As operators find more diners in their restaurants, they are seeing major increases in their invoices for food and supplies. Higher prices for food, utilities, gas for vehicles, paper, linen and other supplies are shrinking margins. Can your higher sales numbers offset the rapid rise in food cost?
A 10% rise in your invoices will cost you 3.5% of sales at a 35% previous food cost level.
This may be too much to take if you rely heavily on coupons and discounts to attract patrons. On the other hand, most operators would gladly part with 3.5% of sales to see more revenue. Many of these people will eat the cost increases for some time. They will follow their competition in any price increases. Fearing a drop in business just as they see a pick up, restaurant managers are holding prices in check at many locations.
Is this a good strategy? Happy to have survived the recent bloodbath, many people I speak with are happy to wait the competition out. They quote $5 foot longs, 2 entrees and an appetizer for $20, 2 pizzas for 1 nights, and numerous competitors offering a meal with full service for $9.95. Patrons have downsized from prime steaks to upscale burgers. Burger places are popping up everywhere I go.
If you decide to lead in the price increase game, I would expect your competition to follow pretty quickly. Everyone sees higher prices at the supermarket and gas pump. Many patrons expect increases. By taking the lead, you can set your own pace for price increases.
Showing posts with label strategy. Show all posts
Showing posts with label strategy. Show all posts
Tuesday, April 05, 2011
Wednesday, February 24, 2010
Menu Analysis: Quick Checklist
Do you keep your old menus? If you have a stack somewhere in your office, try to locate the menu from 2004. I would suggest you put your current menu side-by-side and perform the following checklist:
1. Count the number of choices in each major category for both menus. Fewer is better in this environment. If your current menu has more selections in the appetizer and entree zones, make a list of the items added in the last 5 years.
2. How do the prices compare between the two menus? Normal inflation over the 5 year period was low but food commodity markets had tremendous volatility during the oil price boom and bust. Perhaps you have cut menu prices to encourage more customers. Look for the highest and lowest priced entrees and put this information in perspective.
In 2004, proper pricing of the highest priced entree was very important. Diners were spending more 5 years ago. Today, the lowest priced entree is quite important. Many diners are searching for value. You may not be charging enough for your budget selections.
3. Try to remember your previous pricing strategy. Look back 5 years ago and think of your game plan. Were you raising menu prices 10% each year? Maybe 5%. A 10% annual increase will add up to 60% over 5 years. The 5% annual increases amount to 28% over the same 5 years.
If your current prices are looking similar to 5 years ago, your average increase for the 10 year period is about half of the number from the 2004 strategy. Should you bring your costs in line with this new reality? In the short run, most companies have been forced to make drastic cuts. Take a long term view and decide what the future holds for the next 5 years.
In summary, this is a great time to review your most recent 5 years. Sometimes people look at the future through an optimistic lens. Other times (like now), the pessimistic lens is used. By looking at the complete picture, you will see things as a realist.
1. Count the number of choices in each major category for both menus. Fewer is better in this environment. If your current menu has more selections in the appetizer and entree zones, make a list of the items added in the last 5 years.
2. How do the prices compare between the two menus? Normal inflation over the 5 year period was low but food commodity markets had tremendous volatility during the oil price boom and bust. Perhaps you have cut menu prices to encourage more customers. Look for the highest and lowest priced entrees and put this information in perspective.
In 2004, proper pricing of the highest priced entree was very important. Diners were spending more 5 years ago. Today, the lowest priced entree is quite important. Many diners are searching for value. You may not be charging enough for your budget selections.
3. Try to remember your previous pricing strategy. Look back 5 years ago and think of your game plan. Were you raising menu prices 10% each year? Maybe 5%. A 10% annual increase will add up to 60% over 5 years. The 5% annual increases amount to 28% over the same 5 years.
If your current prices are looking similar to 5 years ago, your average increase for the 10 year period is about half of the number from the 2004 strategy. Should you bring your costs in line with this new reality? In the short run, most companies have been forced to make drastic cuts. Take a long term view and decide what the future holds for the next 5 years.
In summary, this is a great time to review your most recent 5 years. Sometimes people look at the future through an optimistic lens. Other times (like now), the pessimistic lens is used. By looking at the complete picture, you will see things as a realist.
Tuesday, January 26, 2010
Get the Facts Straight Before Taking Action
I'm not exactly sure when this recession will hit bottom. Most likely, the bottom will not be remarkably different (economically speaking) than today. The rate of job losses has dropped dramatically from the peak but we are still shedding jobs. Many employers have frozen wages and some have asked employees to take more days off without pay.
All of this belt tightening has made the American consumer afraid to spend money. This is not a completely negative fact of life. When Americans do not spend as much money on non-essential goods and services, the loss of demand drives prices down in the short run. If you were waiting to purchase replacement equipment, furniture, china, glassware, silverware, and kitchen utensils, you should consider making a small investment in the future now.
If you never started a customer loyalty program in the past, you are probably looking at your base clientele in your dining room this month. Patrons who have shunned the bad economy, their New Year's resolutions, volatile weather patterns and the new frugal approach to life here in the states are your fans. Get out in the dining room and say: "Hi! Thanks for joining us tonight. Would you like to join our new frequent dining club?"
January in a recession will often produce a low sales number. If you take the sales figure at the end of January and multiply by 12, you will have an excellent figure for forecasts, budgets and business plans. Could you break even if every month this year looked like this January? If you answer yes, you will make money this year and beyond. If you answer no, you have work to do.
Pretend it is never going to get better than this month. What would you do differently?
By forcing your company to confront the possibility of 2010 staying at the current levels, you will drive your team to innovate. These innovations will provide the path to the future and will create positive cash flow now.
If you are swimming in excess cash, should you open a new location? Like any recession, the market will over correct on the downside. Better days are in the future. If you wanted to open a new location in 2006 and decided to wait, today may be your lucky day. Construction costs have dropped, existing restaurant space is everywhere and experienced professionals are looking for employment.
All of this belt tightening has made the American consumer afraid to spend money. This is not a completely negative fact of life. When Americans do not spend as much money on non-essential goods and services, the loss of demand drives prices down in the short run. If you were waiting to purchase replacement equipment, furniture, china, glassware, silverware, and kitchen utensils, you should consider making a small investment in the future now.
If you never started a customer loyalty program in the past, you are probably looking at your base clientele in your dining room this month. Patrons who have shunned the bad economy, their New Year's resolutions, volatile weather patterns and the new frugal approach to life here in the states are your fans. Get out in the dining room and say: "Hi! Thanks for joining us tonight. Would you like to join our new frequent dining club?"
January in a recession will often produce a low sales number. If you take the sales figure at the end of January and multiply by 12, you will have an excellent figure for forecasts, budgets and business plans. Could you break even if every month this year looked like this January? If you answer yes, you will make money this year and beyond. If you answer no, you have work to do.
Pretend it is never going to get better than this month. What would you do differently?
By forcing your company to confront the possibility of 2010 staying at the current levels, you will drive your team to innovate. These innovations will provide the path to the future and will create positive cash flow now.
If you are swimming in excess cash, should you open a new location? Like any recession, the market will over correct on the downside. Better days are in the future. If you wanted to open a new location in 2006 and decided to wait, today may be your lucky day. Construction costs have dropped, existing restaurant space is everywhere and experienced professionals are looking for employment.
Sunday, January 24, 2010
Alternative Food Cost Benchmarks
Certainly, most restaurants use food cost as a % of sales as a key performance indicator. This week, an anonymous reader asked about tracking food cost in a different environment - a health care facility. He asked if it was advisable to use cost per patient per day in lieu of a percentage. I strongly recommend using the cost per patient day over a percentage benchmark.
In the remote site feeding segment, we tracked all costs per person per day. The advantages to management are greater in labor cost analysis using this method. Food cost generally is variable while labor has both a fixed and a variable component. With long term sales prospects dampened by the recession, tight control has helped many companies survive and prosper.
Is it possible to effectively use per cover cost analysis in a restaurant environment? Many chefs prefer to track menu item performance using gross margin per plate. Since the aim is to make more dollars vs. a higher percentage, they need to take care when analyzing other costs. Direct labor, direct operating expenses and overhead costs should follow suit. If the operation sells higher priced items with relatively high food cost %, the use of cost per cover for non-food expenses is necessary.
Operators should not mix the percentage method with the cost per cover approach.
Consistent use of the per cover method would require a reasonable profit per cover. Use a forecast of covers for the entire year to spread all fixed overhead and profit. In tight economic conditions, it pays to track fixed cost coverage and profit by cover. In addition to cost control, you need to review menu item pricing policy. The popular factor method may not provide you with the edge needed to survive a price war.
The entrees are the best menu items to use for cost coverage. Your entree cost should cover the recipe cost of the item, per cover amounts for direct labor and operating expenses, fixed overhead and profit. If a competitor price war forced you to adjust prices, you would have a clear number for pricing decisions. You could calculate precisely the impact of a penny, dime or dollar move in entree prices.
In the remote site feeding segment, we tracked all costs per person per day. The advantages to management are greater in labor cost analysis using this method. Food cost generally is variable while labor has both a fixed and a variable component. With long term sales prospects dampened by the recession, tight control has helped many companies survive and prosper.
Is it possible to effectively use per cover cost analysis in a restaurant environment? Many chefs prefer to track menu item performance using gross margin per plate. Since the aim is to make more dollars vs. a higher percentage, they need to take care when analyzing other costs. Direct labor, direct operating expenses and overhead costs should follow suit. If the operation sells higher priced items with relatively high food cost %, the use of cost per cover for non-food expenses is necessary.
Operators should not mix the percentage method with the cost per cover approach.
Consistent use of the per cover method would require a reasonable profit per cover. Use a forecast of covers for the entire year to spread all fixed overhead and profit. In tight economic conditions, it pays to track fixed cost coverage and profit by cover. In addition to cost control, you need to review menu item pricing policy. The popular factor method may not provide you with the edge needed to survive a price war.
The entrees are the best menu items to use for cost coverage. Your entree cost should cover the recipe cost of the item, per cover amounts for direct labor and operating expenses, fixed overhead and profit. If a competitor price war forced you to adjust prices, you would have a clear number for pricing decisions. You could calculate precisely the impact of a penny, dime or dollar move in entree prices.
Sunday, December 20, 2009
Managing Sunday Brunch
The number one decision in managing your Sunday Brunch operation is the size of the staff for a given forecast. The staffing should include one or more people at the host stand. If your patrons know each other, you should consider seating people close to one another by opening zones in your dining room. Dining patrons will tend to spend more time in conversations thereby giving their digestive system ample time to send the "I'm full!" signal.
Generally, people will behave differently around their friends and neighbors vs. a crowd of strangers. There are no statistics to back me up but I think they will eat somewhat less if they are surrounded by people they know.
You will also staff the food stations and the dining room. In the dining room, the number of servers will be significantly lower than a typical dinner shift. Most of the service will involve drinks and condiments. One area you should adequately staff are the stations with meat and seafood selections. If you are comfortable letting patrons empty your pans of bacon and sausage, you should at least consider someone who can portion roasts and grilled items.
Some restaurants have a featured item which requires a ticket. Generally, the serving size for this one-time item is generous. The theory is twofold. First, the patron is limited to one generous portion. They will tend to build their experience around this menu item. Second, the portion is generous and will help limit consumption of other menu items.
When we were traveling with my first employer after college, our group always hit a great brunch in a hotel on Sundays. We were allowed to stay on the road vs. flying back home on the weekend. We were loyal to a hotel brunch with three drawing cards: fresh baked rolls, a great salad bar and prime rib (one serving per patron). None of us ever had any room for bacon and sausage. We paid at least 25% more than the local competition charged for the fresh baked goods and the large portion of perfectly cooked prime rib.
I'd recommend a baker in the kitchen if the volume justifies the expense. These pros can put people in your seats. Since many bakers work at night proofing the dough, you could finish the bread and rolls during the shift.
Clearing plates from the table seems to be art form many brunch operators have mastered. If someone is around to offer coffee and suggest a fresh pastry, you could save the expense of seconds at the meat and seafood stations. Placing pastries in conspicuous niches helps to get guests discussing dessert before they even begin their meals. The cost of a coffee and a slice of cake is lower than seconds on shellfish and steak.
Finally, I recommend costing each pan or plate sent from the kitchen. You need to know the cost per serving ahead of time in order to properly orchestrate the brunch in the dining room. If you have a main draw with terrific fresh baked goods, you can still charge a premium and save on mass consumption of ancillary items.
Generally, people will behave differently around their friends and neighbors vs. a crowd of strangers. There are no statistics to back me up but I think they will eat somewhat less if they are surrounded by people they know.
You will also staff the food stations and the dining room. In the dining room, the number of servers will be significantly lower than a typical dinner shift. Most of the service will involve drinks and condiments. One area you should adequately staff are the stations with meat and seafood selections. If you are comfortable letting patrons empty your pans of bacon and sausage, you should at least consider someone who can portion roasts and grilled items.
Some restaurants have a featured item which requires a ticket. Generally, the serving size for this one-time item is generous. The theory is twofold. First, the patron is limited to one generous portion. They will tend to build their experience around this menu item. Second, the portion is generous and will help limit consumption of other menu items.
When we were traveling with my first employer after college, our group always hit a great brunch in a hotel on Sundays. We were allowed to stay on the road vs. flying back home on the weekend. We were loyal to a hotel brunch with three drawing cards: fresh baked rolls, a great salad bar and prime rib (one serving per patron). None of us ever had any room for bacon and sausage. We paid at least 25% more than the local competition charged for the fresh baked goods and the large portion of perfectly cooked prime rib.
I'd recommend a baker in the kitchen if the volume justifies the expense. These pros can put people in your seats. Since many bakers work at night proofing the dough, you could finish the bread and rolls during the shift.
Clearing plates from the table seems to be art form many brunch operators have mastered. If someone is around to offer coffee and suggest a fresh pastry, you could save the expense of seconds at the meat and seafood stations. Placing pastries in conspicuous niches helps to get guests discussing dessert before they even begin their meals. The cost of a coffee and a slice of cake is lower than seconds on shellfish and steak.
Finally, I recommend costing each pan or plate sent from the kitchen. You need to know the cost per serving ahead of time in order to properly orchestrate the brunch in the dining room. If you have a main draw with terrific fresh baked goods, you can still charge a premium and save on mass consumption of ancillary items.
Tuesday, July 07, 2009
Recipe Costing Technique - Plate Cost
Hi Joe.
I hope im posting this in the correct blog.
In order to cover our waste, free bread, staff food, and complimentary items we are planning to add a plate cost to our new recipes to cover these costs. We understand that this will push our selling prices up. My question is as follows:
Do we add the plate cost to the recipe or do we simply raise the selling price by the respective plate cost?
Ray
From a strategic viewpoint, there are many options for menu price revisions. The correct overall solution would need to take other factors into consideration.
I prefer to add the plate cost as a fixed number(vs. a percentage)for each entree. This is a preference not an absolute. Some operations will be better off taking a different approach.
The fixed dollar method will also cover your costs regardless of the entree selling price. You'll receive the same cost coverage whether the selling price is $9.99 or $29.99. This is especially attractive now as consumers are choosing lower priced menu items.
Generally, any amount you add to a selling price as a fixed dollar amount is 100% variable from a cost accounting perspective. As you sell units (in our case entrees), the revenue (and variable cost coverage ) are in sync making your break even point more predictable.
Many companies provide complimentary items and do not provide for these costs in their selling prices. With consumers looking for value, you need to consider competitive threats when you evaluate any price increase decision.
Friday, October 31, 2008
Major Drop In Food Cost
Fall is in full swing and the days are getting shorter in the Northern Hemisphere. Here in the Mid-Atlantic, it is now soup season. Soup sales have a tremendously favorable impact on food cost percentages. There are many ways soup helps the operators.
When I worked in the remote site camps, we always had huge stock kettles full off peelings, bones, trimmings and other bi-products of the prep process. The chefs made highly profitable soups, sauces and gravies with the stock.
Slow cooked roasts and mashed potatoes make a comeback on football game days.
In addition to the favorable seasonal impact, gasoline prices are now in the $2.25 to $2.75 range (down from over $4 per gallon this summer). Lower fuel prices help our industry in many ways.
We should see drops in the fuel surcharges and in the case costs from broad line distributors. Customers will see their disposable income pickup as they pay less for filling their gas tanks.
As corn prices continue lower, we'll enjoy better prices on beef, poultry and pork. These lower prices come to the patient as it is common for beef rib 109 to spike during the Christmas season. Watch the markets for buy signals.
Consumers are looking to save during the week. If you can engineer profitable budget meal options for dining in or for take-out, you'll have an edge.
The stock market just had its best week in years. Some of the people who had their 401K slashed to a 201K will begin to feel better about their retirement years. Hopefully, we'll see less pessimism in the press.
When I worked in the remote site camps, we always had huge stock kettles full off peelings, bones, trimmings and other bi-products of the prep process. The chefs made highly profitable soups, sauces and gravies with the stock.
Slow cooked roasts and mashed potatoes make a comeback on football game days.
In addition to the favorable seasonal impact, gasoline prices are now in the $2.25 to $2.75 range (down from over $4 per gallon this summer). Lower fuel prices help our industry in many ways.
We should see drops in the fuel surcharges and in the case costs from broad line distributors. Customers will see their disposable income pickup as they pay less for filling their gas tanks.
As corn prices continue lower, we'll enjoy better prices on beef, poultry and pork. These lower prices come to the patient as it is common for beef rib 109 to spike during the Christmas season. Watch the markets for buy signals.
Consumers are looking to save during the week. If you can engineer profitable budget meal options for dining in or for take-out, you'll have an edge.
The stock market just had its best week in years. Some of the people who had their 401K slashed to a 201K will begin to feel better about their retirement years. Hopefully, we'll see less pessimism in the press.
Sunday, September 28, 2008
Leveraging Your Investment in Food Cost Control
The current economy presents a once in a lifetime opportunity for the operators who have an effective food cost control system in place. Imagine adding rampant commodity price increases to an out of control food cost mess. Can you picture the meetings in operations with soaring food prices, theft, poor ordering, waste and lousy portion control? Obviously, the managers who were already abusing the lax system will contribute all the bad news to the market conditions.
If you are on top of your costs, you can see the usage variances and the rate variances and put each in perspective. You have an enormous advantage over many of your compeitors. Many operators are avoiding the tough issues and calling attention to the rise in corn prices. Certainly, corn price increases have fueled a quantum leap increase in many food stocks. However, at this time corn prices have been trending lower and many companies are losing money despite menu price increases.
The companies who recognize the opportunity offered by their tight cost controls will prosper in difficult conditions. Look at McDonalds. Their stock is up over 15% in the last 365 days. They have always employed a tight cost control environment. Their perceived menu value and tight cost controls put them in the driver's seat.
Contrast the value menu concepts with the upscale, casual dining segment. How would you like to manage an upscale casual restaurant with the cost of sales completely out of control? Look at the industry press and you will see plenty of failures.
So you are in control. How should you take advantage of the weak competition? I would offer tremendous value to your guests. Use your advantage to make sure the competition isn't even close to making their menu a value proposition. Don't play games with menu prices and don't beg people to come to your restaurant. Let them come for the quality and value. Once the guest arrives, give them lots of extras. Get some buzz going through word of mouth.
Fresh baked rolls and desserts could get rave reviews with a minimal increase in food cost. Take advantage of the perceived major price hike in flour to create a competitive advantage. When bakers are in the news due to high flour prices, you can offer top notch baked goods as a complimentary extra.
I'm just using one example. You know your strengths. Use your tight cost control system as a weapon to win this war. Pick a few of your kitchen's advantages and feature these menu items and extras to defeat your competition.
If you are on top of your costs, you can see the usage variances and the rate variances and put each in perspective. You have an enormous advantage over many of your compeitors. Many operators are avoiding the tough issues and calling attention to the rise in corn prices. Certainly, corn price increases have fueled a quantum leap increase in many food stocks. However, at this time corn prices have been trending lower and many companies are losing money despite menu price increases.
The companies who recognize the opportunity offered by their tight cost controls will prosper in difficult conditions. Look at McDonalds. Their stock is up over 15% in the last 365 days. They have always employed a tight cost control environment. Their perceived menu value and tight cost controls put them in the driver's seat.
Contrast the value menu concepts with the upscale, casual dining segment. How would you like to manage an upscale casual restaurant with the cost of sales completely out of control? Look at the industry press and you will see plenty of failures.
So you are in control. How should you take advantage of the weak competition? I would offer tremendous value to your guests. Use your advantage to make sure the competition isn't even close to making their menu a value proposition. Don't play games with menu prices and don't beg people to come to your restaurant. Let them come for the quality and value. Once the guest arrives, give them lots of extras. Get some buzz going through word of mouth.
Fresh baked rolls and desserts could get rave reviews with a minimal increase in food cost. Take advantage of the perceived major price hike in flour to create a competitive advantage. When bakers are in the news due to high flour prices, you can offer top notch baked goods as a complimentary extra.
I'm just using one example. You know your strengths. Use your tight cost control system as a weapon to win this war. Pick a few of your kitchen's advantages and feature these menu items and extras to defeat your competition.
Saturday, September 20, 2008
Food Cost Control ROI
If you've invested the time and money to build a food cost management system, this year will give you an above average return on investment. The reason your ROI will be higher is the edge may keep you in business. Many of my clients have seen their sales decline from 2007. Certainly, everyone has seen an increase in their cost of sales. Energy costs are soaring and the impact is seen in every delivery.
Management's #1 challenge is to survive 2008. Once a solid short term strategy is in place, the entire organization can work together to meet weekly goals.
In the longer term, many companies will emerge stronger and with fewer genuine competitors. If you follow the industry news, you've seen plenty of failures. Stale concepts and red hot brands have faltered. The future will be quite profitable for companies with profitable business models today.
The ROI from an investment in a food cost management system is greatest now - in a downturn. The reports you see each week give you an edge. This edge could be the difference between a profit and a loss. Reports which show price fluctuations are very useful. While your competition sees higher food cost percentages, you will understand these increases better. Menu analysis and recipe costing tools help with pricing decisions.
What is the impact of a smaller portion option? How are my top 25 items performing this year? If I raise prices, should I do it across the board or on specific menu items? Reports from your food cost system will help to answer these questions.
Some programs have reports with a gross margin analysis. The reports use standard recipes and current purchase prices to calculate gross margin by menu item. The calculation subtracts the recipe cost from the selling price and multiplies the result by the number sold (from your POS system). You can now see where your profits are produced. Menu engineering models use this data to help you with pricing decisions. I like to treat the menu as a portfolio of profit generators.
Purchase history reports will help you see price trends on your high volume items. You may not be in a position to buy differently but you will be able to measure the impact. This information puts you in position to make better decisions.
The perspective of the manager who is armed with a food cost management tool is superior. Your profits will grow tremendously as the economic conditions improve. Your ROI from the investment may just be a solid future for your company.
Management's #1 challenge is to survive 2008. Once a solid short term strategy is in place, the entire organization can work together to meet weekly goals.
In the longer term, many companies will emerge stronger and with fewer genuine competitors. If you follow the industry news, you've seen plenty of failures. Stale concepts and red hot brands have faltered. The future will be quite profitable for companies with profitable business models today.
The ROI from an investment in a food cost management system is greatest now - in a downturn. The reports you see each week give you an edge. This edge could be the difference between a profit and a loss. Reports which show price fluctuations are very useful. While your competition sees higher food cost percentages, you will understand these increases better. Menu analysis and recipe costing tools help with pricing decisions.
What is the impact of a smaller portion option? How are my top 25 items performing this year? If I raise prices, should I do it across the board or on specific menu items? Reports from your food cost system will help to answer these questions.
Some programs have reports with a gross margin analysis. The reports use standard recipes and current purchase prices to calculate gross margin by menu item. The calculation subtracts the recipe cost from the selling price and multiplies the result by the number sold (from your POS system). You can now see where your profits are produced. Menu engineering models use this data to help you with pricing decisions. I like to treat the menu as a portfolio of profit generators.
Purchase history reports will help you see price trends on your high volume items. You may not be in a position to buy differently but you will be able to measure the impact. This information puts you in position to make better decisions.
The perspective of the manager who is armed with a food cost management tool is superior. Your profits will grow tremendously as the economic conditions improve. Your ROI from the investment may just be a solid future for your company.
Saturday, July 19, 2008
A Time To Listen To Your Guests
Whenever the economy turns down and discretionary income declines, the advantage shifts from hot new concepts to established names. The recent strike in Hollywood left many new programs without writers. These shows were just starting to build an audience. The strike put plenty of these shows out of the lineup when the strike ended too late. Previous winners survived.
Our industry is similar and the current downturn certainly hurts the hot start ups with huge recent cash outlays. Established restaurants, hotels, resorts and caterers have had years to help cover their start up investments.
Well established operators need to listen to their guests. Competition is fierce in many markets. This is an opportunity to regain lost market share. Broaden your base by listening to your loyal guests. If you know everyone by name, be sure to ask friends about lost regulars. Try to find out why you lost their loyalty.
I can remember several favorite spots I abandoned over time. Typically, I'm most sensitive to a drop in food quality or service. Some of my friends get tired of a concept due to menu stagnation. This would not be high on my personal list. I like to visit specialty restaurants with highly consistent quality.
I always encourage clients to eliminate dog menu items. However, I admit I stopped dining at a pizzeria in the New York metro area when then removed my favorite pie. This pizza was at the bottom of the printed menu and suffered from name confusion.
They decided to call a thin crust pizza with artichokes, salt cured olives, anchovies, fresh tomatoes, a dusting of cheese, thyme and olive oil - The Sicilian. We loved the pie and were disappointed when they dropped it. I'm sure they had many complaints from patrons expecting a thick crust square pizza with light tomato sauce and an avalanche of shredded mozzarella. When I told the manager he should try to revive the pie using a new name, he blew me off.
I'd go back in a New York minute if they offered this pizza again. They'll never know why I left. I am a silent complainer. Too many fantastic options are available. Many of your steady guests don't complain to management at all. They vote with their feet and go elsewhere.
The unusual nature of general ledger accounting is the inadequacy of the reports for identifying a disastrous week. Imagine your chef quits unexpectedly and you fly solo for a few weeks without a pro at the helm. The sales will not show the impact. Your books will reflect a lower management cost and a slightly higher profit.
In the dining room, patrons expecting the high quality they received in the past will leave disappointed. They may wait too long to receive a mediocre meal. A frustrated waiter informs regulars of the chef's departure. You have a major problem which will take a month or two to show up in the books. Over many years, the repeat of these bad weeks takes its toll.
People who demonstrate pure loyalty to a restaurant know the operation well. They know in advance when key staff members are on vacation. These guests know the nights of the week when their favorite wait staff member is not on duty. They know when to have a drink at the bar before sitting down in the dining room.
Now is a great time to greet and listen to your regulars when they come to your place. Find out what they order and if there is anything which could be done to improve their experience. Focus on consistently pleasing these loyal patrons.
Our industry is similar and the current downturn certainly hurts the hot start ups with huge recent cash outlays. Established restaurants, hotels, resorts and caterers have had years to help cover their start up investments.
Well established operators need to listen to their guests. Competition is fierce in many markets. This is an opportunity to regain lost market share. Broaden your base by listening to your loyal guests. If you know everyone by name, be sure to ask friends about lost regulars. Try to find out why you lost their loyalty.
I can remember several favorite spots I abandoned over time. Typically, I'm most sensitive to a drop in food quality or service. Some of my friends get tired of a concept due to menu stagnation. This would not be high on my personal list. I like to visit specialty restaurants with highly consistent quality.
I always encourage clients to eliminate dog menu items. However, I admit I stopped dining at a pizzeria in the New York metro area when then removed my favorite pie. This pizza was at the bottom of the printed menu and suffered from name confusion.
They decided to call a thin crust pizza with artichokes, salt cured olives, anchovies, fresh tomatoes, a dusting of cheese, thyme and olive oil - The Sicilian. We loved the pie and were disappointed when they dropped it. I'm sure they had many complaints from patrons expecting a thick crust square pizza with light tomato sauce and an avalanche of shredded mozzarella. When I told the manager he should try to revive the pie using a new name, he blew me off.
I'd go back in a New York minute if they offered this pizza again. They'll never know why I left. I am a silent complainer. Too many fantastic options are available. Many of your steady guests don't complain to management at all. They vote with their feet and go elsewhere.
The unusual nature of general ledger accounting is the inadequacy of the reports for identifying a disastrous week. Imagine your chef quits unexpectedly and you fly solo for a few weeks without a pro at the helm. The sales will not show the impact. Your books will reflect a lower management cost and a slightly higher profit.
In the dining room, patrons expecting the high quality they received in the past will leave disappointed. They may wait too long to receive a mediocre meal. A frustrated waiter informs regulars of the chef's departure. You have a major problem which will take a month or two to show up in the books. Over many years, the repeat of these bad weeks takes its toll.
People who demonstrate pure loyalty to a restaurant know the operation well. They know in advance when key staff members are on vacation. These guests know the nights of the week when their favorite wait staff member is not on duty. They know when to have a drink at the bar before sitting down in the dining room.
Now is a great time to greet and listen to your regulars when they come to your place. Find out what they order and if there is anything which could be done to improve their experience. Focus on consistently pleasing these loyal patrons.
Saturday, June 28, 2008
Be A Pillar Of The Community
As you fight through the current economic downturn, try to find simple ways to improve profits. Recent articles suggest the higher cost of living has resulted in diners who tip less and buy fewer extras (double whammy for servers). When your recently seated guests turn down bottled water or another beverage, ask them if they'd like a nice pitcher of ice water.
If you see someone more than twice a week, offer complimentary dessert. Its cheaper than a coupon war.
As a frequent traveler, I often dine alone in off season tourist locations. Since I build inventory control databases, I see these locales at their lowest traffic levels. You get a first hand view of the baseline business. The patrons are very much friends and are treated like royalty. Its not unusual to see a guest jump behind the bar and stand in when the owner takes a restroom break. In return, these friends are often offered a complimentary drink or asked to sample a new menu item.
People in these towns frequent each other's restaurants and there is a strong community feel. The cooperation is viral. When you return to the same towns years later, you will find the core network still in place. Turnover in the other spots is tremendous.
You see this type of cooperation in urban neighborhoods. There are blocks in New York's Greenwich Village or Upper West Side with this spirit. Similar treatment of loyal patrons and other restaurateurs in the neighborhood is evident.
As the folks on Wall Street abandon companies left and right due to missed earnings estimates, now is a great time for independents to focus on their loyal guests. Whether you are a single unit operator or run a growing chain, try to become a part of your community.
There are many major chains who get it. You see their names as sponsors of many charitable events.
These are times when payback comes for Little League sponsorships, your pizza served to the kids on the local swim team, and sending food to the Special Olympics. Encourage your loyal patrons to spread the word to their friends. Let everyone know you want the community to florish.
If you see someone more than twice a week, offer complimentary dessert. Its cheaper than a coupon war.
As a frequent traveler, I often dine alone in off season tourist locations. Since I build inventory control databases, I see these locales at their lowest traffic levels. You get a first hand view of the baseline business. The patrons are very much friends and are treated like royalty. Its not unusual to see a guest jump behind the bar and stand in when the owner takes a restroom break. In return, these friends are often offered a complimentary drink or asked to sample a new menu item.
People in these towns frequent each other's restaurants and there is a strong community feel. The cooperation is viral. When you return to the same towns years later, you will find the core network still in place. Turnover in the other spots is tremendous.
You see this type of cooperation in urban neighborhoods. There are blocks in New York's Greenwich Village or Upper West Side with this spirit. Similar treatment of loyal patrons and other restaurateurs in the neighborhood is evident.
As the folks on Wall Street abandon companies left and right due to missed earnings estimates, now is a great time for independents to focus on their loyal guests. Whether you are a single unit operator or run a growing chain, try to become a part of your community.
There are many major chains who get it. You see their names as sponsors of many charitable events.
These are times when payback comes for Little League sponsorships, your pizza served to the kids on the local swim team, and sending food to the Special Olympics. Encourage your loyal patrons to spread the word to their friends. Let everyone know you want the community to florish.
Monday, April 09, 2007
Market Segmentation - Service Style
The food service industry offers patrons a wide variety of menu choices served with style in many formats. An operator's choice of meal service is an important strategic decision. This strategic decision will impact the target market, price policy, expected food and labor costs and overhead.
QSR Operations
The QSR segment has operations with higher paper costs and lower food cost percentages. These units have limited menu choices, relatively few raw ingredients, more frozen items and many portion control items. Typically, QSR operators experience lower spoilage and waste due to the tight menu focus. In recent years, QSR menu strategy has been dominated by value meal options and upscale fast casual themes.
The value meals are available for breakfast, lunch and dinner. Leveraging the low cost per ounce fountain beverages, the segment has presented customers with a simple order by number order process (well suited to the drive thru patron). Fast casual menus use more fresh ingredients and charge higher prices. Many of the traditional QSR strategy is used including meal pricing, paper and plastic plates and self-service.
Take Out Meals/Delivery
In our neighborhood, there are many casual dining concepts with growing parking space devoted to pickup order customers. Often the dining rooms are nearly empty and the take out window is packed. This meal service style has spread beyond Chinese food, fried chicken and pizza. Delivery cars move through our side streets each night with Thai food, Latin style chicken and steak dinners. The choices multiply if you are near the hotels and inns frequented by business travellers.
Take out and delivery has significant paper and packaging costs. Parking spaces, drive up windows and other structural changes require higher initial outlays. More help is required to take orders and make the deliveries. Wait staff may not be required.
Food cost may improve. Operators know exactly what is placed in each take out order. However, the opportunity for profitable after dinner dessert and beverage sales is lost.
All You Can Eat Buffet
Often the toughest meal service style from a cost control viewpoint is the AYCE buffet. These operations require high volume to offset the cost to stage the initial buffet layout. Savvy buffet veterans use portion control at carving stations and other high cost service stations. I have seen buffet operations with a breakfast/brunch food cost percentage below 25%. Some seafood buffets may run over 50% food cost percentage.
In theory, service labor cost is lower and most of the food cost is fixed before the first guest arrives. High customer counts provide the solution to the profit puzzle.
Cafeteria Service
The corporate dining rooms are fed by queues of guests with trays making selections. They pay the cashier for exactly what they select. There may be two or three meal specials each day for a value price. Many patrons order a sandwich and a snack. They drink tap water or beverages from their office refrigerators. These meals may be subsidized by the company or the entire cost may be charged to the customers. Food cost percentages may run high by design.
Table Service
Dining rooms at many restaurants offer relaxed dress codes and popular ethnic and American grill menus. Patrons come for the ambiance and service. Entree portions are large and meat and seafood dominate.
Service staff are trained to sell appetizers, desserts and after dinner drinks. The talented sales team will announce specials, make suggestions and time the pace of the meal. They may communicate with the host stand to manage the turns and maximize revenue.
Food costs vary depending on the overhead. Restaurateurs who own their property may choose to run a higher food cost percentage and communicate value to the clientele. Major hotel dining rooms may run lower food cost percentages to help offset the higher service labor and overhead.
The well run table service operation depends on excellent communication. When the entire staff functions as a team, these restaurants can deliver a fantastic return on sales. The wait staff has to work to improve the check average. They need to know exactly what items to promote.
QSR Operations
The QSR segment has operations with higher paper costs and lower food cost percentages. These units have limited menu choices, relatively few raw ingredients, more frozen items and many portion control items. Typically, QSR operators experience lower spoilage and waste due to the tight menu focus. In recent years, QSR menu strategy has been dominated by value meal options and upscale fast casual themes.
The value meals are available for breakfast, lunch and dinner. Leveraging the low cost per ounce fountain beverages, the segment has presented customers with a simple order by number order process (well suited to the drive thru patron). Fast casual menus use more fresh ingredients and charge higher prices. Many of the traditional QSR strategy is used including meal pricing, paper and plastic plates and self-service.
Take Out Meals/Delivery
In our neighborhood, there are many casual dining concepts with growing parking space devoted to pickup order customers. Often the dining rooms are nearly empty and the take out window is packed. This meal service style has spread beyond Chinese food, fried chicken and pizza. Delivery cars move through our side streets each night with Thai food, Latin style chicken and steak dinners. The choices multiply if you are near the hotels and inns frequented by business travellers.
Take out and delivery has significant paper and packaging costs. Parking spaces, drive up windows and other structural changes require higher initial outlays. More help is required to take orders and make the deliveries. Wait staff may not be required.
Food cost may improve. Operators know exactly what is placed in each take out order. However, the opportunity for profitable after dinner dessert and beverage sales is lost.
All You Can Eat Buffet
Often the toughest meal service style from a cost control viewpoint is the AYCE buffet. These operations require high volume to offset the cost to stage the initial buffet layout. Savvy buffet veterans use portion control at carving stations and other high cost service stations. I have seen buffet operations with a breakfast/brunch food cost percentage below 25%. Some seafood buffets may run over 50% food cost percentage.
In theory, service labor cost is lower and most of the food cost is fixed before the first guest arrives. High customer counts provide the solution to the profit puzzle.
Cafeteria Service
The corporate dining rooms are fed by queues of guests with trays making selections. They pay the cashier for exactly what they select. There may be two or three meal specials each day for a value price. Many patrons order a sandwich and a snack. They drink tap water or beverages from their office refrigerators. These meals may be subsidized by the company or the entire cost may be charged to the customers. Food cost percentages may run high by design.
Table Service
Dining rooms at many restaurants offer relaxed dress codes and popular ethnic and American grill menus. Patrons come for the ambiance and service. Entree portions are large and meat and seafood dominate.
Service staff are trained to sell appetizers, desserts and after dinner drinks. The talented sales team will announce specials, make suggestions and time the pace of the meal. They may communicate with the host stand to manage the turns and maximize revenue.
Food costs vary depending on the overhead. Restaurateurs who own their property may choose to run a higher food cost percentage and communicate value to the clientele. Major hotel dining rooms may run lower food cost percentages to help offset the higher service labor and overhead.
The well run table service operation depends on excellent communication. When the entire staff functions as a team, these restaurants can deliver a fantastic return on sales. The wait staff has to work to improve the check average. They need to know exactly what items to promote.
Sunday, January 28, 2007
A Lost Opportunity
Peak meal periods are very demanding times for restaurant management and staff. These periods are responsible for the success or failure of a venture. When handled well, profits will soar. Those who treat peak periods as something to endure may be missing enormous profit potential.
During my college years, I worked one summer as a line cook at a fast paced breakfast concept. The job entailed cooking eggs to order on four burners with four egg pans. Each Sunday, the place was mobbed from 10 AM until noon. When the peak hit, orders would get delayed due to the policy of cooking bacon at the last minute. The two owners would fly into the kitchen and begin their version of grill gymnastics trying to speed the process of cooking the bacon.
At the time, I was treated as a know-it-all college kid with zero "real world" smarts. After three weeks, I asked permission to attend the management meeting after an incredibly bad shift. Politely, I suggested the chef should pre-cook several layers of bacon in the oven. This created a huge stir. However, after much discussion regarding why the idea would not work it passed. As a compromise, it was agreed the bacon would be allowed to cook until 3/4 done.
In the weeks to come, I noticed my case of eggs would be nearly wiped out instead of half full as it was before the change. Quick math put the added sales at 144 eggs or 72 orders. Back in the late 1970's, we charged $3 for the popular 2 egg special. The owners rang up $216 in extra revenue and the chef and I were left alone.
Since the staff remained the same, the gross profit of $144 (food cost was 33%) went to the net income line.
Early one Sunday, I asked the chef how long he had worked at the restaurant. He told me he had been there in various positions for over 10 years. I quickly figured the pre-cook approach (taught in my classes to all students) would have put an extra $75,000 into the operation. Looking around at the run down equipment and inadequate refrigerators, I thought this was a huge lost opportunity.
Every operation has some hidden idea which someone on the line can see clearly. Be sure to include the whole team after a particularly chaotic meal period. Great ideas can come from these discussions.
During my college years, I worked one summer as a line cook at a fast paced breakfast concept. The job entailed cooking eggs to order on four burners with four egg pans. Each Sunday, the place was mobbed from 10 AM until noon. When the peak hit, orders would get delayed due to the policy of cooking bacon at the last minute. The two owners would fly into the kitchen and begin their version of grill gymnastics trying to speed the process of cooking the bacon.
At the time, I was treated as a know-it-all college kid with zero "real world" smarts. After three weeks, I asked permission to attend the management meeting after an incredibly bad shift. Politely, I suggested the chef should pre-cook several layers of bacon in the oven. This created a huge stir. However, after much discussion regarding why the idea would not work it passed. As a compromise, it was agreed the bacon would be allowed to cook until 3/4 done.
In the weeks to come, I noticed my case of eggs would be nearly wiped out instead of half full as it was before the change. Quick math put the added sales at 144 eggs or 72 orders. Back in the late 1970's, we charged $3 for the popular 2 egg special. The owners rang up $216 in extra revenue and the chef and I were left alone.
Since the staff remained the same, the gross profit of $144 (food cost was 33%) went to the net income line.
Early one Sunday, I asked the chef how long he had worked at the restaurant. He told me he had been there in various positions for over 10 years. I quickly figured the pre-cook approach (taught in my classes to all students) would have put an extra $75,000 into the operation. Looking around at the run down equipment and inadequate refrigerators, I thought this was a huge lost opportunity.
Every operation has some hidden idea which someone on the line can see clearly. Be sure to include the whole team after a particularly chaotic meal period. Great ideas can come from these discussions.
Wednesday, January 24, 2007
Pretend You Own The Place
Whenever I have a difficult decision, I always take the perspective of the owner. If you're not the owner, pretend you are the owner.
In my early food service management courses at SUNY Cobleskill, we were taught food cost should be 32 or 33% and labor cost should hit between 25 and 27%. If a business could keep consumables at 8 to 10%, their gross profit percentage would be around 32%. The 32% could cover marketing, advertisements, garbage pickup, phones, office supplies, snow removal, licenses, property taxes, mortgage, rent, equipment rental, leasehold improvements, repairs and maintenance, smallwares, pots and pans, linen, interest expenses, accounting, any number of emergencies and a decent net profit.
If you're working in a profitable operation, the team has figured out a way to cover all the expenses and have something left over at weeks end. Perhaps the food cost is 29% and your labor is a little high to prep fresh produce. Maybe your bar operation makes a huge contribution or a busy season bails out a very lean off season. Very few places hit the targets students learn about each year but it's good to keep these targets in mind.
In every complex restaurant, the kitchen uses cooking wine and the bar uses lemons, limes, oranges, onions, olives, celery and other food. The wait staff works slicing cakes and pouring coffee and the kitchen staff produces food for the wait staff to eat each shift. Accountants pour over all the documents and create reports to keep the operation in line with the budget.
When the targets are hit, people calculate bonuses and all is good. Unfortunately, many operations miss their targets and begin a slicing and dicing process on their financial reports. Suddenly critical operating costs become hidden in an allocation jungle. Certain departments falsely believe they are winning some internal game while the overall unit is in decline.
Investors often assign a value to a going concern based on the operating cash flow times a factor. If you have an operation producing $200,000 positive cash flow each year, you'd try to get at least $2,000,000 (ten times) for the business. A failing business is treated like yard sale. Assets are often reduced to their salvage value. Auctioneers sell POS systems, ovens, tables and chairs at pennies on the dollar.
After missing the targets for three straight months, most operators should face the facts. Inventory valuation, allocation of lemons and cooking wine, extra-departmental labor cost credits won't hold the answer to the dilemma. Pretend your the owner and look for the real issues. Don't hide behind allocations.
In my early food service management courses at SUNY Cobleskill, we were taught food cost should be 32 or 33% and labor cost should hit between 25 and 27%. If a business could keep consumables at 8 to 10%, their gross profit percentage would be around 32%. The 32% could cover marketing, advertisements, garbage pickup, phones, office supplies, snow removal, licenses, property taxes, mortgage, rent, equipment rental, leasehold improvements, repairs and maintenance, smallwares, pots and pans, linen, interest expenses, accounting, any number of emergencies and a decent net profit.
If you're working in a profitable operation, the team has figured out a way to cover all the expenses and have something left over at weeks end. Perhaps the food cost is 29% and your labor is a little high to prep fresh produce. Maybe your bar operation makes a huge contribution or a busy season bails out a very lean off season. Very few places hit the targets students learn about each year but it's good to keep these targets in mind.
In every complex restaurant, the kitchen uses cooking wine and the bar uses lemons, limes, oranges, onions, olives, celery and other food. The wait staff works slicing cakes and pouring coffee and the kitchen staff produces food for the wait staff to eat each shift. Accountants pour over all the documents and create reports to keep the operation in line with the budget.
When the targets are hit, people calculate bonuses and all is good. Unfortunately, many operations miss their targets and begin a slicing and dicing process on their financial reports. Suddenly critical operating costs become hidden in an allocation jungle. Certain departments falsely believe they are winning some internal game while the overall unit is in decline.
Investors often assign a value to a going concern based on the operating cash flow times a factor. If you have an operation producing $200,000 positive cash flow each year, you'd try to get at least $2,000,000 (ten times) for the business. A failing business is treated like yard sale. Assets are often reduced to their salvage value. Auctioneers sell POS systems, ovens, tables and chairs at pennies on the dollar.
After missing the targets for three straight months, most operators should face the facts. Inventory valuation, allocation of lemons and cooking wine, extra-departmental labor cost credits won't hold the answer to the dilemma. Pretend your the owner and look for the real issues. Don't hide behind allocations.
Wednesday, December 20, 2006
Strategic Food Cost Issues
Many companies take a serious look at central production. The prospect of better consistency and the opportunity to run larger batches lure too many of these companies into a trap. Recently, I observed the final meetings for a single unit operator expanding to a new commissary with capacity to handle production for 5 additional units. The owner wanted a new control system to handle the increased demands of his expanding business.
Unfortunately, it was far too late to offer my views on commissary construction. The long term lease was signed, construction was nearing completion and heavy equipment installations were in progress.
The new commissary opened and the organization is bleeding red on the bottom line. With the commissary draining funds each month, the chance of starting any of the new units is remote. Break even sales volume seems out of reach despite strong growth. So what went wrong? This was a successful single unit operator enjoying better than average unit volume for the region and decent sales growth.
The strategy here is flawed.
Creating the capacity to handle production for 6 units with only one unit operational is suicide. The new monthly fixed costs are too high, production workers spend too much time walking around the mammoth kitchen. Freezers and walkins designed to handle five times the current volume have raised the monthly utility bills. The fleet of vans has increased to handle movement between locations. Sales barely cover the fixed costs and wages.
Rather than wasting the owner's precious time (he works 16 hour days - 7 days a week), I told him he needs to focus on volume rather than food cost control. His sales are too far below break even to worry about incremental food cost improvement.
I'll be working with a different company in the same region. They just opened a new unit in this hot growth area. Sales are double their average unit volume and the operators are feeling the strain. Fortunately, profits and cash flow are robust.
Unfortunately, it was far too late to offer my views on commissary construction. The long term lease was signed, construction was nearing completion and heavy equipment installations were in progress.
The new commissary opened and the organization is bleeding red on the bottom line. With the commissary draining funds each month, the chance of starting any of the new units is remote. Break even sales volume seems out of reach despite strong growth. So what went wrong? This was a successful single unit operator enjoying better than average unit volume for the region and decent sales growth.
The strategy here is flawed.
Creating the capacity to handle production for 6 units with only one unit operational is suicide. The new monthly fixed costs are too high, production workers spend too much time walking around the mammoth kitchen. Freezers and walkins designed to handle five times the current volume have raised the monthly utility bills. The fleet of vans has increased to handle movement between locations. Sales barely cover the fixed costs and wages.
Rather than wasting the owner's precious time (he works 16 hour days - 7 days a week), I told him he needs to focus on volume rather than food cost control. His sales are too far below break even to worry about incremental food cost improvement.
I'll be working with a different company in the same region. They just opened a new unit in this hot growth area. Sales are double their average unit volume and the operators are feeling the strain. Fortunately, profits and cash flow are robust.
Thursday, July 20, 2006
Market Segmentation - Strategic Focus
In a previous post, Market Segmentation - Best Practices , I reviewed the best practices from seven segments. Each of these segments has a different strategic focus and the differences impact their long range plans.
Hotels
Hotels plan for occupancy levels, REVPAR, banquet event orders and conventions. These operators forecast sales and expenses by departments. In a smaller property, there may be a single kitchen with one or two bars and several banquet rooms. Larger properties have multiple kitchens and many concepts. These huge hotels and resorts often book very large events. They typically have a flexible floor plan for the affairs and book many events simultaneously.
The food and beverage team takes a critical view at each meal period, event, buffet and room service. Plans include departmental level figures for food and beverage revenue, production labor, service labor, banquet labor, bar labor, etc. In addition, all other operating expenses are budgeted by department. Monthly reports compare the actual results to these budget numbers for each operation.
Restaurants
The restaurant wizards take a look at previous year's statistics and focus on covers per meal period, check averages, turns, menu price increases, raw ingredient fluctuations and waitstaff productivity. They use this data to forecast the year ahead. Plans consider old competitors as well as fresh concepts in the market. Pricing strategy depends on profit targets and competitive pressures.
From the comparison of menu prices before and after a factor may be applied to the check averages. Covers per period, turns and any change in the number of seats provide the volume data. For each meal period, a sales forecast is put together using the estimated check averages and the forecast of covers. These figures are summarized by week, month and quarter and become the focus of the budget.
Clubs
Clubs analyze a la carte menus much like a restaurant with a large percentage of sales from regulars. They analyze similar meal period and check average data. Often, banquets and buffets represent a higher percentage of sales than a restaurant. The banquets and buffets are forecasted from a study of previous year's data (often more than one year is examined). Operators forecast start dates and end dates for seasonal clubs and weather may help or hurt them in attaining budget goals.
Provision for staffing is required for the main season and the off-season. Food and beverage revenue and expenses is put in perspective with the members goals. Some clubs seek a break even result from F&B and others expect a small loss. The best F&B operations at major clubs make a positive contribution.
Institutional Caterers
Onsite feeders run a decaying operation along side a growing operation. Since most contracts have a definite termination date, management takes a looks at contract due to expire in the year ahead. Some contracts end when a construction project is completed. If the contract will be renewed in a competitive bid, a probability of success is assigned to the project. Knowledge of the competititor's contract expirations is also critical. Similarly, an estimated probability of taking over each account from the competition is calculated.
The marketing department provides details on new business targets and their estimated probability of success. Each project is defined as hard dollar (profit or loss depends on actual results) or cost plus (all expenses paid plus a fee for management). Total volume affects the amount of overhead required. Cost plus jobs are less risky at the operational level but the documentation of job costs is higher than a hard dollar account.
Institutional caterers break down costs into many categories since the projected margins are slim in relation to revenue. The return on equity is typically much higher than a hotel or restaurant since these operators invest very little in the bricks and mortar.
Markets
The markets I have worked with treat the prepared food section like a restaurant although the top managers use market terminology (for example shrinkage includes normal trim in many markets). Projections are made for each menu category with salad bar, roasters, sandwiches, pizza, prepared entrees, sushi, hot buffets, and bakery fairly typical of a large market. Some markets now allow guests to sit down and consume the meal on the premise and alcoholic beverages may be possible. Service is typically self-serve with trays.
The long term plans reflect the size and scope of the operation. Larger markets prepare figures similar to a food court with a single owner. Projections are calculated for each category but the entire operation usually has only one kitchen with a production staff capable of preparing any food item.
Event Caterers
Banquet event order systems house data banks for the previous year and the events already booked for the future year. Event caterers look at each month or season and visualize the year ahead. If the system has too few events in a normally busy month, they will put more sales and promotion assets to work. Letting a night go dark in a busy period is something they want to avoid.
Focusing on each event as a separate job allows a complex budgeted income statement for all events. These estimates are placed side-by side with the actual figures as the year proceeds. Many event caterers segregate purchases by event. Careful control is exercised over each detail.
Alcohol may be served in a cash bar or open bar format. This is determined for each event and estimates for the bar charge need to be made if the agreement is for a fixed beverage cost per patron.
Race Tracks
Race tracks are large complexes with lots of space for guests to roam and many ways to offer food and beverage. Most tracks offer one or more formal dining areas with wait service. Buffets are offered in many tracks since customers are in a hurry to return to the action. Throughout the entire complex, numerous bars and food outlets serve a variety of menu items in a QSR type environment.
Each kiosk is tracked separately and forecasts are required for these stands. The person in charge of the stand prepares a sheet and accounts for the beginning inventory minus ending inventory with a cash projection and reasons for shortages.
Long range plans account for the projected losses due to theft and poor forecasts. Operators try to limit these losses.
Overview
The long range plans must account for marketing costs, leasehold improvements amortization, rents, mortgage expenses, equipment rentals, depreciation, fleet maintenance, etc. At the heart of each operation, the food and beverage team need to accurately forecast demand. This demand may take the form of special events, rooms occupied, nightly covers, hot dogs per stand times the stand count, REVPAR F&B component, contracts retained, etc. The secret to success in each highly specialized segment is knowing the marketplace. Customer knowledge, competitor intelligence, major events and the weather may have a major impact on the operation from year to year.
Hotels
Hotels plan for occupancy levels, REVPAR, banquet event orders and conventions. These operators forecast sales and expenses by departments. In a smaller property, there may be a single kitchen with one or two bars and several banquet rooms. Larger properties have multiple kitchens and many concepts. These huge hotels and resorts often book very large events. They typically have a flexible floor plan for the affairs and book many events simultaneously.
The food and beverage team takes a critical view at each meal period, event, buffet and room service. Plans include departmental level figures for food and beverage revenue, production labor, service labor, banquet labor, bar labor, etc. In addition, all other operating expenses are budgeted by department. Monthly reports compare the actual results to these budget numbers for each operation.
Restaurants
The restaurant wizards take a look at previous year's statistics and focus on covers per meal period, check averages, turns, menu price increases, raw ingredient fluctuations and waitstaff productivity. They use this data to forecast the year ahead. Plans consider old competitors as well as fresh concepts in the market. Pricing strategy depends on profit targets and competitive pressures.
From the comparison of menu prices before and after a factor may be applied to the check averages. Covers per period, turns and any change in the number of seats provide the volume data. For each meal period, a sales forecast is put together using the estimated check averages and the forecast of covers. These figures are summarized by week, month and quarter and become the focus of the budget.
Clubs
Clubs analyze a la carte menus much like a restaurant with a large percentage of sales from regulars. They analyze similar meal period and check average data. Often, banquets and buffets represent a higher percentage of sales than a restaurant. The banquets and buffets are forecasted from a study of previous year's data (often more than one year is examined). Operators forecast start dates and end dates for seasonal clubs and weather may help or hurt them in attaining budget goals.
Provision for staffing is required for the main season and the off-season. Food and beverage revenue and expenses is put in perspective with the members goals. Some clubs seek a break even result from F&B and others expect a small loss. The best F&B operations at major clubs make a positive contribution.
Institutional Caterers
Onsite feeders run a decaying operation along side a growing operation. Since most contracts have a definite termination date, management takes a looks at contract due to expire in the year ahead. Some contracts end when a construction project is completed. If the contract will be renewed in a competitive bid, a probability of success is assigned to the project. Knowledge of the competititor's contract expirations is also critical. Similarly, an estimated probability of taking over each account from the competition is calculated.
The marketing department provides details on new business targets and their estimated probability of success. Each project is defined as hard dollar (profit or loss depends on actual results) or cost plus (all expenses paid plus a fee for management). Total volume affects the amount of overhead required. Cost plus jobs are less risky at the operational level but the documentation of job costs is higher than a hard dollar account.
Institutional caterers break down costs into many categories since the projected margins are slim in relation to revenue. The return on equity is typically much higher than a hotel or restaurant since these operators invest very little in the bricks and mortar.
Markets
The markets I have worked with treat the prepared food section like a restaurant although the top managers use market terminology (for example shrinkage includes normal trim in many markets). Projections are made for each menu category with salad bar, roasters, sandwiches, pizza, prepared entrees, sushi, hot buffets, and bakery fairly typical of a large market. Some markets now allow guests to sit down and consume the meal on the premise and alcoholic beverages may be possible. Service is typically self-serve with trays.
The long term plans reflect the size and scope of the operation. Larger markets prepare figures similar to a food court with a single owner. Projections are calculated for each category but the entire operation usually has only one kitchen with a production staff capable of preparing any food item.
Event Caterers
Banquet event order systems house data banks for the previous year and the events already booked for the future year. Event caterers look at each month or season and visualize the year ahead. If the system has too few events in a normally busy month, they will put more sales and promotion assets to work. Letting a night go dark in a busy period is something they want to avoid.
Focusing on each event as a separate job allows a complex budgeted income statement for all events. These estimates are placed side-by side with the actual figures as the year proceeds. Many event caterers segregate purchases by event. Careful control is exercised over each detail.
Alcohol may be served in a cash bar or open bar format. This is determined for each event and estimates for the bar charge need to be made if the agreement is for a fixed beverage cost per patron.
Race Tracks
Race tracks are large complexes with lots of space for guests to roam and many ways to offer food and beverage. Most tracks offer one or more formal dining areas with wait service. Buffets are offered in many tracks since customers are in a hurry to return to the action. Throughout the entire complex, numerous bars and food outlets serve a variety of menu items in a QSR type environment.
Each kiosk is tracked separately and forecasts are required for these stands. The person in charge of the stand prepares a sheet and accounts for the beginning inventory minus ending inventory with a cash projection and reasons for shortages.
Long range plans account for the projected losses due to theft and poor forecasts. Operators try to limit these losses.
Overview
The long range plans must account for marketing costs, leasehold improvements amortization, rents, mortgage expenses, equipment rentals, depreciation, fleet maintenance, etc. At the heart of each operation, the food and beverage team need to accurately forecast demand. This demand may take the form of special events, rooms occupied, nightly covers, hot dogs per stand times the stand count, REVPAR F&B component, contracts retained, etc. The secret to success in each highly specialized segment is knowing the marketplace. Customer knowledge, competitor intelligence, major events and the weather may have a major impact on the operation from year to year.
Thursday, July 13, 2006
Planning For Competitive Threats
Any respectable five year plan needs to take a hard look at both the known competitive threats and the possible threats which are not yet obvious. You should start with your main competition. Analyze their current strategies and estimate the impact on revenues in year one. Try to anticipate the outcome and develop a strategic plan for counter-attack.
Porter's five competitive forces is an excellent tool for analyzing competitive forces.
Porter's five competitive forces is an excellent tool for analyzing competitive forces.
Saturday, July 08, 2006
Passion For Long Term Planning
During my corporate life, the chief operating officer for our group was a frequent flyer with a huge territory. He would schedule meetings roughly twice a year although an unannounced visit was possible at any time. One topic was front page in every scheduled visit. Long range planning was his passion. He viewed the company as a "confederacy of entrepreneurs" and encouraged all of his direct reports to view their plans as a contract.
This passion was best manifested in his favorite story. I will do my best to paraphrase his short tale:
"Every one needs to be a good planner. Sometimes managers forget to plan. These managers may lose sight of their vision.
Planning isn't just for managers. Every person in the organization should have a plan. The time period we need to plan for is a function of our position in the company.
A good pot washer has a plan of attack. He needs to organize the pots and pans and setup a sequence of tasks to accomplish his mission. The tasks might include preliminary rinsing, separation of pots which require soaking and scrubbing, washing the easy pots first and then finishing the tough ones after they have soaked.
This pot washer will be much more productive than one who takes one pot at a time and deals with it.
I expect the top managers to have a much longer time horizon than one meal period. We need to forecast years in advance and have a plan to grow. This plan should keep competitive threats in mind. The plan should focus on the discovery of profitable opportunities.
We use five year plans to provide a compass for the future. Our annual budgets provide us with a means of tracking the plan and making changes over time."
We worked on a new five year plan every year. Our budgets were always based on the year 1 numbers from the most recent plan. The budgets of future years would always take into consideration the most recent year's actual results and the original expectations from the five year plan.
These plans were used to evaluate results monthly, quarterly, semi-annually and at year end. A significant portion of executive compensation was tied to performance.
This passion was best manifested in his favorite story. I will do my best to paraphrase his short tale:
"Every one needs to be a good planner. Sometimes managers forget to plan. These managers may lose sight of their vision.
Planning isn't just for managers. Every person in the organization should have a plan. The time period we need to plan for is a function of our position in the company.
A good pot washer has a plan of attack. He needs to organize the pots and pans and setup a sequence of tasks to accomplish his mission. The tasks might include preliminary rinsing, separation of pots which require soaking and scrubbing, washing the easy pots first and then finishing the tough ones after they have soaked.
This pot washer will be much more productive than one who takes one pot at a time and deals with it.
I expect the top managers to have a much longer time horizon than one meal period. We need to forecast years in advance and have a plan to grow. This plan should keep competitive threats in mind. The plan should focus on the discovery of profitable opportunities.
We use five year plans to provide a compass for the future. Our annual budgets provide us with a means of tracking the plan and making changes over time."
We worked on a new five year plan every year. Our budgets were always based on the year 1 numbers from the most recent plan. The budgets of future years would always take into consideration the most recent year's actual results and the original expectations from the five year plan.
These plans were used to evaluate results monthly, quarterly, semi-annually and at year end. A significant portion of executive compensation was tied to performance.
Friday, June 09, 2006
Market Segmentation - Best Practices
Over time, I have observed many segments of the food and beverage service industry. My observations have included hotels, restaurants, clubs, schools, jails, health care facilities, remote sites, markets, event caterers, and race tracks. Without fail, each operation exhibits a specialty when cost of goods sold and inventory control are the focus.
The best practices I've observed do not represent any scientific study and I have no statistics to support my opinions. These are gut feelings which are the result of many years of observations. I hope you find them useful in your organization. Before adding any of these control features to your operation, make sure the cost justifies the benefit.
Hotels
Hotels are typically adept at inventory control and profit center reports. Most hotels have a central receiving area. Movement of product from central locations is tightly controlled using requisitions and transfers. Some hotels implement an approval system with order limits for each purchase category. They setup strict guidelines for approvals.
The best run hotels can tell you how much of each controllable is on hand at a given point in time (by location).
Hotels are frequently buffet shops and many have at least 40% of food sales in banquets and buffets. This high level of buffet activity helps keep waste at a minimum in the well run operations.
Restaurants
The best run restaurants have a focused menu and they know their customers well. Some actually create table profiles and they can quote statistics on average check by meal period, average sales per table by meal period and by wait person. A few top level f&b controllers know table profiles and use these in demand forecasts.
Restaurants tend to be adept at specials and the best do a fantastic job putting extra profits in the cash register. Today's POS systems have a battery of focused sales reports which help managers price menu items and track usage.
Clubs
Clubs are often hybrid operations with both restaurant style service and banquet service. The best clubs do a great job segmenting the two operations. Purchasing demands a knowledge of the entire operation. The best club managers are aware of upcoming events and seasonal restaurant trends. I'll discuss ordering for events below.
The members of any club are the focus and many members are regulars. This fact accounts for a more stable forecast model. Knowing the clients intimately helps to reduce waste caused by over ordering perishables.
Institutional Caterers
At Sodexho, we served clients in remote construction and mining sites, health care, business and industry and education. To a lesser extent, we fed prisoners in a small number of jails. Contract feeders and self-operated institutional accounts are driven by cycle menus. These contract menus specify menu options for each meal period in a four or five week cycle menu. This activity is dominated by firms with highly automated systems for tracking item usage. Brand name items often attract rebate income. Institutional feeders are wizards at setting up rebate programs and monitoring their results.
In my role with Sodexho Canada, I setup rebates for coffee, paper, chemicals and other high volume, rebate sensitive items. These rebates accounted for 2.5% of food purchases.
Some savvy self-op shops establish relationships with manufacturers and generate rebate activity. Even though each single account may not have the typical volume required, buying groups allow these single operations to combine their volume to hit a critical mass.
Institutional food service has two huge advantages: menu is fixed and demand is easily estimated. Sometimes, brutal competition for top accounts places a huge demand on the cost control system. The benefit of this tight control is achieved on contracts gained through less stringent conditions. High profits are bagged through implementation of the same tight control systems.
Markets
Take home food is a fast growing area and the super markets have created special areas to promote this high profit activity. Although these venues may help minimize waste of perishables in the produce, deli and meat aisles, many top market operations produce items in separate facilities with ingredients purchased specifically for this purpose. Like any food and beverage operation, they benefit from larger volume purchases and purchase #10 cans instead of the smaller sizes purchased by super market shoppers.
These operations often use the new outlet to promote higher quality goods and they charge higher prices. The best run operations sell their finished goods to the deli, baked goods area and produce managers. In a complete twist, they supply the market more than they "buy" from the market.
Event Caterers
The event caterers know how many are to be served and the exact menu items required. These operators try to buy just enough to produce the menu for the event with a minimum of waste. Event reports highlight the count, menu items to be served and raw ingredients needed to produce the finished products.
With tight control of purchases and next to nothing purchased for par, low percentage food costs are the norm. Buffets allow these artists to use small leftovers from previous affairs with common starch items and salads.
Race Tracks
I grew up in Saratoga Springs and I worked for Harry M. Stevens. This company was founded by Mr. Stevens when he went to Yankee Stadium and couldn't buy a hot dog. During my college years, HMS was the top concessionaire for many sports facilities and one of the founder's grandchildren married into the Gulden mustard family.
In addition to lots of hot dogs, beer, soda, fries and chips, Saratoga Race Track served an excellent clam chowder, corn on the cob, clams on the half shell and specialty drinks. Concessionaires know their operations well and they plan weeks ahead for major events.
In Saratoga, we have the Travers Stakes race and there are many huge sporting events annually in the country. Now the NASCAR racing circuit produces huge events each weekend. The Triple Crown and Breeders Cup Day are big horse racing events with huge turnouts.
Concessionaires in New York ship employees from Aqueduct in Queens, Belmont Park in Long Island and Upstaters from Saratoga to create well trained staffs ready for these major days.
Overview
Each operator tends to focus on the business model of the particular segment. This focus brings certain specialized strengths into play. It has been my privilege to see so many different segments over the years. I often wonder what food cost percentage could be achieved with the best people from all these diverse areas of the food and beverage universe.
The best practices I've observed do not represent any scientific study and I have no statistics to support my opinions. These are gut feelings which are the result of many years of observations. I hope you find them useful in your organization. Before adding any of these control features to your operation, make sure the cost justifies the benefit.
Hotels
Hotels are typically adept at inventory control and profit center reports. Most hotels have a central receiving area. Movement of product from central locations is tightly controlled using requisitions and transfers. Some hotels implement an approval system with order limits for each purchase category. They setup strict guidelines for approvals.
The best run hotels can tell you how much of each controllable is on hand at a given point in time (by location).
Hotels are frequently buffet shops and many have at least 40% of food sales in banquets and buffets. This high level of buffet activity helps keep waste at a minimum in the well run operations.
Restaurants
The best run restaurants have a focused menu and they know their customers well. Some actually create table profiles and they can quote statistics on average check by meal period, average sales per table by meal period and by wait person. A few top level f&b controllers know table profiles and use these in demand forecasts.
Restaurants tend to be adept at specials and the best do a fantastic job putting extra profits in the cash register. Today's POS systems have a battery of focused sales reports which help managers price menu items and track usage.
Clubs
Clubs are often hybrid operations with both restaurant style service and banquet service. The best clubs do a great job segmenting the two operations. Purchasing demands a knowledge of the entire operation. The best club managers are aware of upcoming events and seasonal restaurant trends. I'll discuss ordering for events below.
The members of any club are the focus and many members are regulars. This fact accounts for a more stable forecast model. Knowing the clients intimately helps to reduce waste caused by over ordering perishables.
Institutional Caterers
At Sodexho, we served clients in remote construction and mining sites, health care, business and industry and education. To a lesser extent, we fed prisoners in a small number of jails. Contract feeders and self-operated institutional accounts are driven by cycle menus. These contract menus specify menu options for each meal period in a four or five week cycle menu. This activity is dominated by firms with highly automated systems for tracking item usage. Brand name items often attract rebate income. Institutional feeders are wizards at setting up rebate programs and monitoring their results.
In my role with Sodexho Canada, I setup rebates for coffee, paper, chemicals and other high volume, rebate sensitive items. These rebates accounted for 2.5% of food purchases.
Some savvy self-op shops establish relationships with manufacturers and generate rebate activity. Even though each single account may not have the typical volume required, buying groups allow these single operations to combine their volume to hit a critical mass.
Institutional food service has two huge advantages: menu is fixed and demand is easily estimated. Sometimes, brutal competition for top accounts places a huge demand on the cost control system. The benefit of this tight control is achieved on contracts gained through less stringent conditions. High profits are bagged through implementation of the same tight control systems.
Markets
Take home food is a fast growing area and the super markets have created special areas to promote this high profit activity. Although these venues may help minimize waste of perishables in the produce, deli and meat aisles, many top market operations produce items in separate facilities with ingredients purchased specifically for this purpose. Like any food and beverage operation, they benefit from larger volume purchases and purchase #10 cans instead of the smaller sizes purchased by super market shoppers.
These operations often use the new outlet to promote higher quality goods and they charge higher prices. The best run operations sell their finished goods to the deli, baked goods area and produce managers. In a complete twist, they supply the market more than they "buy" from the market.
Event Caterers
The event caterers know how many are to be served and the exact menu items required. These operators try to buy just enough to produce the menu for the event with a minimum of waste. Event reports highlight the count, menu items to be served and raw ingredients needed to produce the finished products.
With tight control of purchases and next to nothing purchased for par, low percentage food costs are the norm. Buffets allow these artists to use small leftovers from previous affairs with common starch items and salads.
Race Tracks
I grew up in Saratoga Springs and I worked for Harry M. Stevens. This company was founded by Mr. Stevens when he went to Yankee Stadium and couldn't buy a hot dog. During my college years, HMS was the top concessionaire for many sports facilities and one of the founder's grandchildren married into the Gulden mustard family.
In addition to lots of hot dogs, beer, soda, fries and chips, Saratoga Race Track served an excellent clam chowder, corn on the cob, clams on the half shell and specialty drinks. Concessionaires know their operations well and they plan weeks ahead for major events.
In Saratoga, we have the Travers Stakes race and there are many huge sporting events annually in the country. Now the NASCAR racing circuit produces huge events each weekend. The Triple Crown and Breeders Cup Day are big horse racing events with huge turnouts.
Concessionaires in New York ship employees from Aqueduct in Queens, Belmont Park in Long Island and Upstaters from Saratoga to create well trained staffs ready for these major days.
Overview
Each operator tends to focus on the business model of the particular segment. This focus brings certain specialized strengths into play. It has been my privilege to see so many different segments over the years. I often wonder what food cost percentage could be achieved with the best people from all these diverse areas of the food and beverage universe.
Wednesday, April 05, 2006
The Human Side of Food Cost Control
We ran feeding on large scale construction sites, mines and oil exploration and extraction projects. In our industry, chefs were not ranked by the number of stars or diamonds they received in the press and travel guides. They were very visible and each desirable chef was well known in the industry circles.
The two main criteria for chef selection were previous experience in our segment (with a specific focus on the number of workers served) and the second was ability to hit cost targets.
Often, we had contracts which required union employees. Back in 1981, it was quite possible for a dishwasher to earn $600/week plus fringe benefits. The top chefs could make $2,000/week. On our largest project, we had a team of 3 (Horst, Manfred and Hans - all trained in European hotels) and we rotated them in six week shifts. They were all happy to have one third of the year off.
All three were very capable of meeting or beating our very narrow cost guidelines. They received as much help as they wanted in vendor negotiation and operations research.
It was also common for our employees to save large sums of money and to return home to start a catering company or open a restaurant. When I first went to Alaska, there was a calendar in the room with an X on each day. The prior occupant was off to Harvard having saved money for three years. Not all of our employees were savers. Casino companies ran frequent junkets from Anchorage to Las Vegas and from Edmonton to Reno.
Once in a while, we would lose a key person in the operation and costs would explode. Serving over 2,000 men 5,000 calories per day with steak twice a week for $8/manday presented a challenge few could meet.
Once we lost a baker. Bert returned home to the Bay of Fundy to open a bakery. He was replaced by Mohammed (his right hand man for years) and we hit the site to support the transition team. Fortunately, Bert had done a great job of training and both the client and the GM were thrilled with the new team. A great baker was essential to hitting a cost target since flour and sugar are lower cost ingredients.
When Horst would take his break, the food cost always ticked up 25 cents a manday (our entire billing was based on mandays). This adds up over six weeks with 2,000 men per day($21,000 - if you're keeping score). We were fortunate to have him onsite for half the year. We worked out an agreement with the union to insure his presence during peak periods. The camp would swell to over 4,000 men when the apparatus required cleaning (these shutdowns were always mentioned in tiny Wall Street Journal articles). The oil consortium wanted the production back at peak ASAP.
This one person was worth over $100,000 per year to our company! His contemporaries were excellent. If the entire team had left at once, we would have suffered a $250,000 food cost reversal in a year.
Today's press would never run an article on how a particular chef managed to lower food cost by 6%. In fact, in most of my initial consultations the owners spoke of how high their costs were in relation to volume. Just to be specific, I sent a newsletter to owners of 500 highly rated restaurants (3 stars or diamonds plus).
To me, Horst was a 5 star chef. Manfred and Hans were 4 star chefs. Most of our projects were smaller and were staffed by talented people. Some of these were specialists in projects with less than 100 patrons. They would do the work of two people and save the company significant labor.
Click Here For More Information
The two main criteria for chef selection were previous experience in our segment (with a specific focus on the number of workers served) and the second was ability to hit cost targets.
Often, we had contracts which required union employees. Back in 1981, it was quite possible for a dishwasher to earn $600/week plus fringe benefits. The top chefs could make $2,000/week. On our largest project, we had a team of 3 (Horst, Manfred and Hans - all trained in European hotels) and we rotated them in six week shifts. They were all happy to have one third of the year off.
All three were very capable of meeting or beating our very narrow cost guidelines. They received as much help as they wanted in vendor negotiation and operations research.
It was also common for our employees to save large sums of money and to return home to start a catering company or open a restaurant. When I first went to Alaska, there was a calendar in the room with an X on each day. The prior occupant was off to Harvard having saved money for three years. Not all of our employees were savers. Casino companies ran frequent junkets from Anchorage to Las Vegas and from Edmonton to Reno.
Once in a while, we would lose a key person in the operation and costs would explode. Serving over 2,000 men 5,000 calories per day with steak twice a week for $8/manday presented a challenge few could meet.
Once we lost a baker. Bert returned home to the Bay of Fundy to open a bakery. He was replaced by Mohammed (his right hand man for years) and we hit the site to support the transition team. Fortunately, Bert had done a great job of training and both the client and the GM were thrilled with the new team. A great baker was essential to hitting a cost target since flour and sugar are lower cost ingredients.
When Horst would take his break, the food cost always ticked up 25 cents a manday (our entire billing was based on mandays). This adds up over six weeks with 2,000 men per day($21,000 - if you're keeping score). We were fortunate to have him onsite for half the year. We worked out an agreement with the union to insure his presence during peak periods. The camp would swell to over 4,000 men when the apparatus required cleaning (these shutdowns were always mentioned in tiny Wall Street Journal articles). The oil consortium wanted the production back at peak ASAP.
This one person was worth over $100,000 per year to our company! His contemporaries were excellent. If the entire team had left at once, we would have suffered a $250,000 food cost reversal in a year.
Today's press would never run an article on how a particular chef managed to lower food cost by 6%. In fact, in most of my initial consultations the owners spoke of how high their costs were in relation to volume. Just to be specific, I sent a newsletter to owners of 500 highly rated restaurants (3 stars or diamonds plus).
To me, Horst was a 5 star chef. Manfred and Hans were 4 star chefs. Most of our projects were smaller and were staffed by talented people. Some of these were specialists in projects with less than 100 patrons. They would do the work of two people and save the company significant labor.
Click Here For More Information
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