Whenever I have a difficult decision, I always take the perspective of the owner. If you're not the owner, pretend you are the owner.
In my early food service management courses at SUNY Cobleskill, we were taught food cost should be 32 or 33% and labor cost should hit between 25 and 27%. If a business could keep consumables at 8 to 10%, their gross profit percentage would be around 32%. The 32% could cover marketing, advertisements, garbage pickup, phones, office supplies, snow removal, licenses, property taxes, mortgage, rent, equipment rental, leasehold improvements, repairs and maintenance, smallwares, pots and pans, linen, interest expenses, accounting, any number of emergencies and a decent net profit.
If you're working in a profitable operation, the team has figured out a way to cover all the expenses and have something left over at weeks end. Perhaps the food cost is 29% and your labor is a little high to prep fresh produce. Maybe your bar operation makes a huge contribution or a busy season bails out a very lean off season. Very few places hit the targets students learn about each year but it's good to keep these targets in mind.
In every complex restaurant, the kitchen uses cooking wine and the bar uses lemons, limes, oranges, onions, olives, celery and other food. The wait staff works slicing cakes and pouring coffee and the kitchen staff produces food for the wait staff to eat each shift. Accountants pour over all the documents and create reports to keep the operation in line with the budget.
When the targets are hit, people calculate bonuses and all is good. Unfortunately, many operations miss their targets and begin a slicing and dicing process on their financial reports. Suddenly critical operating costs become hidden in an allocation jungle. Certain departments falsely believe they are winning some internal game while the overall unit is in decline.
Investors often assign a value to a going concern based on the operating cash flow times a factor. If you have an operation producing $200,000 positive cash flow each year, you'd try to get at least $2,000,000 (ten times) for the business. A failing business is treated like yard sale. Assets are often reduced to their salvage value. Auctioneers sell POS systems, ovens, tables and chairs at pennies on the dollar.
After missing the targets for three straight months, most operators should face the facts. Inventory valuation, allocation of lemons and cooking wine, extra-departmental labor cost credits won't hold the answer to the dilemma. Pretend your the owner and look for the real issues. Don't hide behind allocations.
Wednesday, January 24, 2007
Tuesday, January 09, 2007
Slow Cooked BBQ Requires Careful Planning
BBQ is becoming very popular in a lot of new places. My clients with BBQ oriented menus include a professionally managed public golf club and an authentic BBQ in midtown Manhattan (both use a Southern Pride Smoker . While BBQ chicken and ribs are found just about anywhere, pulled pork, tritips and Texas-style brisket are relatively new to many regions of the country.
Proper BBQ takes time. The meat needs to marinate for hours and the smoky flavor is provided by hours of slow cooking in a warm pit or smoker. If you expect a crowd on the weekend, the meat order needs to be complete on Wednesday (at the latest). After an early delivery Thursday morning, preparation begins with trimming excess fat, cartilage and deckle. The meat may be cooked on the bone or boneless.
After the trimming process, the marinating begins with a dry and/or wet mop. The marinated meat will need to rest for a day or more in many operations. With the slow cooking process in the near future, veteran BBQ artisans are already watching both the calendar and the clock.
Since purchasing needs to take place days ahead of service, proper forecasting is at the heart of BBQ operations. When buying the meat, it’s necessary to be completely fluent with trim factors and yields. Let’s look at three popular BBQ items and discuss the yields one may expect:
Brisket:
A big Beef Brisket 118 will weigh about 20 pounds. Some brisket buyers choose the boneless version – Beef Brisket 120 – weighing in at about 12 pounds. Some favor smoking the brisket with bones. Others like the less fatty, fully trimmed version.
The bone in version will yield about half when fully cooked and the boneless will yield about 2/3. Our 20# purchase will yield 20 generous 8 ounce servings for platters or 40 sandwiches. If you allow your customers to specify lean only, the yield falls substantially.
Pulled Pork:
If you like to use Fresh Ham, Boneless 402B, you’ll be purchasing large pieces weighing between 20 and 30 pounds. A Boston Butt, Boneless 406A will weigh about 8 pounds and is really shoulder meat.
Both cuts will yield over 2/3 fully cooked but will plummet to half if the customer specifies lean only.
Ribs:
Most BBQ operations carefully choose the rib specifications. A rack of Back Ribs can average anywhere from 1.25 pounds to over 2.25 pounds. A rack of St. Louis Spareribs can weigh between 1.5 and 3 pounds. Some operators prefer the heavy, untrimmed racks which can be over 5 pounds. The skeletons are identical but age and feed vary. Customers usually order ribs by the rack, half rack or by the number of bones (not by weight).
My clients study their sales data carefully using the prior week, previous year and weather forecasts before placing their pre-weekend orders. They forecast the servings and use models to calculate the optimal order. Since ribs are often sold frozen, many well managed BBQ operations use long term predictions to go long when prices are favorable. All this math is rewarded with great profits since the best tasting BBQ is served straight from the smoker.
Click Here For More Information
Proper BBQ takes time. The meat needs to marinate for hours and the smoky flavor is provided by hours of slow cooking in a warm pit or smoker. If you expect a crowd on the weekend, the meat order needs to be complete on Wednesday (at the latest). After an early delivery Thursday morning, preparation begins with trimming excess fat, cartilage and deckle. The meat may be cooked on the bone or boneless.
After the trimming process, the marinating begins with a dry and/or wet mop. The marinated meat will need to rest for a day or more in many operations. With the slow cooking process in the near future, veteran BBQ artisans are already watching both the calendar and the clock.
Since purchasing needs to take place days ahead of service, proper forecasting is at the heart of BBQ operations. When buying the meat, it’s necessary to be completely fluent with trim factors and yields. Let’s look at three popular BBQ items and discuss the yields one may expect:
Brisket:
A big Beef Brisket 118 will weigh about 20 pounds. Some brisket buyers choose the boneless version – Beef Brisket 120 – weighing in at about 12 pounds. Some favor smoking the brisket with bones. Others like the less fatty, fully trimmed version.
The bone in version will yield about half when fully cooked and the boneless will yield about 2/3. Our 20# purchase will yield 20 generous 8 ounce servings for platters or 40 sandwiches. If you allow your customers to specify lean only, the yield falls substantially.
Pulled Pork:
If you like to use Fresh Ham, Boneless 402B, you’ll be purchasing large pieces weighing between 20 and 30 pounds. A Boston Butt, Boneless 406A will weigh about 8 pounds and is really shoulder meat.
Both cuts will yield over 2/3 fully cooked but will plummet to half if the customer specifies lean only.
Ribs:
Most BBQ operations carefully choose the rib specifications. A rack of Back Ribs can average anywhere from 1.25 pounds to over 2.25 pounds. A rack of St. Louis Spareribs can weigh between 1.5 and 3 pounds. Some operators prefer the heavy, untrimmed racks which can be over 5 pounds. The skeletons are identical but age and feed vary. Customers usually order ribs by the rack, half rack or by the number of bones (not by weight).
My clients study their sales data carefully using the prior week, previous year and weather forecasts before placing their pre-weekend orders. They forecast the servings and use models to calculate the optimal order. Since ribs are often sold frozen, many well managed BBQ operations use long term predictions to go long when prices are favorable. All this math is rewarded with great profits since the best tasting BBQ is served straight from the smoker.
Click Here For More Information
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.
Wednesday, December 20, 2006
Strategic Food Cost Issues
Many companies take a serious look at central production. The prospect of better consistency and the opportunity to run larger batches lure too many of these companies into a trap. Recently, I observed the final meetings for a single unit operator expanding to a new commissary with capacity to handle production for 5 additional units. The owner wanted a new control system to handle the increased demands of his expanding business.
Unfortunately, it was far too late to offer my views on commissary construction. The long term lease was signed, construction was nearing completion and heavy equipment installations were in progress.
The new commissary opened and the organization is bleeding red on the bottom line. With the commissary draining funds each month, the chance of starting any of the new units is remote. Break even sales volume seems out of reach despite strong growth. So what went wrong? This was a successful single unit operator enjoying better than average unit volume for the region and decent sales growth.
The strategy here is flawed.
Creating the capacity to handle production for 6 units with only one unit operational is suicide. The new monthly fixed costs are too high, production workers spend too much time walking around the mammoth kitchen. Freezers and walkins designed to handle five times the current volume have raised the monthly utility bills. The fleet of vans has increased to handle movement between locations. Sales barely cover the fixed costs and wages.
Rather than wasting the owner's precious time (he works 16 hour days - 7 days a week), I told him he needs to focus on volume rather than food cost control. His sales are too far below break even to worry about incremental food cost improvement.
I'll be working with a different company in the same region. They just opened a new unit in this hot growth area. Sales are double their average unit volume and the operators are feeling the strain. Fortunately, profits and cash flow are robust.
Unfortunately, it was far too late to offer my views on commissary construction. The long term lease was signed, construction was nearing completion and heavy equipment installations were in progress.
The new commissary opened and the organization is bleeding red on the bottom line. With the commissary draining funds each month, the chance of starting any of the new units is remote. Break even sales volume seems out of reach despite strong growth. So what went wrong? This was a successful single unit operator enjoying better than average unit volume for the region and decent sales growth.
The strategy here is flawed.
Creating the capacity to handle production for 6 units with only one unit operational is suicide. The new monthly fixed costs are too high, production workers spend too much time walking around the mammoth kitchen. Freezers and walkins designed to handle five times the current volume have raised the monthly utility bills. The fleet of vans has increased to handle movement between locations. Sales barely cover the fixed costs and wages.
Rather than wasting the owner's precious time (he works 16 hour days - 7 days a week), I told him he needs to focus on volume rather than food cost control. His sales are too far below break even to worry about incremental food cost improvement.
I'll be working with a different company in the same region. They just opened a new unit in this hot growth area. Sales are double their average unit volume and the operators are feeling the strain. Fortunately, profits and cash flow are robust.
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
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