (e.g. 100 employees consuming five $3 meals per week represent a monthly cost over $6,000).

If the kitchen does recognize the revenue and cost of sales for soft drinks, the gross profit will help offset the employee meals cost.

The best solution for handling all of these cost allocation issues is an excellent system for transferring costs between departments.  Flexible employees generally earn the same hourly pay.  Most payroll systems allow hours to be charged to more than one department.

It is important to see report distribution ahead of time.  Imagine the managers who will review the monthly department report.  If your company genuinely utilizes a strong segregation of duties with separate managers for each department, you will benefit from the investment in a robust cost management system. 

On the other hand, your company may use a flat structure with many key people reporting directly to a single owner or general manager.  My experience with less complex operations shows the time and expense involved with cost segregation won't be justified.

Before you start a project for tightly tracking these cost allocations, make sure the benefit will outweigh the cost.  You may be able to mitigate the impact of these secondary issues through a simple offset system.  Most vendors will allow a single location to have more than one account.  For example, the bartender could order lemons directly from the produce supplier.  By performing a cost/benefit analysis, you may save significant time and expense.

Friday, March 27, 2015

Restaurant Management - A Best Practices Approach

In 1991, my wife Jackie and I spent two weeks in the Finger Lakes area of New York State. We decided to stay at a hotel in Ithaca. Near Cornell University, we found a terrific bookstore with a big red dot on the door. Once inside, I went hunting for books on food purchasing and restaurant cost control.

After a half hour of browsing through the available books, I purchased two excellent selections - SPECS by Lewis Reed and Controlling and Analyzing Costs in Foodservice Operations by James Keiser and Frederick J. DeMicco. My goal in working with these two books was to develop a set of spreadsheets to help clients improve their food cost performance.

During the next 3 years, I learned how to build recipe models using four different software systems. The number crunching needed to calculate ideal food costs was out of reach for many restaurant owners and managers. The software made this possible.

At the same time, I used WinFax Pro to deliver a newsletter - POSitive ROI - to New York City restaurants. I had time to chat with my early New York clients, as the slow computers worked for hours to get the ideal use report. These restaurant owners would ask me about my background and for any tips to improve profitability. Many times, I recommended the two books I had purchased from the book store in Ithaca, NY.

A few years ago, I received a phone call from Dr. Fred DeMicco, the co-author of the book on controlling and analyzing costs. He invited me to join a team he was organizing to create an e-book for restaurant management. I accepted the invitation with great enthusiasm and we began the project.

After many months, the book has been published by Kendall Hunt. The team at KH has done a wonderful job of editing the book and giving it the right look. This book is designed to help current and future restaurant owners and managers improve their knowledge of essential restaurant management skills and techniques.

The final two chapters in the book focus on budgeting and break even analysis. Most restaurant professionals can benefit from the advice in these two chapters. In today's volatile environment, restaurants need to deal with wage inflation, increased health care costs, big swings in food costs and tremendous competition.

Year to year comparisons can be difficult due to weather events, business interruptions, natural disasters, droughts, diseases and many other factors which we see on the news. A well prepared budget can be quickly modified to reflect actual operating conditions when you face an unanticipated change in your business environment.

Your break even point can change in a hurry with a minimum wage boost or a new group health care plan for your employees. Should you open a second location? What will be the impact? Break even analysis can help provide answers to these questions.

The book may be purchased directly from Kendall Hunt's website in paperback or e-book format.

Monday, February 02, 2015

25th Anniversary Specials

On New Year's Day, we celebrated our 25th anniversary at Dunbar Associates!

 I am very grateful to the 300 clients who allowed me a chance to go inside their businesses. In any consulting activity, there is an exchange of ideas.

Implementing a comprehensive food cost control system involves reviews of many mission critical systems: POS systems, vendor online ordering systems, catering banquet event order systems, bar code scanning solutions, accounting systems, and lots of Excel files.

In 1990, the best tools available included Lotus 123, Micros 2700 POS systems, Hayes modems, floppy diskettes, fax machines, and Novel networks. PC Anywhere, WinFax Pro, faster modems, DSL phone lines and numerous computer devices helped to improve connectivity.

After 1995, the speed of innovation picked up tremendously as the world moved quickly toward 1/1/2000. Y2K solutions and new dotcom websites helped technology companies grow faster than the economy.

Many software developers needed to transition from their DOS environment to the newer Windows environment.

It was a fascinating time to work with food service companies.

Today, we are all connected with powerful online tools. Many of the essential pieces of the puzzle for back office pros in 1990 are obsolete. Lotus 123 lost out to Excel. Floppy diskette drives are no longer mentioned. USB ports and DVD/CD drives are used today. I have not seen a Novel network in years.

During 2015, I welcome any of my clients to contact me for any projects. For the entire year, you can hire Dunbar Associates for the same rates you paid when we first met. In late 2005, I started this blog. The blog celebrates it's 9th anniversary with a new report store FoodCostWiz Reports. Our first report, Visual Portion Control, is available at 50% off the $9.95 price - $4.95.

In a few weeks, our new text book will be available for restaurant managers, educators and students.  Please stay tuned for more information.

Monday, January 19, 2015

Food Cost Tips - Fabrication and Butchering

Many restaurants purchase large wholesale cuts of meat.  Generally, these cuts offer a lower price point to the skilled butchers.  They take advantage of their diverse menu selections and utilize the trim associated with these cuts.  Packers offer restaurants a selection of quality grades including prime, choice and select.  It is important to purchase prime or choice cuts for steaks and chops. 

Stew meat and ground meat do not require prime cuts.  If you butcher a prime cut and are left with stew meat and ground meat trim, how should you treat this in your food cost?  The best way to determine the proper credit is to pretend you needed to buy stew meat or ground meat.  This purchase price should be used to determine the credit.  You need to know the current cost per pound of ground meat and for stew meat.

Most butcher yield sheets have one to three primary uses for the meat.  In addition, these sheets record usable and unusable trim weights.  The key to success is following the total price paid for each wholesale cut (or box of several pieces) all the way through to the cost per portion for each primary use.

It really isn't necessary to track unusable trim in the portion cost calculations.  You may want to record these weights for future negotiations with your meat suppliers.

The total amount paid for the meat put into production needs to be assigned to the products yielded in the fabrication process.

If you weigh the usable trim and use the current prices for stew meat and ground meat, you can determine the credit to be applied to the total amount paid.  The net amount, after applying the credit, needs to be assigned to your portions produced. 

If you have only one objective, for example filet mignon 8 ounce steaks, you simply divide the net amount by the number of portions you produced.  The total of all portions valued at the net price per portion and the value assigned to the trim must equal the total amount paid for the meat.

Many wholesale cuts of meat produce more than one end use.  These cuts may produce roasts, steaks, chops, shanks, scallopini, and cutlets.  The process of assigning the proper value to each unique end use is more art than science. 

Start with the primary reason you purchased the wholesale cut of meat.  Just like the trim meat, we need to know the price per pound for this retail cut.  Once you have this information, you can properly value all of your meat in this butcher yield.

The total amount paid for the wholesale cut remains our starting point.  From this number, you need to subtract the value for the trim meat to determine the net cost to assign to the main cuts.  Using the retail price per pound for the primary item produced, you multiply the weight by the price to determine the total for this cut.  Subtract this from the net amount after assigning the trim credit.  This calculation will supply the dollar value to assign to the other main cuts produced.  You also need the weight of these other cuts.

We are now ready to determine portion costs for each of our main cuts.

Trim weight is valued using the current prices for stew meat and ground meat.  The primary cut portion cost is calculated next.  You have the total weight and the cost per pound from current prices.  Multiply these two numbers to find the total cost to assign to primary cut portions.  Divide the total cost for this cut by the number of portions produced.

Finally, we can determine the value for all other cuts using the total dollars after subtracting the trim credit and the credit for the primary cut.  Take the net dollar value and divide this amount by the total weight of all other cuts.  This will determine the cost per pound and the cost per ounce for these cuts.  Depending on the portion sizes for each cut, use the cost per pound or ounce to determine the portion cost.

To check your work, make sure the total dollars for trim and portions of the primary cut and all other cuts equal the total amount paid for the meat purchased.

When you butcher meat, the goal is to remove the cost of the meat you purchased from your food inventory and assign this total to the portions produced.  You will credit the value of the raw product taken from stock and debit the value of the products produced.  If you had a vendor called BUTCHER, you would have an invoice with a net amount of zero.  You would send this vendor the raw meat as a credit or negative number.  For each cut produced, you would buy the number of portions at the price per portion from your yield sheet.  The invoice total would be zero.

Most inventory control systems allow you to handle credits using a negative number for the quantity (pound, portion, etc.).  They always use a positive number for the price.  The process is similar to handling deposits and returns, short shipments and other credits.

Using well documented butcher yield sheets, actual purchase prices for wholesale cuts, current retail prices for trim items, and current retail prices for primary use items, you will be able to accurately track portions produced by your butcher.  If you use a system which has ideal cost reports, the techniques above will allow you to eliminate poor yields as a source of variance.

Your inventory will reflect the proper cost for each wholesale cut (not yet butchered), each portion and the trim weight.

NOTE:  You may have meat with bones.  If the bones are not served to customers, they are trim.  Only credit the bones if you would have to purchase bones to create a base menu item.  Otherwise, you should treat the bones as unusable trim.

Restaurant Data Pros

web counter