tag:blogger.com,1999:blog-201184282024-03-13T16:42:18.953-04:00Food Cost WizA small corner of the online universe where food cost wizards can refine their craft.Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.comBlogger388125tag:blogger.com,1999:blog-20118428.post-19470017115782142042018-05-31T12:04:00.002-04:002018-05-31T12:04:53.026-04:00Key Restaurant Profitability NumbersIn my experience, profitable restaurants have a gross profit of 40% of sales or higher and an occupancy cost of 10% of sales or lower. It's important to track gross profit and occupancy costs consistently.<br />
<br />
Many operators spend great time and expense analyzing a number of items with a relatively minor impact on gross profit including:<br />
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Employee meals;<br />
Allocation of lemons, cooking wine and olives between the kitchen and bar;<br />
Complimentary food items;<br />
Credit card fees;<br />
Returns due to customer complaints.<br />
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Your gross profit calculation involves net sales, cost of sales and direct labor costs. <br />
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Whether you prefer to allocate employee meals to direct labor or cost of sales, these expenses will impact gross profit. The lemons, cooking wine and olives will show up in cost of sales regardless of the department bearing the charge. Complimentary food served to patrons without a charge on their bill will be included in cost of sales.<br />
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It may be helpful to begin subtracting credit card fees from gross sales before calculating your cost of sales percentage. The goal is a better bottom line profit. If you net the credit card fees in the sales number used in calculations, you will build in a safety cushion. This simple change will force you to operate more efficiently. <br />
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Food returned to the kitchen due to customer complaints is a serious issue. Any restaurant with enough returns to have a big impact on cost of sales is in dangerous territory. You are in the business of providing your customers a superior meal. These returns demonstrate the dissatisfaction of your audience.<br />
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When you find yourself in financial difficulty despite a 40% gross profit (using the conservative approach of netting credit card fees from sales), you will often see your occupancy cost above 10%. <br />
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Since your occupancy cost is often fixed, a high number puts tremendous stress on management. I have seen operators with restaurants packed nightly in constant danger of not breaking even. Usually, they are sloppy with low gross margins or they just don't have enough sales to justify their occupancy cost. <br />
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Frequently, we see famous restaurants closing due to a pending lease renewal. These operators understand the risk of trying to operate with an unacceptable occupancy cost.<br />
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<div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0tag:blogger.com,1999:blog-20118428.post-20398734674562641552018-05-10T15:05:00.000-04:002018-05-10T15:05:24.302-04:00Restaurant Accounting EquationsMy reader, Casey Paul of EZCater, notified me of an interesting infographic <a href="https://www.ezcater.com/company/blog/restaurant-accounting-equations-infographic/" target="_blank">Restaurant Accounting Equations</a>. The first equation is my favorite - break even point.<div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0tag:blogger.com,1999:blog-20118428.post-89484539020028943932018-05-10T14:12:00.001-04:002018-05-10T15:06:59.313-04:00Beat Your Food Cost Budget<div style="background: 0px 0px rgb(255, 255, 255); border: 0px; box-sizing: inherit; color: rgba(0, 0, 0, 0.75); font-family: "Source Serif Pro", serif; font-size: 20px; line-height: 3.2rem; margin-bottom: 3.2rem; margin-top: 3.2rem; outline: 0px; padding: 0px; vertical-align: baseline;">
One of the best ways for most food service operators to lower their cost of goods sold is to develop and promote fantastic side dishes.<br />
For years, many restaurant patrons praised the french fries at McDonald's. McDonald's bundled the popular fries and high profit fountain drinks into value meals. These value meals help McDonald's increase revenue and profit with 2 relatively low cost items.<br />
The person who originally recommended Outback Steakhouse to me years ago made sure I knew to order the Bloomin Onion. The delicious onion dish is very profitable. At the time, this person stopped going to other steak house restaurants just to order the onion dish.<br />
Many independent restaurants have a low cost item ordered by most of the patrons. Focusing on root vegetables and other ingredients available year round is a good strategy.<br />
Baked goods are also very good for your gross profit. This is true whether you charge extra or offer complimentary baked goods. Excellent baked goods (bread, rolls, nan, pita, tortillas, etc.) often attract customers to a specific brand in crowded markets. Often the baked goods and salad bar are considered when patrons choose a casual dining destination. While the salad bar cost varies widely by season, baked goods are not subject to wide cost variances.<br />
Taking a closer look at salad bars, there are plenty of ways to lower your costs. Salads may use starchy items including potatoes, rice, pasta and couscous. Create a "to die for" salad using these cost effective items. Mediterranean foods are very popular and there are many great salad ideas to choose from including those found in a great tapas cookbook.</div>
<div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0tag:blogger.com,1999:blog-20118428.post-50628732962818622972016-11-29T13:28:00.001-05:002016-11-29T13:29:53.884-05:00Finding Your Ideal Food Cost NumberI find attempts to benchmark food cost overly simplistic. My favorite factors in determining food cost benchmarks are annual sales, competition and monthly occupancy cost. These factors vary widely by market segment and geographic zone.<br />
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There are times when a higher food cost percentage is desirable. Operators suffering from minimum wage laws and mandatory employee health care costs may improve their operating profit by purchasing prepped food items.<br />
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A fresh vegetable prep team with three full time workers can cost well over $100,000 in cities and states with $15 minimum wage laws. Qualified butchers are only justified in a small number of restaurants. Multi-unit operators may create commissaries to butcher and prep items for their entire chain.<br />
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Commissary operators need delivery vehicles and personnel. In addition, they need tight controls over commissary transfers. Auto insurance rates are higher in urban and suburban areas.<br />
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A savvy operator will create a profit and loss statement designed to show a subtotal used to net sales, cost of sales, direct labor and occupancy costs. This number should be at least 30% of sales.<br />
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There are plenty of ways to get the 30% net. Restaurant managers in urban areas with high rents need to offset
their high occupancy costs with higher sales and lower percentages for
cost of sales and labor.<br />
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If you are in a city with high rents, $15 minimum wage laws, and have recently offered your entire staff health care insurance, you most likely need a low food cost %. Some of you may face a 15% occupancy cost. If you can manage to hit a 25% cost of sales and a 30% labor cost, you can deliver a 30% profit before your other operating expenses.<br />
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You may operate over an hour from the nearest city in a mortgage free restaurant. The local minimum wage laws may allow you to pay a premium wage in the $12/hour range. A large kitchen with adequate storage capacity could allow you to purchase farm delivered produce and large cuts of meat and fish.<br />
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The best strategy for the operator with low occupancy expenses is to always price menu items below the competition. You can make it impossible for competitors to attack using borrowed capital.<br />
<br /><div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0tag:blogger.com,1999:blog-20118428.post-82161744665927037542016-11-29T12:52:00.003-05:002016-11-29T12:52:41.796-05:00New Book Coming Soon - Growing Medical Tourism IndustryDr. Frederick DeMicco's new book is due in January 2017. The book explores a relatively new segment which crosses the health care and hospitality fields - <a href="http://www.appleacademicpress.com/medical-tourism-and-wellness-hospitality-bridging-healthcare-h2h-/9781771885058">Medical Tourism and Wellness</a> - using mini case studies and discussions of current trends.<div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0tag:blogger.com,1999:blog-20118428.post-80514318920130807522015-08-24T10:32:00.003-04:002015-08-24T10:32:48.882-04:00WSJ Article on Chipotle Hiring PlansJulie
Jargon's article, <a href="http://www.wsj.com/articles/chipotle-plans-one-day-4-000-worker-hiring-binge-1440378000">Chipotle Makes a New Kind of Play for Labor</a>, appears
on the front page of section B - Business and Tech, August 24, 2015.<br />
<br />
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%.<br />
<br />
The
article features a graph of wage growth for limited-service restaurants vs.
the entire private sector. The source is Bureau of Labor Statistics.<br />
<br />
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.<br />
.<br />
I checked on the <a href="http://www.restaurantdata.com/">Restaurant
Investor Report</a> for closing rates in the first half of 2015 for fast
casual Mexican/Latin restaurants. The closing rate was far below other sectors.<br />
<br />
Chipotle's
closings are a mere 1/8 of 1% (.00125). Almost all Chipotle locations remained in business during the six month report period. <br />
<br />
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%.<div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0tag:blogger.com,1999:blog-20118428.post-71876710350020354542015-08-22T15:04:00.001-04:002015-08-22T15:05:23.505-04:00Seattle Area Restaurants Face Higher WagesFox News ran an interesting article, <a href="http://www.foxnews.com/politics/2015/07/22/seattle-sees-fallout-from-15-minimum-wage-as-other-cities-follow-suit/">written by Dan Springer</a>, a month ago on their website in the Politics section:<br />
<br />
<b>Seattle sees fallout from $15 minimum wage, as other cities follow suit
by Dan Springer</b><br />
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The article focused on the impact of a higher minimum wage - $15 per hour.<br />
<br />
In his article, Mr. Springer delved into the actions taken by restaurants:<br />
<br />
"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.<br />
<br />
Some long-time Seattle restaurants have closed altogether, though none of the owners publicly blamed the minimum wage law."<br />
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With regard to the issue of long-time Seattle restaurants closing altogether, there is a tick upward in <a href="http://www.restaurantdata.com/">closings reported by RestaurantData.com</a> in the new Restaurant Investor Report.<br />
<br />
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.<br />
<br />
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.<br />
<br />
A solid 93.4% of full service restaurants owned by sole proprietors and regional chains remained in business.<div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0tag:blogger.com,1999:blog-20118428.post-65421218244038952312015-05-28T09:29:00.001-04:002015-05-28T09:33:33.967-04:00Waste Calculation in Food CostDear Joe, <br />
<br />
I hope my mail finds you well. <br />
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I would like to know how to take into consideration the waste calculation while determining the food cost %.<br />
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Our formula:<br />
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Food Cost% =(opening inventory+purchases-ending inventory-staff meals-entertainment)/sales <br />
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So where is the place where we can add the calculation of wastage in the above formula?<br />
<br />
Thank you. <br />
Best regards,<br />
Elie<br />
<br />
Thanks for the question, Elie. This is a popular issue with many food cost controllers. <br />
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In your operation, the purchased food should be consumed by guests when they order a menu item.<br />
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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.<br />
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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.<br />
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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).<br />
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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.<br />
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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.<br />
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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.<br />
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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.<div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0tag:blogger.com,1999:blog-20118428.post-61129382495077489592015-04-13T14:33:00.003-04:002015-04-13T14:33:59.932-04:00Restaurant Cost AllocationsMost 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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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).<br />
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If the kitchen does recognize the revenue and cost of sales for soft drinks, the gross profit will help offset the employee meals cost.<br />
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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.<br />
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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. <br />
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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.<br />
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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.<div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0tag:blogger.com,1999:blog-20118428.post-28004314099022490312015-03-27T12:11:00.003-04:002015-03-30T16:17:58.110-04:00Restaurant Management - A Best Practices ApproachIn 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.<br />
<br />
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.<br />
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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.<br />
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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.<br />
<br />
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.<br />
<br />
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.<br />
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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.<br />
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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.<br />
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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.<br />
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The book may be purchased directly from <a href="https://www.kendallhunt.com/demicco/">Kendall Hunt's website</a> in paperback or e-book format.<div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com4tag:blogger.com,1999:blog-20118428.post-35265767328492408572015-02-02T00:27:00.002-05:002015-02-10T12:40:01.225-05:0025th Anniversary SpecialsOn New Year's Day, we celebrated our 25th anniversary at Dunbar Associates!<br />
<br />
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.<br />
<br />
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.<br />
<br />
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.<br />
<br />
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.<br />
<br />
Many software developers needed to transition from their DOS environment to the newer Windows environment.<br />
<br />
It was a fascinating time to work with food service companies.<br />
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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.<br />
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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 <a href="http://www.foodcostwizreports.com/">FoodCostWiz Reports</a>. Our first report, Visual Portion Control, is available at 50% off the $9.95 price - $4.95.<br />
<br />
In a few weeks, our new text book will be available for restaurant managers, educators and students. Please stay tuned for more information. <br />
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<div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0tag:blogger.com,1999:blog-20118428.post-34257956823988742202015-01-19T13:08:00.002-05:002015-01-19T14:10:39.093-05:00Food Cost Tips - Fabrication and ButcheringBASIC BUTCHER YIELDS<br />
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. <br />
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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.<br />
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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.<br />
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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.<br />
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The total amount paid for the meat put into production needs to be assigned to the products yielded in the fabrication process.<br />
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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. <br />
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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.<br />
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COMPLEX BUTCHER YIELDS<br />
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. <br />
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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.<br />
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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.<br />
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We are now ready to determine portion costs for each of our main cuts.<br />
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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.<br />
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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.<br />
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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.<br />
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INVENTORY CONTROL<br />
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.<br />
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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.<br />
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SUMMARY<br />
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.<br />
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Your inventory will reflect the proper cost for each wholesale cut (not yet butchered), each portion and the trim weight.<br />
<br />
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. <br />
<br /><div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0tag:blogger.com,1999:blog-20118428.post-79625670970040842512014-12-30T11:11:00.003-05:002014-12-30T11:13:16.480-05:00Outlook 2015 - US Food Service IndustryOur industry has absorbed the impact of the supply chain adding health insurance coverage. Most distributors now have complied with the ACA provisions. The food distributors have passed these increases on to restaurant owners and caterers. The record drought in 2013 and the related poor corn crop had a major impact on protein prices during the first 3 quarters of 2014.<br />
<br />
Fortunately, the corn crop in 2014 was robust and we can all expect a positive impact on protein prices in 2015.<br />
<br />
Given the high 2014 food prices, current low grain prices and the supply chain's early compliance with the ACA requirements, I expect low or negative food cost inflation in 2015.<br />
<br />
Minimum wage legislation at the state and municipal level has raised labor costs for many operators. Health care expenses are on the rise as companies offer minimal coverage to previously uninsured employees (skinny plans and low cost HMOs). Labor costs will rise in 2015 in dollar terms.<br />
<br />
The current oil glut has had a major impact on transportation costs. Distributors will pass along energy savings to restaurant operators. Delivery concepts will benefit from lower prices for gas. Customers will have more disposable income. The drop in energy prices will provide a needed boost to our industry in 2015.<br />
<br />
As the unemployment rate continues to fall, consumer confidence rises. I expect modest improvement in the employment market with a drop to 5.5% for the unemployment rate. <br />
<br />
Americans are slowly experiencing growth in wages. The new college graduates will enjoy a better job market. Previous graduates have adapted to their rough start by staying single in higher numbers. Take-out, delivery, fast casual and bakery cafes will continue to see plenty of sales growth.<br />
<br />
In January, I resolved to lose 12 pounds during the year. My success in accomplishing this goal came at the expense of beef consumption. Personally, I did not go out to have a steak dinner in a restaurant during 2014. Even at home, my family has opted for seafood for most celebrations.<br />
<br />
Many of my fellow baby boom generation are increasing their consumption of vegetables. Locally sourced, organic vegetables will continue to attract diners in 2015.<br />
<br />
<br />
<br /><div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0tag:blogger.com,1999:blog-20118428.post-56757667148223404962014-11-25T13:13:00.000-05:002014-11-25T13:13:23.097-05:00Reader's Industry Information RequestGood afternoon Joe,<br />
<br />
Thank you for such fantastic content in your emails and blogs, I have always found them very useful. <br />
I have been in food services for almost 20 years with the exception of the last few, I have started working at hotels.<br />
<br />
I
am looking for hotel researchers or consultants like yourself whom I
could follow or read their blogs and or hospitality case studies.<br />
<br />
Would you know anyone that you could suggest and provide an direction?<br />
<br />
Thank you once again for your time and patience and hope you are doing well and are in the best of spirits.<br />
<br />
Zafar<br />
<br />
Thanks for your interest, Zafar!<br />
<br />
My favorite industry sites are listed below:<br />
<br />
Hotel Food & Beverage Observor<br />
http://www.hotelfandb.com/blog/<br />
<br />
Hospitality Trends<br />
http://www.htrends.com/<br />
<br />
Profitable Hospitality<br />
http://www.profitablehospitality.com/<br />
<br />
The Center for Hospitality Research<br />
https://www.hotelschool.cornell.edu/research/chr/<br />
<br />
Penn State Index of U.S. Hotel Values<br />
http://hhd.psu.edu/shm/Hotel-Values/<br />
<br />
UNLV Gaming Research & Review Journal<br />
http://digitalscholarship.unlv.edu/grrj/<br />
<br />
National Restaurant Association News & Research<br />
http://www.restaurant.org/News-Research/Research/Research-Reports<div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0tag:blogger.com,1999:blog-20118428.post-42674413595593123212014-11-24T12:18:00.002-05:002014-11-24T12:24:36.379-05:00Menu Price Question<!--[if gte mso 9]><xml>
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<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Dear
Mr. Joe,</span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Since
New Year’s Eve is around the corner, we are planning this year end in our
restaurant chain to use set menus.<span style="mso-spacerun: yes;"> </span>I have
saved all my free offers from suppliers as well as my credit notes year to date.<span style="mso-spacerun: yes;"> </span>We are going to get all our beverage items
(mainly wine) free of charge from our suppliers.</span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">So
how do I calculate my beverage cost using such free goods without any charges?</span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in;">
<br /></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">For
the food items, I have no problem because I have to buy menu items ingredients
and post the menu item name on my POS.<span style="mso-spacerun: yes;"> </span>I
just have an issue for the beverage.</span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in;">
<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">I
am counting on your advice.<span style="mso-spacerun: yes;"> </span>Thanking you
in anticipation.</span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">Elie</span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">I would ignore the free items when setting menu prices. These items are actually discounts earned throughout the year on the items purchased from the same vendors. There are several issues supporting my recommendation. The top issue involves the cost to replace these items. You will not be replacing the free wine with more free wine. Use the replacement cost in your calculations.
<br />
<br>A second option you may want to consider is using an average cost when determining the true cost per bottle. You would use the free wine along with all the wine purchased to calculate the true cost per bottle. Use the total purchase cost and divide by the complete bottle total (including free wine). Adjust this per bottle cost for inflation to determine the menu price. You will be close to the replacement cost.
<br /></span></div></td>
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<div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0tag:blogger.com,1999:blog-20118428.post-77694094120345193372014-11-24T11:09:00.001-05:002014-11-24T11:09:45.910-05:00Optional Food Cost Formula<!--[if gte mso 9]><xml>
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<span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">Hi Joe,</span></div>
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<span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">I am trying to help a colleague at another hotel in our chain.<span style="mso-spacerun: yes;"> </span>He is F&B Controller at a new
property.<span style="mso-spacerun: yes;"> </span>They do not have a food
store.<span style="mso-spacerun: yes;"> </span>All purchased items are entered
as direct purchases.<span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">At our property we calculate a weekly Flash (food & beverage cost
check) and at the month end the food & beverage cost. </span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">The weekly formula is:</span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">Direct Purchase to Kitchen + Store Issues – (Complimentary Items + Employee
Meals)= (Cost of Food/Total Sales)% = Food Cost %</span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<br /></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">The month end calculation is:</span></div>
<div class="MsoNormal" style="mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">Opening Balance + Purchases – Closing Balance = Gross Consumption –
(Complimentary Items + Employee Meals) = (Net Consumption/Total Sales)% = Food
Cost %</span></div>
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<br /></div>
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<span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">In the case of my colleague's operation what should be his formula? Since
he has no store all his purchases are direct to the kitchen.<span style="mso-spacerun: yes;"> </span>So, unused items (that should be stored)<span style="mso-spacerun: yes;"> </span>are included in the food cost
calculation.<span style="mso-spacerun: yes;"> </span>This resultant cost
percentage does not represent actual consumption and a bloated food cost
percentage is the result, I imagine. Am I correct?<span style="mso-spacerun: yes;"> </span>I thought about it and it should be the same
formula as a fast food operation that does not have a store.<span style="mso-spacerun: yes;"> </span>I surfed the Net and could not find any such
animal.<span style="mso-spacerun: yes;"> </span></span></div>
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<span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">I'd appreciate your feedback.</span></div>
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<span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">Thanks</span></div>
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<span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">Brian</span></div>
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<span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">Thanks for the question, Brian!</span></div>
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<span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">Actually, the food cost formula is straight forward:</span></div>
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<span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">Food Cost = Purchases - Inventory Change</span></div>
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<span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">I prefer to include the cost of complimentary items and employee meals in the calculation.</span></div>
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<span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">Your weekly report utilizes a perpetual inventory model with tight control over issues of stock. Your friend would need to count inventory weekly. His formula would be very similar to your month end calculation.</span></div>
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<span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">If he wants to allow credits for complimentary items and employee meals, these items would be deducted from the actual food cost. The key issue is consistency.</span></div>
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<span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">Weekly inventories provide excellent feedback to management. Operations benefit from this added control with lower cost of goods sold. Problems are spotted quickly. </span></div>
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<div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0tag:blogger.com,1999:blog-20118428.post-51528564272289831172014-10-31T15:46:00.001-04:002014-10-31T15:46:16.361-04:00Should We Include Labor In Our Standard Recipes?A frequent reader question topic involves the addition of direct labor in all standard recipes. Before giving a firm recommendation, I'm going to explore the pros and cons of this approach.<br />
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On the plus side, recipes which include a labor component will make side-by-side gross profit comparisons between daily specials menu options more informative. Many restaurants enjoy a major profit contribution from their specials. Knowing the expected gross profit is a big plus. By their nature, specials are designed to provide a spark and they should be priced to deliver a decent profit margin.<br />
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If we feed the recipe model a week or month of actual menu item sales counts, the recipes with a direct labor component will show the number of expected hours (and dollars) of direct labor . This figure may be compared to actual labor cost data. This is one of the benefits desired by operators who adopt this approach.<br />
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Switching to the minus side, the addition of a direct labor component to standard recipes makes variance reporting more complex. Recipe costing software is designed to quickly calculate the impact of price changes for major ingredients. This impact may be muted by any pay changes. <br />
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The payroll rate increase issue also impacts ongoing use of the recipe model. While the software is designed to enter food purchase orders, invoices, stock issues, etc., it does not have a robust payroll data link. <br />
<br />
In fact, operators need to "purchase" hours of direct labor with the most recent rate per hour. The hourly rate is a single figure and it needs to include burden (vacation pay allowance, worker's compensation insurance, unemployment insurance, disability insurance, etc.). The explanation on how the model handles labor can be confusing to anyone without a degree in accounting or management.<br />
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Some operators use central production (i.e. commissary) for a group of restaurants. They may have a dedicated team producing food which is packaged in standard containers and shipped by tray or case. If the commissary team produces a similar volume of finished product each week, the addition of labor (and possibly an overhead factor) may be useful in billing the units.<br />
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I would recommend operators examine their true reporting needs carefully before adding a direct labor component to their standard recipes. The extra work involved in the setup and ongoing maintenance needs to be justified by the benefit derived from the reports. Most companies control labor with time clocks, schedules, productivity software and employee incentives. The addition to the recipe model may not offer a good return for the time invested. <div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0tag:blogger.com,1999:blog-20118428.post-4173270324486507622014-10-16T16:38:00.001-04:002014-10-16T16:40:34.689-04:00Banquet Guests Choose Most Expensive ItemsDear Joe,<br />
I hope this finds you well.<br />
<br />
Please tell me, what happens when you offer a banquet package for a flat price and the clients consume only the most expensive item?<br />
<br />
You have no right to stop them because the package is quoted with a specific time (1 hour, 2 hours). Also, what do you consider when you cost from 1 hour to 2 hours? <br />
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Regards,<br />
Jean Claude<br />
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A great number of banquet packages are offered to guests on an all you can eat basis for a time period specified in the contract. There are ways to control your costs without bringing attention to your tactics.<br />
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Many caterers offer a package with a high profile protein item. In order to restrict access to this item, for example Prime Rib, many give each guest a token or a ticket to hand in when they order their serving from the carving station.<br />
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I have worked on cost control for steak night in an operation at a construction camp. Our guests consumed over 5,000 calories daily. We expected each guest to consume 2 steaks. Most guests ate exactly 2 steaks, there were almost an equal number who ordered either 1 or 3 steaks. We did not have anyone who ordered a 4th steak.<br />
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In our contract, the cost of this steak night was weighted highly in our estimates. <br />
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For your operation, it is essential to forecast the number of portions consumed by guests as accurately as possible. As the meal service goes on for the second hour, your consumption experience will change. During the first hour, you will have greater consumption than in the second hour. If the service continues, this trend will continue.<br />
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Some tips from my clients include: <br />
Creating a portion size which matches the guest behavior. For example, you may want to offer a smaller portion size if you believe most guests will return for a second portion.<br />
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Budget around 70% of the typical male portion size for the female portion size.<br />
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Create a special station for the key item and stage displays of top quality pastry items along the path to this station.<br />
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Offer an absolutely irresistible second choice. Many guests will try each entree and will be satisfied.<br />
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You can structure your event differently when you go beyond 2 hours. <br />
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For years, I partnered with a restaurant owner to offer traditional Clam Steams in Upstate New York. These events are pretty standard in the New York Capital District. Guests are offered a steak or chicken option. Often, the steak price is $2 to $3 higher than the chicken. Other than the entree, the event is entirely all you can eat.<br />
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At the start of a 5 to 6 hour event, the guests are offered clam chowder, hot dogs, Italian sausage with peppers, and burgers. In addition, a selection of salads, baked beans, rolls and salty snacks are available.<br />
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Around one hour later, raw clams are available to guests. They shuck their own clams. Traditional condiments are offered. The raw clams are available for around 90 minutes and the other items are available all day. <br />
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Generally, there are activities and games to break up the food service as the day progresses. Either a band or a DJ provide music for dancers. <br />
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Later in the day, the guests line up for their steamer basket which consists of one dozen clams, one potato, 2 links of breakfast sausage, and an ear of corn. Guests are encouraged to enjoy unlimited clam broth straight from the steamer.<br />
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The grill station is limited to guests with tickets. They present the grill master with their chicken and steak orders. This service is restricted to one steak or one half chicken per guest. Very few people have room for dessert.<br />
<br />
The secret to success is an awesome Manhattan Clam Chowder.<div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0tag:blogger.com,1999:blog-20118428.post-56536060214949851952014-10-13T16:57:00.005-04:002014-10-13T17:00:29.550-04:00Reader Question: Margin vs. Percentage?This month, Adam from New York wrote an email asking whether it is better to use contribution margin or food cost percentage. As many readers know, I prefer using contribution margin. My early experience in remote site support services showed me the value of tracking all costs by the number of patrons served.<br />
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Percentage analysis is better than nothing at all. It is definitely a good start. You won't get answers to many questions with simple percentages but over time you will see trends develop.<br />
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A little bit of extra work will provide operators with a better view of profitability. The contribution method will illuminate how an operation makes money. Caterers, on site feeders, clubs and other non-restaurant food service operations normally use the contribution method.<br />
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Restaurants equipped with a top notch POS system can make the shift from percentage analysis to the contribution method. There are several key data points available on your standard POS reports. You need to track the number of guests served (covers), the sales per guest (check average), a category breakdown of menu item sales (PMIX report by category) and a ranking of your menu item sales (PMIX ranking report).<br />
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For any given period, your food cost divided by the number of guests served equals your cost of sales per cover. You can subtract this figure from your check average to yield the gross margin per guest served. I recommend a 3 month time frame for both the check average and the food cost per cover.<br />
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In addition to your total food cost, take the time to break out the cost of all protein items including meat, poultry, seafood and cheese. You now have your food cost separated into the protein cost and the cost of all other food items (including non-alcoholic beverages). <br />
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Armed with your number of covers, the average sales per cover and the cost of sales per cover, you can assemble a simple but powerful report.<br />
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In our example, we served 25,000 guests in the most recent quarter. The food sales per guest averaged $20 producing $500,000 in food sales. Our food cost per cover of $6 produced a cost of sales of $150,000. We earned $14 per cover and a total of $350,000 in gross margin.<br />
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Protein sales per guest averaged $12 and other food and non-alcoholic beverage sales per guest averaged $8. Our $150,000 food cost has a $100,000 protein component and a $50,000 non-protein component.<br />
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Our gross profit per guest is made up of $8 from sale of protein items and $6 from sale of non-protein items. Smart operators have their server staff well trained in sales of non-protein items. These items may include extras like a side salad, a cup of coffee, garlic bread and a slice of pie.<br />
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Most guests will order a single protein item (entrees, sandwiches, appetizers) and they will order 2 or 3 non-protein items (beverage, soup/salad, dessert).<br />
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It is common to have a higher contribution from protein items. You may want to keep your direct labor and direct operating expenses equal to your protein item contribution. The profit from non-protein items will offset occupancy costs and help put money in the bank. <br />
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<br /><div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0tag:blogger.com,1999:blog-20118428.post-16226016036205904602014-09-01T23:11:00.001-04:002014-09-01T23:12:50.145-04:00A Margin of Safety for RestaurateursIn an earlier post, <a href="http://www.foodcostwiz.com/2014/08/high-food-cost-due-to-inflation.html">High Food Cost Due to Inflation</a>, I recommended an across the board increase in menu prices. During the month of August, I received several calls and emails asking how big the suggested increase should be for most restaurants.<br />
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Anyone considering an across the board menu price increase should first conduct a thorough competitor analysis. If you find your competition has already raised prices, you should go ahead with the increase.<br />
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Every menu has a unique cost composition. I can only speak to general market conditions. Two key components of gross profit have shot higher in 2014. The impact on labor costs of the Affordable Care Act has been estimated at between 1% and 2% by operators here in the Mid-Atlantic. Food Costs have risen 7.5% in the protein category.<br />
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If your food cost percentage was 30% before the 2014 cost increase, your current percentage would be around 32.25% (30% * 107.5%). We can also add 1.5% to your labor cost. If your cost before the ACA was 30%, we can estimate a new labor cost of 31.5%. In order to achieve a profit of 40% after cost of sales and direct labor, we would raise menu prices by 3.75%.<br />
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The ACA will continue to cause general price levels to increase as employers provide employees with the mandated health care coverage. I'd recommend additional menu price increases on a quarterly or semi-annual basis to cover the additional costs. A 1% quarterly increase would provide a 6.75% increase in a 12 month period. My previous range for the increase was between 3% and 10%. <div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0tag:blogger.com,1999:blog-20118428.post-77914903018108496602014-09-01T12:51:00.001-04:002014-09-01T12:52:45.737-04:00Restaurants Continue To Struggle With High Protein CostsThe market prices for beef, pork and chicken remained high this summer. In the most competitive markets, restaurant operators have had a tough time building higher costs into their menu prices. Consumers continue to carefully manage how they spend their discretionary income. These consumers see the higher food prices when they shop in the grocery stores.<br />
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Restaurants need to take a long term view and develop a strategy to deal with the challenging environment. I remember when McDonald's first came to our area in Upstate NY around 50 years ago. You could purchase a meal for $0.40. This meal consisted of a hamburger, a order of fries (similar to today's small portion) and a soft drink. For shake lovers, the meal cost rose to $0.50.<br />
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If you visit a McDonald's today, you may find a similar meal for $3.00. They have a separate dollar menu in many locations. This is an increase of $2.60 in 50 years. The average annual increase is around 4.1%.<br />
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How long has your operation been in business? If you saved your original menu and check average information, it would be a great exercise to compare today's prices with your oldest menu. Create a spreadsheet and enter the years in column A. Label column B "Meal Cost". Column C "Growth" will have 1.041 in every cell. Column D should be labeled "New Cost".<br />
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Columns B and D will be filled with calculated values.<br />
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Cell B2 will have the price of a meal in your first year of business (or the first year you kept solid records). Cell D2 will have a formula as follows: =B2*C2. Cell B3 will have a simple formula as follows: =D2. You can copy the formula in B3 all the way down. Repeat this with cell D2.<br />
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The final value in column D will yield the cost of a meal this year if you steadily raised prices 4.1% each year for every year you have been in business.<br />
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I ran a catering operation in my sophomore year of college. The sale prices for whole chickens back in the 1970's was $0.29 per pound. Today, I can buy chickens for around $0.99 per pound on sale. These sale prices are tough to find for fryers and broilers. The $1.49 per pound every day chicken prices do reflect a 4.1% growth rate.<br />
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Restaurant operators can increase profits steadily, over a long time period, by implementing a slow growth policy for menu prices. A 4.1% growth is roughly a 1% increase each quarter. Today's high protein costs provide cover for restaurants who need to increase prices by a much higher percentage. Make sure you know your competition thoroughly before implementing any large price increase.<div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0tag:blogger.com,1999:blog-20118428.post-121500117550866352014-08-28T15:34:00.002-04:002014-08-28T15:42:41.719-04:00Operators Are Watching Portion Sizes CarefullyI 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.<br />
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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.<br />
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My favorite meals were in off the beaten path locations. Most operators were watching the portion sizes.<br />
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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).<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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She looked like she had a busy day.<br />
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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. <div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0tag:blogger.com,1999:blog-20118428.post-30910458530809028362014-08-07T10:15:00.003-04:002014-08-07T10:18:09.999-04:00High Food Cost Due To InflationThe <a href="http://www.bls.gov"> June Consumer Price Index (CPI)</a> shows a 7.5% increase in the category meats, poultry, fish and eggs (see chart below). This category is very important for most restaurant operators. The protein component of most restaurant meals has the highest weight.<br />
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Over many months, protein costs have been on the rise. The trend may correct later this year since the 2014 corn crop is excellent. Corn futures have been in a free fall since early May 2014.<br />
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<a href="http://3.bp.blogspot.com/-MdEEyvPUuyI/U-N9kR-9tcI/AAAAAAAAAmc/0GfJl1VQeNU/s1600/CPI_FOOD_201406.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="http://3.bp.blogspot.com/-MdEEyvPUuyI/U-N9kR-9tcI/AAAAAAAAAmc/0GfJl1VQeNU/s1600/CPI_FOOD_201406.jpg" height="128" width="400" /></a></div>
Source: US Bureau of Labor Statistics - June 2014 - CPI Summary<br />
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Should you increase your menu prices to cover the significant rise in your invoice costs?<br />
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The answer is yes for almost every operator. Unless you face very stiff price competition in a market with a steep decline in restaurant visits, it is essential to raise menu prices. Many operators have increased menu prices to help offset increases in labor costs due to health insurance premiums. Your guests see the increase in food prices <br />
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If you never prepared a budget for 2014, you may have a tough time putting the food cost inflation in perspective. A rise in the cost of goods sold of 10% (e.g. from 30% to 33%) can completely wipe out profit at many restaurants.<br />
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Should you raise menu prices across the board?<br />
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I would vote for an across the board menu price increase in 2014. <br />
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It has become more difficult to hide profits in non-alcoholic beverages and extras. Restaurant visitors are looking for a high quality meal for a price that meets their budget. Many diners are opting for tap water. Guests are taking a close look at their checks and they are modifying their behavior as they see pricey drinks and charges for extras.<br />
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If your current check average is $20, an across the board increase of 3% would raise the check average to $20.60. An aggressive 10% increase would take the check average up to $22. You need to study your local competition. You need to know your guests. Will your guests adjust their menu choices to keep the check average at $20? If you think a 10% increase will drive your guests out the door or cause them to order fewer items, you should go with a modest increase.<br />
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One thing is for certain. This is a very tough year to discount menu prices. If you depend on deep discounts and coupons to fill your dining room, the current rise in protein costs will wipe out your profit. <br />
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<br /><div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0tag:blogger.com,1999:blog-20118428.post-7890325539465346692014-05-10T13:26:00.001-04:002014-05-10T13:29:00.041-04:00Food Cost Tips for Excel ProsLots 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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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. <br />
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<br /><div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0tag:blogger.com,1999:blog-20118428.post-12397780551875261432014-04-04T12:11:00.002-04:002014-04-04T12:11:56.636-04:00How to Cover the Higher Cost of Food ItemsWe 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.<br />
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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.<br />
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The question is not whether to raise your menu prices. A better question to ask is "How high should I raise my menu prices?"<br />
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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.<br />
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One strategy involves a small increase in a beverage ordered by a high percentage of patrons. <br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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. <br />
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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.<br />
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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.<br />
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<br /><div class="blogger-post-footer">Please send comments to jdunbar401@aol.com</div>Joe Dunbarhttp://www.blogger.com/profile/06851101357991091430noreply@blogger.com0