Food Cost Techniques - Orders

The number one component in your weekly or monthly food cost percentage calculation is food purchases. This figure is modified by the net inventory change before you divide by sales. Many operators tell me they don't count inventory any more. I always ask them how they order food.

In every case, food service operators go to their storage locations when determining the order requirements. This activity is an inventory count. Although there may not be a formal report or a careful valuation, the person who checked the stock room, walkin cooler or freezer performed a count. In most cases, these counts are discarded once the food order has been completed.

Do you organize your food orders by category (e.g. produce, meat, seafood, dairy, etc.), by vendor, or by storage area (e.g. freezer, cooler, dry storage, etc.)? Do you have a day of the week organization? Perhaps you order produce twice a week on Monday and Thursday. You might replenish groceries once a week for high volume items and monthly for other items. Maybe you have become aware of a special on a shelf stable item. On the other hand, prices for some high volume items may be sky high this week.

If you phone in your orders, you may be on the phone with someone trying to blowout an over stocked item. Do you change your order on the spot to "take advantage" of this limited time offer? If you answer yes, how do you determine the impact on other items you need to order? The person on the other end of the phone line has taken over your order process.

Most operators have a decent price awareness. Some are acutely aware of any market shifts in their top volume items. These same operators may have a vague idea what the market conditions are on their low volume items. Who has the time to track all this activity? Time is money.

Every operation spends a significant amount of time each week ordering, receiving and storing food items. Much of the information used in these decisions is discarded once the order has been submitted. Spot counts, market prices, last minute deals, emergency orders, short shipments, poor quality rejections, and every day customer preference shifts are processed and the impact is seen in your invoices.

Do you have a feedback mechanism built into your control system to highlight ordering issues? If you don't have any feedback other than the goods arrived, you are missing another opportunity to improve your ordering process.

Five simple recommendations:
1. Develop order guides to fit your personal environment. Document the counts, par levels, and other notes. The notes should have details on weather conditions, seasonal peaks, etc.
2. Clearly mark your orders with any changes made during the phone call with the supplier. Use a different color ink to highlight these changes.
3. Organize the price quotes faxed each week on bid comparison sheets.
4. Document all specification issues and ask for credits when the delivery does not match your request.
5. Summarize this activity each week and use the information to improve the process.

Once you order food, the economic impact of the order is reflected in your food cost percentage. It is impossible for something you never ordered to spoil, be improperly portioned, stolen, or over produced. Spend less time in the long run by investing in organizing your ordering process today.

Hot Food Cost Topic

I just received a phone call yesterday from a reader of my blog regarding employee meals. She asked me how employee meals should be handled with respect to food cost calculations. I eventually gave her my answer. Before I directly answered the question, I mentioned my concerns about emphasis on allocation issues.

Generally, I believe there should be a clear policy for each company. There is no absolute method for accounting for employee meals. In the long run, you will have a lower overall food cost result if your focus is on popular menu items and the raw ingredients used in their preparation.

To clarify her position, I asked if she was the owner or a manager. She is a manager and is trying to help with the food cost calculations. Once an organization decides to reward employees based on their performance, it is very important for the performance monitor (in this case food cost %) to be well understood. If the kitchen gets credit for each employee meal served, this credit should be known in advance and applied consistently each month. Bringing up employee meals in a review of a poor monthly performance is a big mistake.

In most operations, the impact of fluctuations in the cost of employee meals should be minor. We used an example in our call to illustrate the point. This operation has weekly sales of $17,000 and 3 employees are offered free meals. I said the impact of feeding these 3 employees each week is at most $50. Many operators use a figure of between $3 and $4 per employee per shift for meals. If we have a bad week, maybe the cost would go up $50 over a normal week.

For every 1% of sales, we have $170 in this company. It is unlikely the employee meal results would help much in explaining a food cost % which is 3% over budget. Look elsewhere for your solution.

In general, all one-time discussions of cost allocations have very little long run impact. Employee meals will tend to have a higher impact during slower periods. If you run a seasonal operation, you can expect the food consumed by your staff to account for a bigger share of all food consumed. Regardless, I believe a combined food and direct labor cost over 65% is indicative of danger in our industry. Any operation with over 2/3 of their sales consumed by prime costs should work hard to lower these costs.

My answer to the caller: Your allocation for employee meals should be clear and should not have a major impact on results. If the same factor is used every period, the employee meal issue will no longer be a hot topic. Consistency is the key to success.

Some Good Books For Food Cost Control

Josh asked some great questions about yields and shrink this month. I recommend two books for more detailed information on standards. Francis Lynch has a new edition of his great reference tool The Book of Yields: Accuracy in Food Costing and Purchasing and I prefer the paperback book over the CD.

Mary Molt's classic catering book Food for Fifty (12th Edition) has excellent yield and standard portion information.

You can also get yield information on meat from the must have industry standard. The NAMP's The Meat Buyers Guide : Meat, Lamb, Veal, Pork and Poultry has zero fluff. I love the tables at the beginning of each section.

Major Drop In Food Cost

Fall is in full swing and the days are getting shorter in the Northern Hemisphere. Here in the Mid-Atlantic, it is now soup season. Soup sales have a tremendously favorable impact on food cost percentages. There are many ways soup helps the operators.

When I worked in the remote site camps, we always had huge stock kettles full off peelings, bones, trimmings and other bi-products of the prep process. The chefs made highly profitable soups, sauces and gravies with the stock.

Slow cooked roasts and mashed potatoes make a comeback on football game days.

In addition to the favorable seasonal impact, gasoline prices are now in the $2.25 to $2.75 range (down from over $4 per gallon this summer). Lower fuel prices help our industry in many ways.

We should see drops in the fuel surcharges and in the case costs from broad line distributors. Customers will see their disposable income pickup as they pay less for filling their gas tanks.

As corn prices continue lower, we'll enjoy better prices on beef, poultry and pork. These lower prices come to the patient as it is common for beef rib 109 to spike during the Christmas season. Watch the markets for buy signals.

Consumers are looking to save during the week. If you can engineer profitable budget meal options for dining in or for take-out, you'll have an edge.

The stock market just had its best week in years. Some of the people who had their 401K slashed to a 201K will begin to feel better about their retirement years. Hopefully, we'll see less pessimism in the press.

Squeezing The Lemon

Operators are working the monthly income statements searching for ways to generate more profit. Many operations are running just above or just below the break even point. Profit improvement efforts produce a huge impact at the break even point. A 1% drop in costs may be the difference between profit and loss.

Sales are tougher to come by this year. If you find you continue to break even once sales volume improves, its time to implement an aggressive cost cutting campaign. You can't afford to miss these opportunities to put money in the bank. A 1% rise in sales won't equal the profit produced by a 1% drop in costs. Every dollar of sales requires food and beverage to be served to guests. This cost of sales reduces the income produced by the gain in sales volume.

With guest counts down and average checks off, there may be a huge temptation to fill seats through huge discounts. This strategy risks losing profitable seats on a busy night. Discount lovers take seats which could have produced superior profits. Rather than offering discounts at every meal, you could offer busy night patrons a discount for a slow early week meal period.

Cost cutting efforts produce profits faster than incremental sales improvements at the break even point. Many managers have already cut their cost of sales to the bone just to stay afloat. If you have squeezed all the juice from the lemon, try some new ideas. I'd start with direct operating expenses. Check on linen usage, sewage bills, utilities, garbage pickup, paper and disposable usage, and other costs which do not help produce additional sales.

You may be able to reduce your costs by closing earlier on many slower nights. Late night hours on slow nights are very unprofitable. Late night sales potential may not justify the labor costs. Compare your final hour's sales less the cost of goods sold to the labor costs for the same hour. If you can't cover labor, you'll save by closing earlier.

By finding cost savings and improving the quality of sales volume, operators can gain an edge over the competition.