During the month, three fellow restaurant consultants have contacted me about menu engineering and recipe costing with specific questions regarding Excel. Excel charts do not automatically create the popular four quadrant chart with Stars, Plowhorses, Puzzles and Dogs (or any of the other 4 quadrant variations). I have accomplished this task using a few third party utilities. In my analysis, recipe costing is accomplished using software specifically designed for this purpose.
I consider the POS system Product Mix report the source of the key data. Since menu engineering is concerned with selling price fluctuations, the PMIX report has all essential data (number sold and selling price) except the cost to produce each item. Most POS systems have Excel file export capability. If you are adept at the table look-up formula, you can place the exported data exactly where you need it in your model.
Generally, I use good old data entry to update the recipe costs using the numbers from the software. Once I have the number sold, selling price and recipe cost, the sophisticated menu engineering and analysis reports flow from Excel. The four quadrant chart is not the only report produced. You can use sorts and filters to generate a tremendous amount of valuable information.
Anyone who wants an all-in-one solution for inventory, recipe costing, purchasing, menu engineering and requisitions really needs to invest in a proper solution. Excel tables are famous for errors in formulas and there is no audit trail for your purchases (which feed all cost calculations).
Many people have asked me for a recommendation. I do not own a restaurant and I do not have a laboratory in my office with 20 different recipe costing programs loaded and ready to test. In fact, many of the popular software solutions come out with substantial improvements each year. It would be a full-time effort for anyone to honestly provide this type of service.
Many of the popular solutions target a segment and do a terrific job. FoodTrak moved from a restaurant model to a hotel/resort model around 2000. They added transfers and requisitions to the essential restaurant reports already in the program. The reasons I tend to work mostly with FoodTrak: longevity and optional cost methods. They have been around since 1980 and I started my company in 1990. If you need FIFO cost numbers, you won't find a better solution for the investment. There are other programs in the six figures range which have true FIFO but I am assuming very few of my readers would invest $100,000 plus for a solution.
There are many programs capable of decent reporting using the last cost method. I encourage anyone on a tight budget to start with one of these solutions for recipe costing needs.
Showing posts with label theoretical. Show all posts
Showing posts with label theoretical. Show all posts
Friday, August 27, 2010
Wednesday, July 22, 2009
Q Factor
Chefs love to see a recipe model come together in the final stages. Sole proprietor owners love this stage even more if possible. What's the lure? They see how much it costs to produce the actual menu items with all the trimmings.
The most frequently asked question at this stage goes something like "How do we tell the system our cover costs? Is there a way to enter a Q factor?"
I let them know they should enter all applicable costs to properly cost the menu. The follow up question is actually a lengthy discussion of complimentary items, starch choices depending on the entree choice, most popular options, etc.
I like to create a setup recipe which may be used over and over in every entree selection. My Q factor includes all complimentary items (rolls, butter, ketchup, mustard, soy sauce, salt & pepper, Tabasco sauce, etc.), salad portion, most popular dressing choice, most popular starch choice and the most popular side choice.
The POS system will keep track of the guest selections. If the most popular salad dressing is Blue Cheese and the POS modifier is Ranch, I like to make the recipe for the Ranch modifier equal to 1 portion of Ranch minus 1 portion of Blue Cheese. Since the Q factor already accounted for the Blue Cheese, the reduction of 1 Blue Cheese portion brings the count in line.
What's a typical Q factor in a high end dining room offering rolls, butter, salad, baked potato, more butter, and sour cream? About $3 if you use fresh baked rolls.
The most frequently asked question at this stage goes something like "How do we tell the system our cover costs? Is there a way to enter a Q factor?"
I let them know they should enter all applicable costs to properly cost the menu. The follow up question is actually a lengthy discussion of complimentary items, starch choices depending on the entree choice, most popular options, etc.
I like to create a setup recipe which may be used over and over in every entree selection. My Q factor includes all complimentary items (rolls, butter, ketchup, mustard, soy sauce, salt & pepper, Tabasco sauce, etc.), salad portion, most popular dressing choice, most popular starch choice and the most popular side choice.
The POS system will keep track of the guest selections. If the most popular salad dressing is Blue Cheese and the POS modifier is Ranch, I like to make the recipe for the Ranch modifier equal to 1 portion of Ranch minus 1 portion of Blue Cheese. Since the Q factor already accounted for the Blue Cheese, the reduction of 1 Blue Cheese portion brings the count in line.
What's a typical Q factor in a high end dining room offering rolls, butter, salad, baked potato, more butter, and sour cream? About $3 if you use fresh baked rolls.
Monday, July 13, 2009
Basic Recipe Costing - Part 3
I started my consulting company in 1990 to help food service operators with financial troubles. Finding it difficult to get paid, I started looking for work with companies in better shape. I ran into a local consultant, Bob Kaiser, who said I should work with computers since I had a background in accounting and technology.
My first assignment was with one of Bob's clients. This company had two catering facilities and used Eatec software. The chef had zero success building recipes despite purchasing the The Professional Chef
and the Food for Fifty (12th Edition)
modules.
These add on modules were a huge time killer. I found myself gutting sophisticated recipes for chicken, beef and vegetable stocks and replacing the classic recipes with a package of soup base and a gallon of water. After hours of wasted time, I completely destroyed the chef's preliminary efforts and built the recipes from scratch.
I used the Professional Chef book's approach and started with Mise en Place and Stocks. Then I progressed to Soups and Sauces before starting work on entrees. After a week, I had all the major protein work done. The vegetables, starches, breakfast items, baked goods and desserts went much quicker.
During the project, my wife and I began to refer to this gig as "The $4,000 Mistake" since it consumed over 200 hours and 3 round trips (300 miles each trip) to finish.
The Food For Fifty book has a fantastic first chapter which is a must read for anyone trying this exercise for the first time. They focus on quantity food service and use the perspective of a caterer or institutional food service operator. Recipes all yield 50 portions. I took many of the chef's clippings from Bon Appetit and Gourmet and converted them to the 50 portion yield.
Before you start a project on a recipe costing program, you need to be very well organized. Create an outline. Take the most complex recipe and imagine you are building the database. You will find you need to stop work and create other sub-recipes first since you can't purchase many of the stocks, sauces, mixes and blends called for in the recipe. Each of these components requires a recipe.
These individual components called for by the complex recipes are the building blocks of a successful recipe model.
My first assignment was with one of Bob's clients. This company had two catering facilities and used Eatec software. The chef had zero success building recipes despite purchasing the The Professional Chef
and the Food for Fifty (12th Edition) modules.
These add on modules were a huge time killer. I found myself gutting sophisticated recipes for chicken, beef and vegetable stocks and replacing the classic recipes with a package of soup base and a gallon of water. After hours of wasted time, I completely destroyed the chef's preliminary efforts and built the recipes from scratch.
I used the Professional Chef book's approach and started with Mise en Place and Stocks. Then I progressed to Soups and Sauces before starting work on entrees. After a week, I had all the major protein work done. The vegetables, starches, breakfast items, baked goods and desserts went much quicker.
During the project, my wife and I began to refer to this gig as "The $4,000 Mistake" since it consumed over 200 hours and 3 round trips (300 miles each trip) to finish.
The Food For Fifty book has a fantastic first chapter which is a must read for anyone trying this exercise for the first time. They focus on quantity food service and use the perspective of a caterer or institutional food service operator. Recipes all yield 50 portions. I took many of the chef's clippings from Bon Appetit and Gourmet and converted them to the 50 portion yield.
Before you start a project on a recipe costing program, you need to be very well organized. Create an outline. Take the most complex recipe and imagine you are building the database. You will find you need to stop work and create other sub-recipes first since you can't purchase many of the stocks, sauces, mixes and blends called for in the recipe. Each of these components requires a recipe.
These individual components called for by the complex recipes are the building blocks of a successful recipe model.
Friday, July 10, 2009
Accounting Gets Closer To The Kitchen
This month, I noticed an urgency in 3 restaurant chains which would be out of the question in the past. Top level financial officers have made the dive into inventory control including batch recipe models for work in progress inventory. Calling late at night, I found the CFO of a 35 unit chain in the office working feverishly to get the new database deployed. She was working on recipe costing and linking her recipes to the POS system.
Years ago, restaurant companies needed to be shoved into software systems to get better a handle on their cost of sales. Now, these solutions are ubiquitous. POS vendors throw them in for free to sweeten an offer. Solutions exist in every price range.
I spoke with the Executive Chef of a 6 unit group here in the DC Metro area. He was working on a solution with his brother who works in the accounting department. Each of their concepts has a unique menu and they have finished the first test. Results have exceeded their expectations. The actual food cost has now come down to less than 1% above ideal.
Recessions often force corporate staff to wear different hats.
As these financial people work closely with the chefs, purchasing agents and other key operations people, the reports have to improve. Communications are more focused and everyone has a feel for their counterpart's unique issues.
Years ago, restaurant companies needed to be shoved into software systems to get better a handle on their cost of sales. Now, these solutions are ubiquitous. POS vendors throw them in for free to sweeten an offer. Solutions exist in every price range.
I spoke with the Executive Chef of a 6 unit group here in the DC Metro area. He was working on a solution with his brother who works in the accounting department. Each of their concepts has a unique menu and they have finished the first test. Results have exceeded their expectations. The actual food cost has now come down to less than 1% above ideal.
Recessions often force corporate staff to wear different hats.
As these financial people work closely with the chefs, purchasing agents and other key operations people, the reports have to improve. Communications are more focused and everyone has a feel for their counterpart's unique issues.
Thursday, July 09, 2009
Basic Recipe Costing - Part 2
After you have your item list broken down into purchase units (e.g. case) and inventory units (e.g. #10 can), you can begin to visualize the production process. For each ingredient, make a list of units commonly called in recipes. This will vary depending on how many different recipes use each item.
Three common portion methods for recipe ingredients are weight, volume and count. Meat items are often portioned by weight and count. When portioning by the piece, you may have more than one portion size. A strip steak could be sold in two or three portion sizes. For each portion size, imagine the entire strip will be used. You need to answer a simple question. How many steaks would you expect if you only cut the one size from the strip? Repeat the exercise for each portion size.
Use the average weight for popular random weight items. Generally, each case will always have the same number of large cuts (ribs, strips, loins, etc.). The total case weight will vary. Huge weight variances from the average will impact the number of portions per piece. It helps to keep accurate records of the butchering and fabrication process.
Yields may change from week to week. If you expected a 80% yield for a particular cut and you actually hit a 70% figure, your costs would run higher by over 11%. The variance is due to the poor yield alone. Add a price variance and some spoilage and the gross margin will begin to disappear. Portion control steaks provide operators with a consistent yield - one portion. When deciding to purchase portion control meat, you need to consider the hidden costs. Look at the whole picture including labor, equipment, risk of injury, and poor yield in your comparison.
Items portioned by volume or weight are straight forward. It is helpful to know the common conversion units for each method. Volume is expressed in gallons, quarts, pints, cups, liters, fluid ounces, milliliters, shots, tablespoons, teaspoons and fractions of each. Weight may be expressed in pounds, ounces, kilograms, grams, etc. A #10 can has about 6 pints (96 fluid ounces) and often about 6 pounds. Check all weight to volume relationships.
When developing standards, you may find your specifications are different than some of the excellent books. If you trim your produce quickly, the yield will probably be lower than the expectation. One way to reduce the variance is to portion produce items by the piece. A 24 head case of iceberg lettuce will yield 144 wedges if sliced in six pieces per head. Cutting the heads into larger wedges of four per head would yield only 96 portions.
Think of this step as the recipe model equivalent of the prep process. Having accurate recipe costs depends on accurate unit and yield data. The recipe costing programs will re-cost your recipes over and over as prices change. Spend the time initially to get this critical information correct for your operation. Don't worry about benchmarks for portion size. Use your unique portion sizes in determining the conversions between inventory count units and the units called for in recipes.
Three common portion methods for recipe ingredients are weight, volume and count. Meat items are often portioned by weight and count. When portioning by the piece, you may have more than one portion size. A strip steak could be sold in two or three portion sizes. For each portion size, imagine the entire strip will be used. You need to answer a simple question. How many steaks would you expect if you only cut the one size from the strip? Repeat the exercise for each portion size.
Use the average weight for popular random weight items. Generally, each case will always have the same number of large cuts (ribs, strips, loins, etc.). The total case weight will vary. Huge weight variances from the average will impact the number of portions per piece. It helps to keep accurate records of the butchering and fabrication process.
Yields may change from week to week. If you expected a 80% yield for a particular cut and you actually hit a 70% figure, your costs would run higher by over 11%. The variance is due to the poor yield alone. Add a price variance and some spoilage and the gross margin will begin to disappear. Portion control steaks provide operators with a consistent yield - one portion. When deciding to purchase portion control meat, you need to consider the hidden costs. Look at the whole picture including labor, equipment, risk of injury, and poor yield in your comparison.
Items portioned by volume or weight are straight forward. It is helpful to know the common conversion units for each method. Volume is expressed in gallons, quarts, pints, cups, liters, fluid ounces, milliliters, shots, tablespoons, teaspoons and fractions of each. Weight may be expressed in pounds, ounces, kilograms, grams, etc. A #10 can has about 6 pints (96 fluid ounces) and often about 6 pounds. Check all weight to volume relationships.
When developing standards, you may find your specifications are different than some of the excellent books. If you trim your produce quickly, the yield will probably be lower than the expectation. One way to reduce the variance is to portion produce items by the piece. A 24 head case of iceberg lettuce will yield 144 wedges if sliced in six pieces per head. Cutting the heads into larger wedges of four per head would yield only 96 portions.
Think of this step as the recipe model equivalent of the prep process. Having accurate recipe costs depends on accurate unit and yield data. The recipe costing programs will re-cost your recipes over and over as prices change. Spend the time initially to get this critical information correct for your operation. Don't worry about benchmarks for portion size. Use your unique portion sizes in determining the conversions between inventory count units and the units called for in recipes.
Wednesday, July 01, 2009
Basic Recipe Costing - Part1
You may have lots of cookbooks, proprietary recipes, books with food yield statistics, market data, shopping lists, inventory count sheets, supplier quotes, product mix reports, quarterly tracking reports and other documents. A professional recipe model should be designed to integrate all of this useful information. The person working on this project needs to wear many hats: purchasing agent, steward, prep cook, line cook, and chef.
Rather than using a cookbook approach, start with your shopping lists. Use your shopping lists to create a spreadsheet with all your ingredients. Make columns for the name, category, primary supplier, purchase unit, storage area and storage unit.
Since the unit you purchase is used on orders, this is our starting point. It's helpful to know your alternate sources for each ingredient. You may want to categorize each item by the storage method. For example, frozen, refrigerated, dry bulk, canned goods, frozen goods, baked goods, etc. Feel free to add these columns. Its impossible to get too much information for your ingredient list.
[We'll eventually need to know the usage units for each ingredient and portion information. This will be discussed in Part2 (later this month).]
Once the list begins to come together, envision the flow for each item from loading dock to the table. Most items are purchased by the case and are stored as purchased. Some items are immediately transformed into other items through fabrication. Visualize the process of moving from the purchased unit of measure to the storage unit of measure first.
You may simply remove six #10 cans from a case and place the cans in a rack. The purchase unit is case and the storage unit is a #10 can. Focus on the storage unit and the divisor (6 in our example). Breaking down every item you purchase into logical storage units is one of the most important steps in creating a professional recipe costing model.
Each #10 can is valued at 1/6 of the case cost. Don't worry about the actual cost of each can. Focus on the number of storage units in each purchase unit.
Our work will eventually involve many calculations using units of measure, various blends, yield formulas, conversions, reciprocals and standard portion data. The simple exercise of developing a purchase unit to storage unit model is the ideal starting point. Once you complete this exercise, future conversion work will be more intuitive.
Rather than using a cookbook approach, start with your shopping lists. Use your shopping lists to create a spreadsheet with all your ingredients. Make columns for the name, category, primary supplier, purchase unit, storage area and storage unit.
Since the unit you purchase is used on orders, this is our starting point. It's helpful to know your alternate sources for each ingredient. You may want to categorize each item by the storage method. For example, frozen, refrigerated, dry bulk, canned goods, frozen goods, baked goods, etc. Feel free to add these columns. Its impossible to get too much information for your ingredient list.
[We'll eventually need to know the usage units for each ingredient and portion information. This will be discussed in Part2 (later this month).]
Once the list begins to come together, envision the flow for each item from loading dock to the table. Most items are purchased by the case and are stored as purchased. Some items are immediately transformed into other items through fabrication. Visualize the process of moving from the purchased unit of measure to the storage unit of measure first.
You may simply remove six #10 cans from a case and place the cans in a rack. The purchase unit is case and the storage unit is a #10 can. Focus on the storage unit and the divisor (6 in our example). Breaking down every item you purchase into logical storage units is one of the most important steps in creating a professional recipe costing model.
Each #10 can is valued at 1/6 of the case cost. Don't worry about the actual cost of each can. Focus on the number of storage units in each purchase unit.
Our work will eventually involve many calculations using units of measure, various blends, yield formulas, conversions, reciprocals and standard portion data. The simple exercise of developing a purchase unit to storage unit model is the ideal starting point. Once you complete this exercise, future conversion work will be more intuitive.
Sunday, May 11, 2008
Food Cost and Portion Size
Would your restaurant guests welcome smaller portion sizes for a similar check average? After a week on the road dining out each day, I believe the answer is yes. The weakening economy and rising commodity costs have everyone talking about costs.
Before the trip, I ran a few errands. After picking my car up from the garage, getting a haircut, filling the gas tank and picking up some groceries, I was out over $200. My mother spent the better part of $20 stopping for milk, bread, eggs and produce. Costs for gas and every day staples have skyrocketed. People across the country are tightening their budgets and cutting out many extras.
My brother likes to go out to eat each week and has shifted from weekends to mid-week. He mentioned a recent check for $93 for a simple steak dinner for 2 with a couple beers. The portion size was huge and he would have been happy with 25% less meat. The excellent bread basket and great salad (included with the meal) would have been perfect with a smaller steak.
I paid a visit to an old friend who owns a pub. One of the waiters joined the discussion with the restaurant owner. He mentioned his tip income was down. His diners are spending less and ordering fewer extras. The tip percentage is lower and the number of diners has dropped. He now works with the guests to deliver a satisfying meal within their budget.
I brought up the portion size issue at each meal. The unanimous opinion is today's portion sizes are too large. We asked one waitress if there was a smaller rib eye steak option. She checked with the kitchen and explained the meat was pre-portioned for the menu item. They could have served us 1/6 less meat for the same price. With no refrigerator at the hotel, we left between 2 and 3 ounces on our plates.
In New York's Grand Central Station, I sat next to a couple splitting an omelet at breakfast. They ordered the special with a second cup of coffee and left satisfied. A diner nearby left 1/3 of his omelet uneaten. With the heightened awareness of dietary cholesterol, most people would appreciate a two egg option.
If your patrons were served smaller portion sizes at the current menu prices, your food cost would decline for the same sales level. This strategy may achieve better guest retention than a 10% menu price increase. Timid menu planners may want to assemble these smaller portions on a single page "Value Menu" to properly gauge popularity.
Before the trip, I ran a few errands. After picking my car up from the garage, getting a haircut, filling the gas tank and picking up some groceries, I was out over $200. My mother spent the better part of $20 stopping for milk, bread, eggs and produce. Costs for gas and every day staples have skyrocketed. People across the country are tightening their budgets and cutting out many extras.
My brother likes to go out to eat each week and has shifted from weekends to mid-week. He mentioned a recent check for $93 for a simple steak dinner for 2 with a couple beers. The portion size was huge and he would have been happy with 25% less meat. The excellent bread basket and great salad (included with the meal) would have been perfect with a smaller steak.
I paid a visit to an old friend who owns a pub. One of the waiters joined the discussion with the restaurant owner. He mentioned his tip income was down. His diners are spending less and ordering fewer extras. The tip percentage is lower and the number of diners has dropped. He now works with the guests to deliver a satisfying meal within their budget.
I brought up the portion size issue at each meal. The unanimous opinion is today's portion sizes are too large. We asked one waitress if there was a smaller rib eye steak option. She checked with the kitchen and explained the meat was pre-portioned for the menu item. They could have served us 1/6 less meat for the same price. With no refrigerator at the hotel, we left between 2 and 3 ounces on our plates.
In New York's Grand Central Station, I sat next to a couple splitting an omelet at breakfast. They ordered the special with a second cup of coffee and left satisfied. A diner nearby left 1/3 of his omelet uneaten. With the heightened awareness of dietary cholesterol, most people would appreciate a two egg option.
If your patrons were served smaller portion sizes at the current menu prices, your food cost would decline for the same sales level. This strategy may achieve better guest retention than a 10% menu price increase. Timid menu planners may want to assemble these smaller portions on a single page "Value Menu" to properly gauge popularity.
Thursday, April 24, 2008
Smaller Portions or Higher Prices?
We bought a loaf of fresh baked whole grain bread at a local bakery today. Something about the loaf was different. This loaf was about the same dimension as the loaves purchased previously from the same bakery. The price was the same. The difference became apparent when holding the loaf in my hand. The weight was different - much lighter. I'm guessing they shrunk the loaf between 15 and 20% by weight.
Flour prices have been increasing significantly during the last year. The operator decided to hold prices steady and shrink the portion size. In my opinion, the change in portion size will be perceived by most of the patrons. I love the bread and I'll continue my long term loyalty. Six bucks for a great, but lighter, loaf of bread.
The bakery definitely had fewer employees today. The store traffic seemed slightly less than I remember. I'm guessing the staff has been cut 25% and the number of patrons is down 10%. If I'm close, sales are down 10% (same price per loaf), cost of goods sold are up 5 to 10% (even with the smaller portion) and labor cost has dropped 25%.
Will the patrons remain loyal given the lighter loaves? Possibly. Would they be happier with the same size loaves and higher prices? I'm not sure they would prefer the higher prices. Maybe the baker has struck the right balance for his clientele. He's always at the bakery and he knows many patrons by name. He talks with lots of people and he has a decent read on our local economy.
Whether you try smaller portions or higher menu prices, this may not be the time to do both.
Flour prices have been increasing significantly during the last year. The operator decided to hold prices steady and shrink the portion size. In my opinion, the change in portion size will be perceived by most of the patrons. I love the bread and I'll continue my long term loyalty. Six bucks for a great, but lighter, loaf of bread.
The bakery definitely had fewer employees today. The store traffic seemed slightly less than I remember. I'm guessing the staff has been cut 25% and the number of patrons is down 10%. If I'm close, sales are down 10% (same price per loaf), cost of goods sold are up 5 to 10% (even with the smaller portion) and labor cost has dropped 25%.
Will the patrons remain loyal given the lighter loaves? Possibly. Would they be happier with the same size loaves and higher prices? I'm not sure they would prefer the higher prices. Maybe the baker has struck the right balance for his clientele. He's always at the bakery and he knows many patrons by name. He talks with lots of people and he has a decent read on our local economy.
Whether you try smaller portions or higher menu prices, this may not be the time to do both.
Saturday, December 29, 2007
Explosive Recipe Models
Once you have decided on a menu theme, suppliers, a production team and specific menu items, it's time to develop standard recipes. Your recipes should be clear and well illustrated. It helps to take the view of a line cook when crafting plate recipes. Batch recipes are a different breed. If you want to completely understand your operation, I recommend you spend most of your time on batch production recipes.
Basic prep activities should be carefully observed. Actual yields need to be compared to industry standards. Stocks are great for using the trim from your prep items. It's OK to assign the stock a zero cost for the usable trim. Some chefs like to give a credit for trim used in stocks when calculating the prep yields for the primary purpose. If you use this approach, you'll need to monitor the cost of the stock.
Secondary production activities include setups, mixes, sauces, stews, soups, portion cuts and other line items. If you build an explosive recipe model, you can save lots of time later if you need to make changes to your menu.
For example, a pizzeria could have a pizza sauce recipe, a pizza dough recipe, a standard weight for the shredded cheese and olive oil. A pizza setup would include 1 dough ball, 1 standard ladle of sauce, a standard portion of shredded cheese and the standard amount of oil. For a simple cheese pizza, the plate recipe could simply include 1 pizza setup. Pizzas with toppings could use 1 pizza setup and one or more topping portions.
Let's say you decide to change the shredded cheese mix and portion size. Instead of rebuilding every finished pizza recipe, you could simply change the one recipe for the shredded cheese portion. This change then explodes through the entire list of pizza recipes. Since the pizza setup is tied to each pizza and the setup includes the shredded cheese portion, you have updated the entire model with one change.
In addition to my 100% free Food Cost Control Blog, I have started a second resource which will be offered for a limited time for $100 per year. This online resource will include many posts like Slow Day vs. Busy Day. These articles will not be typical on the free blog. I'll be posting the following articles in the Linear Regression Techniques Group this month over in the new area:
Slow Day vs. Busy Day, Peak vs. Off-Peak, Manning Chart Analysis, Baseline Sales Projections, and Flexible Teams. Click below to join!
Click Here For More Information
Basic prep activities should be carefully observed. Actual yields need to be compared to industry standards. Stocks are great for using the trim from your prep items. It's OK to assign the stock a zero cost for the usable trim. Some chefs like to give a credit for trim used in stocks when calculating the prep yields for the primary purpose. If you use this approach, you'll need to monitor the cost of the stock.
Secondary production activities include setups, mixes, sauces, stews, soups, portion cuts and other line items. If you build an explosive recipe model, you can save lots of time later if you need to make changes to your menu.
For example, a pizzeria could have a pizza sauce recipe, a pizza dough recipe, a standard weight for the shredded cheese and olive oil. A pizza setup would include 1 dough ball, 1 standard ladle of sauce, a standard portion of shredded cheese and the standard amount of oil. For a simple cheese pizza, the plate recipe could simply include 1 pizza setup. Pizzas with toppings could use 1 pizza setup and one or more topping portions.
Let's say you decide to change the shredded cheese mix and portion size. Instead of rebuilding every finished pizza recipe, you could simply change the one recipe for the shredded cheese portion. This change then explodes through the entire list of pizza recipes. Since the pizza setup is tied to each pizza and the setup includes the shredded cheese portion, you have updated the entire model with one change.
In addition to my 100% free Food Cost Control Blog, I have started a second resource which will be offered for a limited time for $100 per year. This online resource will include many posts like Slow Day vs. Busy Day. These articles will not be typical on the free blog. I'll be posting the following articles in the Linear Regression Techniques Group this month over in the new area:
Slow Day vs. Busy Day, Peak vs. Off-Peak, Manning Chart Analysis, Baseline Sales Projections, and Flexible Teams. Click below to join!
Click Here For More Information
Wednesday, December 12, 2007
Recipes And Cost Accounting
Variance reports help cost accountants identify unprofitable production and service activities. If your dinner house served a 1 pound steak for $30 and the meat costs $6 and sides run another $1.50, your margin is $22.50. That's a profit margin of 75%.
Meat prices vary over time and the 1 pound steak can go as low as $4.50 and as high as $7.50. This rate variance has a huge impact on your profits. At $4.50 per pound, marginal profit soars to $24 or 80%. It gets tough to pay the rent for your high profile location when higher priced meat hits the loading dock. Your margin drops to $21 or 70% at the $7.50 per pound level.
In this example, our standard price per pound is $6. If our example steak accounted for 40% of dinner business, how do we measure the impact of a price increase? Using this standard rate, we will run a cost of sales of 25% on this menu item. A $1.50 rise in the cost per pound will run the cost of sales up to 30%. Since this 5% increase has a 40% impact value, this one ingredient - a 1 pound steak - is responsible for a 2% increase in the overall food cost.
Rate variances on key items have a major impact on your results. These variances may be difficult to control. Major steak chains use futures and options to reduce the risk. Minimum future requirements eliminate this option for most operators.
The industry has become focused on the usage variance since the degree of control is higher. If you sell 1,000 of these steaks a week and you closely track usage, you may experience a usage variance of 10%. Instead of using 1,000 pounds of steak, you needed 1,100 pounds. At the $6 standard cost per pound, the usage variance costs $600. Repeat this performance for 50 straight weeks and you'll be missing $30,000 of profit. Your food cost percentage for the steak will soar by 2%. Looking at the entire food cost percentage, this unfavorable variance has a 0.8% impact.
Imagine a week with the same usage variance combined with the big rate variance. The impact of serving the $7.50 per pound meat and an extra 100 steaks is $2,250. The extra steaks cost $750 and the extra $1.50 per pound on the 1,000 standard is $1,500.
Companies using variance reports wisely tend to eliminate usage problems faster. These same companies isolate key items and develop an effective purchasing strategy. Their competitors tend to run rambling meetings when food cost numbers are high. Inventory counts and extensions become their focus. In the long run, you won't solve a usage variance or a price variance through inventory value manipulation.
Meat prices vary over time and the 1 pound steak can go as low as $4.50 and as high as $7.50. This rate variance has a huge impact on your profits. At $4.50 per pound, marginal profit soars to $24 or 80%. It gets tough to pay the rent for your high profile location when higher priced meat hits the loading dock. Your margin drops to $21 or 70% at the $7.50 per pound level.
In this example, our standard price per pound is $6. If our example steak accounted for 40% of dinner business, how do we measure the impact of a price increase? Using this standard rate, we will run a cost of sales of 25% on this menu item. A $1.50 rise in the cost per pound will run the cost of sales up to 30%. Since this 5% increase has a 40% impact value, this one ingredient - a 1 pound steak - is responsible for a 2% increase in the overall food cost.
Rate variances on key items have a major impact on your results. These variances may be difficult to control. Major steak chains use futures and options to reduce the risk. Minimum future requirements eliminate this option for most operators.
The industry has become focused on the usage variance since the degree of control is higher. If you sell 1,000 of these steaks a week and you closely track usage, you may experience a usage variance of 10%. Instead of using 1,000 pounds of steak, you needed 1,100 pounds. At the $6 standard cost per pound, the usage variance costs $600. Repeat this performance for 50 straight weeks and you'll be missing $30,000 of profit. Your food cost percentage for the steak will soar by 2%. Looking at the entire food cost percentage, this unfavorable variance has a 0.8% impact.
Imagine a week with the same usage variance combined with the big rate variance. The impact of serving the $7.50 per pound meat and an extra 100 steaks is $2,250. The extra steaks cost $750 and the extra $1.50 per pound on the 1,000 standard is $1,500.
Companies using variance reports wisely tend to eliminate usage problems faster. These same companies isolate key items and develop an effective purchasing strategy. Their competitors tend to run rambling meetings when food cost numbers are high. Inventory counts and extensions become their focus. In the long run, you won't solve a usage variance or a price variance through inventory value manipulation.
Wednesday, December 05, 2007
Basic Recipe Costing
The majority of operations I start work with do not have an operations manual. These same operators have no formal training for new hires. If you start as a line cook, you take verbal orders for most activities. The restaurant will not provide you with standard recipes. There are no photos of the production action and no information regarding weights and sizes.
When we try to develop recipe standards, I ask the manager to treat me as a newly hired line cook. I want these clients to explain in straight language exactly what they expect me to do when I cook. Do I measure? Are all the necessary sauces and prepped items available on the line? Which ladle do I use for each sauce? Most of my questions involve measurement and prepped items.
Over time, I have learned how to take almost any menu and determine what needs to be prepped ahead of time. Feed me some POS product mix data and I can start to prioritize my work. If you take the time to go through your own menu and ask simple questions, you'll come up with a comprehensive list of batch recipes which need to be created first. This task takes some time to get comfortable with but it is critical to success.
A bad place to start is often the most commonly selected menu item for recipe costing - soup of the day. Soups are often on top of most menus. This soup du jour recipe could easily take days of work to complete. There are many choices and it's unlikely the POS system archives the specific soup du jour details. It is literally many soups with complex recipes involving stocks, mise en place, etc. Then you need to weight each recipe by sales data to properly estimate the recipe cost.
Start with your entrees. Be very specific about how the center of the plate choices go from cases of raw ingredients onto the plate going out to your dining room. Do you portion by cooked weight, pre-cooked weight, portion control item, ladle or piece (rack, steak, thigh, breast, etc.)? Is there a portion control system in place to ensure consistency for both the guest and the accounting staff? You can't spend enough time in this area. This is where the major decisions are made in any recipe costing exercise.
Be prepared for the entrees to run a cost of goods sold higher than your actual food cost %. If you have a 35% food cost percentage, you may see the entrees coming in at 40%. The reason the entrees run higher than the food cost percentage is the beverages typically have portion costs far below the overall percentage. Sales of beverages are made in higher volumes than the sale of entrees. These profitable items will help to lower the overall percentage.
Chefs will get involved once they see you are factoring sides, bread and butter, garnishes, etc. into the total cost of these entrees. They have been correctly trained to price entrees to cover all these costs. In addition, they may correctly point out entrees with a high food cost percentage can produce superior gross margins (in terms of dollars). As you gain the support of the kitchen staff in your exercise, please have them proceed to cost any side, starch, bread, roll, garnish and condiment needed to serve each entree. This is the second area of focus.
Maintain a tight focus on the production and service of center of the plate items. You will find a high percentage of purchase volume is devoted to the raw ingredients needed to produce these entree items.
When we try to develop recipe standards, I ask the manager to treat me as a newly hired line cook. I want these clients to explain in straight language exactly what they expect me to do when I cook. Do I measure? Are all the necessary sauces and prepped items available on the line? Which ladle do I use for each sauce? Most of my questions involve measurement and prepped items.
Over time, I have learned how to take almost any menu and determine what needs to be prepped ahead of time. Feed me some POS product mix data and I can start to prioritize my work. If you take the time to go through your own menu and ask simple questions, you'll come up with a comprehensive list of batch recipes which need to be created first. This task takes some time to get comfortable with but it is critical to success.
A bad place to start is often the most commonly selected menu item for recipe costing - soup of the day. Soups are often on top of most menus. This soup du jour recipe could easily take days of work to complete. There are many choices and it's unlikely the POS system archives the specific soup du jour details. It is literally many soups with complex recipes involving stocks, mise en place, etc. Then you need to weight each recipe by sales data to properly estimate the recipe cost.
Start with your entrees. Be very specific about how the center of the plate choices go from cases of raw ingredients onto the plate going out to your dining room. Do you portion by cooked weight, pre-cooked weight, portion control item, ladle or piece (rack, steak, thigh, breast, etc.)? Is there a portion control system in place to ensure consistency for both the guest and the accounting staff? You can't spend enough time in this area. This is where the major decisions are made in any recipe costing exercise.
Be prepared for the entrees to run a cost of goods sold higher than your actual food cost %. If you have a 35% food cost percentage, you may see the entrees coming in at 40%. The reason the entrees run higher than the food cost percentage is the beverages typically have portion costs far below the overall percentage. Sales of beverages are made in higher volumes than the sale of entrees. These profitable items will help to lower the overall percentage.
Chefs will get involved once they see you are factoring sides, bread and butter, garnishes, etc. into the total cost of these entrees. They have been correctly trained to price entrees to cover all these costs. In addition, they may correctly point out entrees with a high food cost percentage can produce superior gross margins (in terms of dollars). As you gain the support of the kitchen staff in your exercise, please have them proceed to cost any side, starch, bread, roll, garnish and condiment needed to serve each entree. This is the second area of focus.
Maintain a tight focus on the production and service of center of the plate items. You will find a high percentage of purchase volume is devoted to the raw ingredients needed to produce these entree items.
Saturday, September 29, 2007
The Focal Point
Have you ever gone to a restaurant with two or more food service operators? I really enjoy these occasions. The insights are incredible. We're talking major critique on staff, cleanliness, speed of service, quality of food and many other insightful comments.
While these friends of mine carve up the dining room, I tend to focus on consistency. I watch nearby tables and see what is popular. I'll almost always go with the crowd at a new restaurant. Once I get my order, I'm evaluating the portion size just as critically as the quality of the food. Specifically, I want to know if I received either a bigger or a smaller portion than the norm.
One classic restaurant experience comes to mind. I invited a friend to a popular pub on a Friday. The pub specialized in seafood. He ordered sole and he never stopped talking about the fantastic experience for the next month. He was surprised at the generous portion size and the top quality preparation. In the many conversations he had with his friends, he highly recommended the pub. Let's put the experience in focus: we're talking about a beautiful 12 ounce portion of fresh Atlantic flounder broiled to perfection.
When we all went out about a month later, he insisted on returning to the pub. He ordered the same entree. This time he really received lemon sole. The pub offered a completely different presentation using 7 ounces of thin filet of sole in a lemon sauce. They lost a customer on the spot. He ate the sole and he even commented on the well prepared lemon sauce. The reason they lost his business was consistency.
The switch from a large 12 ounce portion of flounder to a petite 7 ounce portion of sole changed his mind. The focal point was the center of the plate entree. All the other meal components were fantastic. The generous salad with top notch house dressing was a winner. All classic sides of slaw and fries were prepared well and fit the entree perfectly. The negative buzz caused by the entree swap completely cancelled all the previous word of mouth promotion.
My friend never returned to the pub. He called all of his friends and told them of the switch. He is not a food service professional. He is a radiologist.
I can remember a discussion I had with my boss years 20 ago. We were changing a menu to highlight seasonal favorites. He said you have to be careful what you offer the customers. Its difficult to take away something once the expectation has been established.
Despite well executed meals on two occasions, this restaurant lost a potential frequent diner and created bad word of mouth exposure.
While these friends of mine carve up the dining room, I tend to focus on consistency. I watch nearby tables and see what is popular. I'll almost always go with the crowd at a new restaurant. Once I get my order, I'm evaluating the portion size just as critically as the quality of the food. Specifically, I want to know if I received either a bigger or a smaller portion than the norm.
One classic restaurant experience comes to mind. I invited a friend to a popular pub on a Friday. The pub specialized in seafood. He ordered sole and he never stopped talking about the fantastic experience for the next month. He was surprised at the generous portion size and the top quality preparation. In the many conversations he had with his friends, he highly recommended the pub. Let's put the experience in focus: we're talking about a beautiful 12 ounce portion of fresh Atlantic flounder broiled to perfection.
When we all went out about a month later, he insisted on returning to the pub. He ordered the same entree. This time he really received lemon sole. The pub offered a completely different presentation using 7 ounces of thin filet of sole in a lemon sauce. They lost a customer on the spot. He ate the sole and he even commented on the well prepared lemon sauce. The reason they lost his business was consistency.
The switch from a large 12 ounce portion of flounder to a petite 7 ounce portion of sole changed his mind. The focal point was the center of the plate entree. All the other meal components were fantastic. The generous salad with top notch house dressing was a winner. All classic sides of slaw and fries were prepared well and fit the entree perfectly. The negative buzz caused by the entree swap completely cancelled all the previous word of mouth promotion.
My friend never returned to the pub. He called all of his friends and told them of the switch. He is not a food service professional. He is a radiologist.
I can remember a discussion I had with my boss years 20 ago. We were changing a menu to highlight seasonal favorites. He said you have to be careful what you offer the customers. Its difficult to take away something once the expectation has been established.
Despite well executed meals on two occasions, this restaurant lost a potential frequent diner and created bad word of mouth exposure.
Monday, June 18, 2007
Food Cost - Beyond Basic
In last week's article Food Cost Basics , I outlined the traditional formula for calculating food cost percentage. At the heart of the formula you will find the simple food cost calculation: FC=(BI+P-EI). Twisting this formula slightly, we find food cost equal to our purchases plus or minus the change in inventory value:
FC=P+(BI-EI).
As your period of time increases between inventories, the purchases will become more dominant than the inventory change . On the other hand, inventory change is a huge factor in operations with daily inventory counts.
In my college days, I worked for a major fast food operation and my duties included a daily inventory of all food, beverages and paper products. We calculated a daily food cost percentage. Whenever my costs were out of line, I reviewed the inventory valuations carefully. Often, the variance could be traced to a low cost item incorrectly extended by a high price. There were many times a pricey item was extended at a fraction of the cost. Once these corrections were made it was possible to see the true picture of results.
Many operators have many more items than the 120 I tracked each day. Also, I doubt their managers are paid $160 each week and scheduled 7 days a week for 10 hours a day. Casual dining concepts often require inventories with over 1,000 items. The daily inventory calculation would be cost prohibitive.
Let's examine the formula in finer detail. The total food cost is equal to the sum of the individual item food costs. If you have 800 items to count, the food cost formula could be expressed as follows:
So for each item in your inventory, you add beginning inventory to purchases and subtract ending inventory. Your total food cost figure is the sum of all these numbers.
If you run these numbers on a spreadsheet, I recommend you sort the matrix in descending order using the extension column. Count the inventory every day for the top 10 items on the page. Calculate the cost of these 10 items each day. I believe you will find the cost of these 10 items (as a percent of sales) will provide you with answers to many of your food cost issues. You may want to increase the number of items tracked to 25 if you have a very diverse menu.
When the accounting department tells you the percentage is up two tenths in the past month, you will know why the cost increased. Analyze the major items and move beyond basic cost calculation.
FC=P+(BI-EI).
As your period of time increases between inventories, the purchases will become more dominant than the inventory change . On the other hand, inventory change is a huge factor in operations with daily inventory counts.
In my college days, I worked for a major fast food operation and my duties included a daily inventory of all food, beverages and paper products. We calculated a daily food cost percentage. Whenever my costs were out of line, I reviewed the inventory valuations carefully. Often, the variance could be traced to a low cost item incorrectly extended by a high price. There were many times a pricey item was extended at a fraction of the cost. Once these corrections were made it was possible to see the true picture of results.
Many operators have many more items than the 120 I tracked each day. Also, I doubt their managers are paid $160 each week and scheduled 7 days a week for 10 hours a day. Casual dining concepts often require inventories with over 1,000 items. The daily inventory calculation would be cost prohibitive.
Let's examine the formula in finer detail. The total food cost is equal to the sum of the individual item food costs. If you have 800 items to count, the food cost formula could be expressed as follows:
So for each item in your inventory, you add beginning inventory to purchases and subtract ending inventory. Your total food cost figure is the sum of all these numbers.
If you run these numbers on a spreadsheet, I recommend you sort the matrix in descending order using the extension column. Count the inventory every day for the top 10 items on the page. Calculate the cost of these 10 items each day. I believe you will find the cost of these 10 items (as a percent of sales) will provide you with answers to many of your food cost issues. You may want to increase the number of items tracked to 25 if you have a very diverse menu.
When the accounting department tells you the percentage is up two tenths in the past month, you will know why the cost increased. Analyze the major items and move beyond basic cost calculation.
Wednesday, June 13, 2007
Food Cost Basics
Several people have emailed me in the past few months asking how to calculate their food cost percentage. In addition, many people have asked me for an industry benchmark for food cost percentage. While the food cost formula is straight forward, it may be impossible to arrive at a true industry benchmark percentage. There are far too many industry segments with unique cost characteristics.
Let's start with the basic food cost percentage formula:
FC% = (BI+P-EI)/S
FC%: Food Cost Percentage
BI: Beginning Food Inventory
P: Purchases
EI: Ending Food Inventory
S: Food Sales
It is absolutely necessary to use the same dates for sales and purchase activity. You need to take the inventory after all sales activity has ceased (either late at night or early in the morning). There should be no deliveries during your inventory.
Everyone has a personal preference for valuing the inventory. Traditionally, food service managers used the most recent cost paid for each item to value the ending inventory. Most people still follow this method which closely approximates FIFO. If you are concerned about the freshness of any food in storage, I'd recommend a zero value. For example, stale bread is not worth the same as a fresh loaf (but it can be used in stuffing and French Toast).
Regarding food cost percentage benchmarks, try to get a feel for the industry segment closest to your business model. There are public companies in almost every segment. In general, the faster the service the lower the food cost percentage. QSR operators experience food cost figures below 30% and four star fine dining operators typically approach 40%. Operations in urban areas run lower food cost percentages to allow for the higher rents. If you raise your selling prices to cover higher occupancy costs, you should see your percentage dip.
Many family run businesses operate in premises with no rent and no mortgage. Although I learned food cost percentages should stay below 35%, I have seen many successful family run businesses run above this number.
Let's start with the basic food cost percentage formula:
FC% = (BI+P-EI)/S
FC%: Food Cost Percentage
BI: Beginning Food Inventory
P: Purchases
EI: Ending Food Inventory
S: Food Sales
It is absolutely necessary to use the same dates for sales and purchase activity. You need to take the inventory after all sales activity has ceased (either late at night or early in the morning). There should be no deliveries during your inventory.
Everyone has a personal preference for valuing the inventory. Traditionally, food service managers used the most recent cost paid for each item to value the ending inventory. Most people still follow this method which closely approximates FIFO. If you are concerned about the freshness of any food in storage, I'd recommend a zero value. For example, stale bread is not worth the same as a fresh loaf (but it can be used in stuffing and French Toast).
Regarding food cost percentage benchmarks, try to get a feel for the industry segment closest to your business model. There are public companies in almost every segment. In general, the faster the service the lower the food cost percentage. QSR operators experience food cost figures below 30% and four star fine dining operators typically approach 40%. Operations in urban areas run lower food cost percentages to allow for the higher rents. If you raise your selling prices to cover higher occupancy costs, you should see your percentage dip.
Many family run businesses operate in premises with no rent and no mortgage. Although I learned food cost percentages should stay below 35%, I have seen many successful family run businesses run above this number.
Wednesday, May 30, 2007
Safe Portion Control Solutions
I guess everyone is aware of the smaller coffee cans now for sale in the supermarkets. The traditional one pound coffee can has shrunk to as little as 11 ounces for certain brands. Each item sold has a little shelf tag with the cost per pound so savvy shoppers can see the true cost per pound differential. The questions for cutting your portion size involve: when? (if at all); how much?; and, what are the other alternatives?
If you are worried about both a higher food cost percentage and the local restaurant competition, I can recommend a few safe portion control solutions. The magnitude of the portion size reduction is key. Not too many people noticed when the cans of coffee stayed in the 15 to 16 ounce zone. When the coffee cans went to 14 ounces, the media picked up on the change.
Today, there is some concern in the marketplace about portion size. The recent press regarding super burger sizes at some of the top QSR groups is negative. Trans fats are out. So is this a good time to reduce the portion size of your top selling item by one sixteenth? That's 6.25% less cost for the same sales price. If your food cost was 35% before hand, you'd have a new 32.8% projected figure. Maybe it is a good time but you may want to take a few extra steps to insure success.
If many of your patrons are currently leaving food on their plate when the busboy comes around, they will most likely ignore this incremental move. An important point here involves frequency. These moves should be made rarely and never twice in a two year period.
It is always possible to offer more than one size or cut for a center of the plate item. Restaurants have traditionally offered King and Queen sized steaks and have offered early bird specials with smaller portions. Terms like petite and super-size are now part of the restaurant customer's jargon. If you are creative with your selling prices for these alternative portion sizes, it is possible to modify customer behavior and point them to higher margin selections.
A price increase for a popular menu item is a decision which many fear. Often, the popular items are the reason customers come to your place of business. These items tend to be less price sensitive than unpopular options. Extreme care should be taken in a highly competitive market with price the number one customer decision variable. Price increases should be done annually or semi-annually on a scheduled basis just before a busy period if possible. Generally, the marketplace tends to expect price increases when the press reports significant inflation. The surging prices for corn and gasoline provide cover this year.
If you are worried about both a higher food cost percentage and the local restaurant competition, I can recommend a few safe portion control solutions. The magnitude of the portion size reduction is key. Not too many people noticed when the cans of coffee stayed in the 15 to 16 ounce zone. When the coffee cans went to 14 ounces, the media picked up on the change.
Today, there is some concern in the marketplace about portion size. The recent press regarding super burger sizes at some of the top QSR groups is negative. Trans fats are out. So is this a good time to reduce the portion size of your top selling item by one sixteenth? That's 6.25% less cost for the same sales price. If your food cost was 35% before hand, you'd have a new 32.8% projected figure. Maybe it is a good time but you may want to take a few extra steps to insure success.
If many of your patrons are currently leaving food on their plate when the busboy comes around, they will most likely ignore this incremental move. An important point here involves frequency. These moves should be made rarely and never twice in a two year period.
It is always possible to offer more than one size or cut for a center of the plate item. Restaurants have traditionally offered King and Queen sized steaks and have offered early bird specials with smaller portions. Terms like petite and super-size are now part of the restaurant customer's jargon. If you are creative with your selling prices for these alternative portion sizes, it is possible to modify customer behavior and point them to higher margin selections.
A price increase for a popular menu item is a decision which many fear. Often, the popular items are the reason customers come to your place of business. These items tend to be less price sensitive than unpopular options. Extreme care should be taken in a highly competitive market with price the number one customer decision variable. Price increases should be done annually or semi-annually on a scheduled basis just before a busy period if possible. Generally, the marketplace tends to expect price increases when the press reports significant inflation. The surging prices for corn and gasoline provide cover this year.
Sunday, May 20, 2007
More Portion Options
In last week's post Dealing With A Portion Problem , we focused on a chronic over sized steak which had been offered to guests over time. This entree was highly popular (one third of customers make this menu choice). I suggested any reversion back to the standard size should take place slowly.
Some may want to try a different approach.
Rather than focusing on the over sized portion, you could consider offering an even larger portion menu choice. In our example, we were offering a half pound steak for $25. The actual serving size of 2/3 of a pound exceeded our standard by a wide margin. We could offer a full one pound steak for two for $45. The cost of the steak per trimmed pound is $15 in our example. The new steak for two would have a center of the plate cost of 33.33%. Our smaller size is producing a 40% center of the plate cost.
If the clients take to the new menu item, we might start reducing the smaller steak's portion size more aggressively (don't go too fast). Since the full one pound choice offers cover, the reduction operation won't have the same exposure. Remember, our example involved an entree which was highly popular. You are trying to get the same gross margin for two people while lowering your cost of sales percentage.
Your dessert sales may rise since two people will consume the half pound portion as originally budgeted. Total gross margin will increase if this happens. Hopefully, your desserts are priced to yield an excellent cost of goods sold as well.
Some may want to try a different approach.
Rather than focusing on the over sized portion, you could consider offering an even larger portion menu choice. In our example, we were offering a half pound steak for $25. The actual serving size of 2/3 of a pound exceeded our standard by a wide margin. We could offer a full one pound steak for two for $45. The cost of the steak per trimmed pound is $15 in our example. The new steak for two would have a center of the plate cost of 33.33%. Our smaller size is producing a 40% center of the plate cost.
If the clients take to the new menu item, we might start reducing the smaller steak's portion size more aggressively (don't go too fast). Since the full one pound choice offers cover, the reduction operation won't have the same exposure. Remember, our example involved an entree which was highly popular. You are trying to get the same gross margin for two people while lowering your cost of sales percentage.
Your dessert sales may rise since two people will consume the half pound portion as originally budgeted. Total gross margin will increase if this happens. Hopefully, your desserts are priced to yield an excellent cost of goods sold as well.
Thursday, May 10, 2007
Dealing With A Portion Problem
Let's say you install a very tight portion control system with a POS feed, a sophisticated recipe model, weekly inventories and a complete purchasing history. After three weeks of fine tuning the recipe model, you realize your kitchen staff were given the wrong portion size for your most popular menu item.
Roughly one third of your customers choose this item as their entree. This entree uses a pricey meat which costs $15 per trimmed pound. Our current portion size is two thirds of a pound instead of the standard one half pound portion. We charge $25 per entree. We serve 120,000 annual covers. The $2.50 per cover variance has an annual unfavorable impact of $100,000. Should you immediately require the kitchen to cut the portion to the standard?
There are many issues involved in this decision. Obviously, your frequent diners have become accustomed to a more generous portion size. It is very likely they would perceive the difference if you reduced the portion at once. Local competition is a key factor. Option one is to do nothing at all.
I would begin to correct the problem slowly. Make a new standard of 10 ounces. This is a small difference and you'll get 16 portions from 10 pounds trimmed. Currently, we use an extra 2/3 of a pound. You'll save this $10 for each 16 portions ($25,000 per year). Track the new standard closely and keep new menu price increases in line with your past policies. Always check local competition carefully before changing the price on a key item.
When the portion size is unchanged on a star menu item, price increases are less likely to impact customer perception. I would avoid decreasing the size and increasing the menu price simultaneously. Wait until your normal menu revision month to raise the price.
Roughly one third of your customers choose this item as their entree. This entree uses a pricey meat which costs $15 per trimmed pound. Our current portion size is two thirds of a pound instead of the standard one half pound portion. We charge $25 per entree. We serve 120,000 annual covers. The $2.50 per cover variance has an annual unfavorable impact of $100,000. Should you immediately require the kitchen to cut the portion to the standard?
There are many issues involved in this decision. Obviously, your frequent diners have become accustomed to a more generous portion size. It is very likely they would perceive the difference if you reduced the portion at once. Local competition is a key factor. Option one is to do nothing at all.
I would begin to correct the problem slowly. Make a new standard of 10 ounces. This is a small difference and you'll get 16 portions from 10 pounds trimmed. Currently, we use an extra 2/3 of a pound. You'll save this $10 for each 16 portions ($25,000 per year). Track the new standard closely and keep new menu price increases in line with your past policies. Always check local competition carefully before changing the price on a key item.
When the portion size is unchanged on a star menu item, price increases are less likely to impact customer perception. I would avoid decreasing the size and increasing the menu price simultaneously. Wait until your normal menu revision month to raise the price.
Monday, January 01, 2007
Cost Per Serving vs. Servable Pound
My standing rib roast cost a lot less this year. Overall, I paid $40 for a 4 rib roast which was nicely marbled and labeled certified Angus beef. Trimming was minimal (about 4%) and I dry aged the meat for 4 days in my refrigerator. Dry aging can reduce a roast's weight by 10% to 15%. My roast lost 9% of the weight during the aging process.
Once the slow roasted meat hit 125 degrees, I pulled it from the oven and let it rest for 20 minutes. Next, I carefully removed the bones for a French Onion Soup the next day. The net weight after trimming, aging, roasting and boning was exactly 60% of the original weight.
Since my guests included 6 people with a medium rare preference and 2 with a medium preference, I offered the end cuts to the two medium fans. Everyone enjoyed the rib and asked for my secret. (a great thermometer!)
My cost per serving was $5. The various yield tests I performed were simply to document the shrink for this specific roast. I knew my cost was $5 per serving since I was feeding 8 people with a $40 roast. I could have served half the portions on the bone (one on, one off) and the cost per serving would still be $5. The cost per servable pound would be lower with the bones.
My preference for costing prime rib is the cost per serving method. The actual weight can be impacted by loss of moisture during storage and cooking, trimming process and serving method. Cost per servable pound may vary but the cost per serving was decided when I purchased the meat.
Once the slow roasted meat hit 125 degrees, I pulled it from the oven and let it rest for 20 minutes. Next, I carefully removed the bones for a French Onion Soup the next day. The net weight after trimming, aging, roasting and boning was exactly 60% of the original weight.
Since my guests included 6 people with a medium rare preference and 2 with a medium preference, I offered the end cuts to the two medium fans. Everyone enjoyed the rib and asked for my secret. (a great thermometer!)
My cost per serving was $5. The various yield tests I performed were simply to document the shrink for this specific roast. I knew my cost was $5 per serving since I was feeding 8 people with a $40 roast. I could have served half the portions on the bone (one on, one off) and the cost per serving would still be $5. The cost per servable pound would be lower with the bones.
My preference for costing prime rib is the cost per serving method. The actual weight can be impacted by loss of moisture during storage and cooking, trimming process and serving method. Cost per servable pound may vary but the cost per serving was decided when I purchased the meat.
Saturday, December 09, 2006
Food Cost Control - Alphabetic Approach
Manufacturing companies often segregate their parts inventories into A, B and C groups. The parts in Group A are used in high volume and are expensive. Group B has two types of parts. The high volume, less costly parts would fall into the B group. Also, expensive parts used in lower volume would be in Group B. Finally, Group C parts would include the largest number of members. These parts are inexpensive and used in low volume.
Why stop with only three letters?
I'd recommend segments for product shelf life and I wouldn't use Group B for two profiles. Let's use Group A to include highly perishable, costly, high volume items. If a costly, high volume item is purchased frozen, we'll use group B. Group C will include all costly, high volume items which are shelf stable.
Following this approach, we'd use groups D, E and F to handle moderate volume items. The perishables would be coded to Group D. Frozen would fit the E profile and the shelf stable would go to Group F.
Since the 80/20 principle is in play in most kitchens, you'll be left with lots of items in groups G, H and I. Use the perishable/frozen/shelf stable structure to complete the grouping exercise.
A 1,000 item inventory will contain about 200 items in the first three groups. The next three groups will have from 150 to 200 items. All the other items will fall into the last three groups. You'll find very few items in Group C vs. Group I. Perhaps coffee and oils will be in the C group and the spices down in Group I.
When you are finished with this exercise, start to spend more time and energy with the first 5 groups. The last four groups will have the majority of items and the least amount of opportunity to favorably impact your food cost percentage.
Click Here For More Information
Why stop with only three letters?
I'd recommend segments for product shelf life and I wouldn't use Group B for two profiles. Let's use Group A to include highly perishable, costly, high volume items. If a costly, high volume item is purchased frozen, we'll use group B. Group C will include all costly, high volume items which are shelf stable.
Following this approach, we'd use groups D, E and F to handle moderate volume items. The perishables would be coded to Group D. Frozen would fit the E profile and the shelf stable would go to Group F.
Since the 80/20 principle is in play in most kitchens, you'll be left with lots of items in groups G, H and I. Use the perishable/frozen/shelf stable structure to complete the grouping exercise.
A 1,000 item inventory will contain about 200 items in the first three groups. The next three groups will have from 150 to 200 items. All the other items will fall into the last three groups. You'll find very few items in Group C vs. Group I. Perhaps coffee and oils will be in the C group and the spices down in Group I.
When you are finished with this exercise, start to spend more time and energy with the first 5 groups. The last four groups will have the majority of items and the least amount of opportunity to favorably impact your food cost percentage.
Click Here For More Information
Thursday, September 14, 2006
Ideal Usage Tricks and Techniques
The people who produce variance reports for the weekly and monthly management meetings need to forecast the likely meeting discussion for each red flag item. Common excuses occur over and over and it's necessary to anticipate and eliminate these distractions. The only way for a food and beverage professional to have a positive impact on the results is through proper focus.
Find the real problems ahead of time and structure your handouts (or overhead presentation)to highlight the major issues. Everything else is simply an exercise in excusing poor results. When the acceptance of these anecdotal responses is chronic, the operation will lose control and wide fluctuations in monthly numbers will ensue. Hopefully, a review of the common excuses will help you prepare for the next meeting and the tide will turn.
At the very top of my list is the inaccurate inventory extension. Since you should have complete control over this number, avoid making bad numbers "the reason" and take the extra time to double check all very small and very large extended values. There shouldn't be any spice, flour, pasta or rice valued in the thousands of dollars. Lobster tails shouldn't be valued for pennies. Make a second copy of your Excel file and sort the list in both ascending and descending order. See what comes to the top and ask if it makes sense.
Cutoff issues are always near the top of the list and the actual inventory count should be taken without deliveries. Check your drawers thoroughly and look under the desk for missing invoices. If you keep a receiving log (highly recommended), use the log to make sure you have every delivery included in the proper accounting period. Check with accounts payable for a copy of the latest statement and see if the credits are reported in the proper period. Try to completely eliminate accounting adjustments from the management meeting discussions. It is a distraction and credibility quickly disappears when the numbers don't follow the matching principle.
The operators will have front line experiences which should be the real focus of the meeting and it's important to be prepared to support these topics. Let's say you have a major unfavorable usage number for beef tenderloin. Do your own investigation on customer returns and possible menu specials(POS system data). Check waste reports if you maintain these records. Subtract the waste from the total variance to determine the net amount (variance NOT explained by waste). Try to get to the heart of the variance. There will always be steaks returned by customers due to miscommunication of their cooking preference. Excessive waste and customer returns must be documented and the problems must be solved fast.
Production staff will give better explanations if the topic is presented in a straight forward manner. Imagine the meeting dynamics. It's possible for certain issues to be assigned too much weight. If the waste and returns are minor, report the total variance and show a separate line for the waste and returns. Calculate the net variance and open the discussion with this figure. You may find the real problem involves meat which did not meet specification. Portion control may be lax. There is always a risk of theft. Listen for other explanations and you'll get closer to the true variance issue.
Before your meetings, go back to your recipe model and look for recipes which call the top variance items. Follow the recipe path backwards if there is butchering or trimming involved. Ask yourself if the actual usage is a better figure than the ideal usage. My tenderloin example was chosen specifically for this angle. An untrimmed tenderloin will lose close to 50% of it's weight when being prepared for steaks. If you don't have a butcher yield sheet for the item, print one for the meeting and make it an action plan item.
Once you are in the meeting, get the variance analysis focused by introducing each item thoroughly before the discussion begins. Your credibility will increase as you move beyond traditional distractions involving inaccurate extensions and cutoff problems. Supply everyone with your preliminary analysis and highlight the net variance. As the management team begins to take you seriously, they will come better prepared and some genuine progress will be the result.
Find the real problems ahead of time and structure your handouts (or overhead presentation)to highlight the major issues. Everything else is simply an exercise in excusing poor results. When the acceptance of these anecdotal responses is chronic, the operation will lose control and wide fluctuations in monthly numbers will ensue. Hopefully, a review of the common excuses will help you prepare for the next meeting and the tide will turn.
At the very top of my list is the inaccurate inventory extension. Since you should have complete control over this number, avoid making bad numbers "the reason" and take the extra time to double check all very small and very large extended values. There shouldn't be any spice, flour, pasta or rice valued in the thousands of dollars. Lobster tails shouldn't be valued for pennies. Make a second copy of your Excel file and sort the list in both ascending and descending order. See what comes to the top and ask if it makes sense.
Cutoff issues are always near the top of the list and the actual inventory count should be taken without deliveries. Check your drawers thoroughly and look under the desk for missing invoices. If you keep a receiving log (highly recommended), use the log to make sure you have every delivery included in the proper accounting period. Check with accounts payable for a copy of the latest statement and see if the credits are reported in the proper period. Try to completely eliminate accounting adjustments from the management meeting discussions. It is a distraction and credibility quickly disappears when the numbers don't follow the matching principle.
The operators will have front line experiences which should be the real focus of the meeting and it's important to be prepared to support these topics. Let's say you have a major unfavorable usage number for beef tenderloin. Do your own investigation on customer returns and possible menu specials(POS system data). Check waste reports if you maintain these records. Subtract the waste from the total variance to determine the net amount (variance NOT explained by waste). Try to get to the heart of the variance. There will always be steaks returned by customers due to miscommunication of their cooking preference. Excessive waste and customer returns must be documented and the problems must be solved fast.
Production staff will give better explanations if the topic is presented in a straight forward manner. Imagine the meeting dynamics. It's possible for certain issues to be assigned too much weight. If the waste and returns are minor, report the total variance and show a separate line for the waste and returns. Calculate the net variance and open the discussion with this figure. You may find the real problem involves meat which did not meet specification. Portion control may be lax. There is always a risk of theft. Listen for other explanations and you'll get closer to the true variance issue.
Before your meetings, go back to your recipe model and look for recipes which call the top variance items. Follow the recipe path backwards if there is butchering or trimming involved. Ask yourself if the actual usage is a better figure than the ideal usage. My tenderloin example was chosen specifically for this angle. An untrimmed tenderloin will lose close to 50% of it's weight when being prepared for steaks. If you don't have a butcher yield sheet for the item, print one for the meeting and make it an action plan item.
Once you are in the meeting, get the variance analysis focused by introducing each item thoroughly before the discussion begins. Your credibility will increase as you move beyond traditional distractions involving inaccurate extensions and cutoff problems. Supply everyone with your preliminary analysis and highlight the net variance. As the management team begins to take you seriously, they will come better prepared and some genuine progress will be the result.
Subscribe to:
Posts (Atom)
Restaurant Data Pros
