Standard Recipe Costing 101

I received an email today regarding standard recipe costing resources:

"Good Day Mr. Dunbar,
I am a culinary student at the Mount Saint Vincent University, Halifax. Canada.(www.msvu.ca). I found your blog very interesting, and was wondering if you have articles/websites/links where I can learn the concept of food costing right from making the standard recipe to how portion sizes are determined and prices fixed. I have tried many websites but they always fall short of providing the complete info. Your help will be greatly appreciated. Warm Regards. "

My father was an Air Force Cook during the Korean War. He worked in a large mess hall with over 5,000 airmen and in the Officer's Club. The Air Force issued a great cookbook with hundreds of recipes. All the recipes were designed to yield 100 portions.

During my college years, I used the Air Force cookbook to help me with two small businesses. I ran a non-profit board plan for 12 students during the school year. The book helped me develop menu plans and shopping lists. I divided all the ingredient amounts by 6.

We also had a clam bake operation during the summer. The recipes for chowder, cocktail sauce and salad dressings were used at each event.



Today, you can get a great substitute for the military cookbook. Go on Amazon and order Food for Fifty (12th Edition).

This book has a chapter on Recipe Information and she discusses yields, standards and other
basic techniques. The chapters are laid out by category (i.e. Meat, Fish, etc.) and there are lots of recipes for 50 portions. Throughout the book, there are tables on cooking temperatures, pan equivalents, ingredient substitution and other useful recipe data.

The notion of standard pricing is actually a complex subject. If you cost out a standard recipe using today's cost, the actual recipe cost will constantly change with market conditions. There are three schools of thought on standard prices: today's price method, market-based standards and CPI-based standards. The best place to start is today's price method.

Eventually, you can start to study market prices and develop more sophisticated standard prices.

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.


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Seasonal Operations-Profit Analysis

There are many beautiful areas of the world where tourists flock for the peak season. Heavy volume may last for 3 months at the beach resorts, 4 to 8 months at the golf and ski resorts. During the busy season, it's important to cover the annual costs of management, fixed asset maintenance and financial expenses, and all other fixed monthly payments.

As an example, let's say we have a manager with a base salary of $52,000 and fringe benefits of 20%. This manager works year round and is paid equally throughout the year. Our imaginary resort has a 13 week peak during which room rates and visitor counts balloon. The peak season produces 75% of annual revenue.

For financial reporting, the books will reflect his weekly expense of $1,200. If the wizards keep a separate set of management accounting records, they would see he actually costs $3,600 per week during the peak. Conversely, he's worth about $400 per week during the slow period.

Most managers will take their vacations during the slow period. Often they will be permitted to work fewer days each week. On the other hand, I have seen seasonal operations where these key people are burned out during the slow season filling in gaps left by hourly workers. These unfortunate managers log lots of overtime during unprofitable times and then work round the clock during the peak.

Regardless of how you view the manager's role, it's important to realize the peak months are not as good as they seem. The slow months are not the disasters they appear to be either.

You would not even open your doors or hire one person if it were not for the opportunity during the peak season. By charging your fixed expenses to the cost based on volume, you can spot weak spots during peak times*.

Two bad weeks during the peak can become a catastrophe for many resorts. You read articles on places where you can't get a seat for dinner unless you camp out overnight going Chapter 11. Owners tend to spend money too liberally during the peak times. They see huge profits regardless of a few slips.


* Special Note: Do not perform these allocations on the formal set of accounting records. These are for operations management review only.

The Portion Cut Decision

In the early 1990s, I sent a monthly newsletter (POSitive ROI)to 500 restaurateurs using WinFax. At the time, most chefs were new to technology and the computers found in most kitchens were not well utilized. Despite the lack of back office expertise, the restaurants were all buying POS systems.

I was fortunate to have two very trusting early clients who let me explore the data flow on the front lines. My monthly reports became more insightful and readership grew as I featured stories on specific report capabilities and interface options.

One day, a chef who had received three stars from Bryan Miller of The New York Times contacted me. He invited me to his kitchen for a meeting and a cup of espresso. We discussed production issues and menu ideas. The New York restaurant goers were being treated to 4 and 5 course meals for $19.92 at the time. The Democratic Party Convention was in town and the meal special was hot.

At this restaurant, the menu was very ambitious and popular items included Wild Boar and spectacular Veal Chops. They had the right equipment to butcher large cuts and this chef had many marvelous ideas for use of the trim.

From a purely technical perspective, he could rip apart his personal computer and replace boards and cards with newer versions. On the software front, he had some basic spreadsheet models for calculating the cost of various menu ideas. We chipped in and bought a back office package with recipe costing and menu analysis.

To hit the cost percentage he required and give a full meal with dessert and coffee for $19.92, he relied on pasta entrees. During the time I spent onsite, we would explore the feasibility of selling butcher yields and menu suggestions to top-flight chefs with no computer expertise.

We spent hours tearing apart butcher yield sheets and built models for Veal Rack 306, Veal Loin 331 and lots of fresh fish. He preferred the meat cut from large animals because the ratio of meat to bones was better. To get the best utility from each large cut, he looked for a second high price menu option whenever possible.

I came away from all these sessions with a bias for portion control meats. The butcher yield sheets documented the huge additional portion costs involved when a particular piece yielded one less steak or chop. Most kitchens do not have the right equipment or a chef with Alpine training in butchering and yields.

If you decide to butcher an expensive cut of meat, I recommend a credit of zero for bones, ground meat trim and stew meat trim. To truly benefit from the trim produced, you need a menu designed to utilize all the meat.

The zero credit will force you to focus on getting the proper menu prices for the work and risk involved. Use the bones in stocks. Try some unique uses for the trim (e.g. ravioli filling). The trim should help you create some hugely profitable chef specials. This is a big advantage over competitors who may be serving "blowout" items about to spoil.

What Should Our Food Cost Be?

In a suburb of New Haven, CT, I was asked to help an event caterer organize accounting for receivables and payables. During our discussions, he decided to expand the scope of the project to include inventories and cost of goods sold.

Since I needed to gain a knowledge of his operation, I asked what his food cost percentage was the previous month. He said without hesitation: "Our food cost is phenomenal! We run a consistent 22%." I asked if he divided his revenue into components. He said he did not. Just to complete the basics, I asked for the recent beverage cost. I was told: "We shoot for a 10% beverage cost but it can vary depending on cash bars and open bars in any given month."

It was apparent they needed help analyzing alcoholic beverage service.

At this point, I felt it necessary to ask point blank how costs were computed. Event catering is very different from a la carte restaurant service. It is completely false to shoot for a restaurant style benchmark.

After two hours of sifting through financials, it was clear the operation was out of control on both food and beverage. The chef was reporting food cost as a percentage of the entire catering package. The pricing for a package typically covered food, beverage, entertainment, flowers, photographer (optional), limo service (optional) and prime location rental (optional).

Adding together the 22% and 10% to get a F&B total of 32% was my first attempt to get the staff focused on how 22% might possibly be a high number. I explained a restaurant would never divide food cost by the combined food and beverage sales. They then realized the 22% might not be as great as they had imagined. The reply was: "So we're good; not great."

They asked: "What should our food cost be?" I said about $5 per person for most events.

I mentioned my catering background. My remote site feeding background focused on cost per manday. One person in camp per day would be entitled to housekeeping services, food and beverages. We kept all financial data in categories and divided each category's cost by the number of mandays in the period.

We decided to rework the cost of goods sold data. The rework provided a method for tracking costs by event category. Once they had a clearer picture, the food cost swings were more apparent. Eventually, they had a system of control which allowed separate reporting for open bar events and cash bar events.

A second benefit emerged from the project. Precise pricing for clients was possible. Depending on menu mix and selection of entertainment and service options, a quote was provided with a minimum count and a price per attendee.

Their final menu included three layouts on a fixed price basis. Gold, Platinum and Diamond service food choices were offered at three price levels. Regardless of menu choice, clients could choose from the full list of auxiliary services with a per person charge for each.

Once the operation realized their food cost results were not phenomenal, they began to track costs and profits increased.


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