Banquet Beverage Cost Question

Dear Joe,

Very good day to you.
I am writing you this mail, because I am facing a problem with the beverage cost calculation.

I am an F&B cost controller in a hotel of 176 Rooms, with a sports Bar, Lobby lounge Bar, Brasserie restaurant for Breakfast and all day dining, as well as the room service Bar outlet, and Mini Bar. Our hotel also offers Banquet Facilities and Functions.

My main question is how do we calculate the beverage Cost in all departments? Also, how do we calculate the consumption beverage in banquet and functions? Finally, how do we split food and beverage when we charge a flat price (for example 35$ per person for a banquet buffet)? The matter of splitting food and beverage is a real problem.

Is there a formula to solve this issue?

Thanking you in anticipation, kind regards,

Elie, Resort Cost Controller

Thanks for the question Elie!

Cost allocation for banquets is a snap if you avoid percentage analysis. This is best for all buffet and banquet operations. These events generally involve a single price per guest. The use of percentages won't help you in cost control. With every banquet, the goal is to make a specific amount of profit per guest.

Using your $35 example, I would develop a comprehensive profit and loss statement for the event. Let's say we wanted to make a net profit before overhead costs of $5. We would need to construct a simple P&L with all the main categories: Sales, Food Cost, Beverage Cost, Supplies Cost, Decorations, Entertainment, Kitchen Labor, Server Labor, Management Cost, etc. You could setup columns for both budget and actual costs.

Try to carefully isolate all beverage costs for each event. Draw lines on bottles, carefully monitor transfers and take an accurate inventory before and after each event.

In your venues, you need to monitor beginning inventory, transfers (net of in and out), and ending inventory for each major activity. Match your costs with sales. Since banquets are taken care of entirely with the event P&L system, this final control is the standard cost allocation by profit center. You can see how each venue contributes to your overall beverage cost and gross profit.

Follow Up on Slammed! Peak Period Woes

Management at the Peruvian chicken concept in my neighborhood have taken significant action during the month since we paid our first visit. For the most part, the excellent quality meals are still available to their patrons. Let's review the main points of the article and see if there has been a change in the operation.

The production team should be trained to stop fully stocking the oven late in the evening since very few guests will return to have dinner at 9:00 PM in this neighborhood.

The restaurant closes two hours earlier now. When the final batch of birds is removed from the oven, the workers start cleaning up (including turning chairs up on the tables.).

The number one constraint is the rotisserie oven. They purchased a 20 bird model. The entire space is tight with the dining area claiming 50% of the square footage. The oven is sandwiched between the range and the warming bin. Workers have very little space and frequently run into each other.

They still have the one oven and this production constraint will prevent the annual sales volume from reaching it's true potential. The dining area has a new ordering counter in the center of the store. Tables line the perimeter leaving the center floor space to handle the order line. Space freed on the side of the production area is now utilized by the production workers. They no longer run into each other as frequently.

How could they produce the chickens needed for the 7:30 PM shift and avoid cooking the unnecessary birds for the low after 9:00 PM volume?

Oven management has been improved tremendously and the team actually shuts the oven off late during the final batch of the day. They remove the chickens one rod at a time and use the residual heat in the oven as a warmer. With the earlier closing time, there is very little over production.

Someone should have been counting the lost revenue at 8:00 PM. Perhaps a person could be stationed at the door to explain the 100% fresh production policy and to offer a coupon for a future meal.

Lost revenue issues have evaporated along with the revenue potential. A fast casual Mexican concept opened recently and they are slammed. The current chicken crowd is very manageable and much less lucrative. Will they ever be able to recapture the people who left in frustration during the chaotic opening week? Only time will tell.

I would purchase a large digital time piece for the front window. Every time the chickens start their 1 hour journey from their raw marinated state to the fantastic mouth watering perfection, the clock could be reset. Patrons could drive by and check the clock.

No clock but they are communicating in a less direct manner. When the restaurant line gets long, they close the blinds in the front window. Anyone in the know avoids the place when the blinds are closed.

Impact of Waste and Spoilage on Food Cost

Is waste and spoilage included in food cost? How do you calculate it? What about the waste in fish? How is that worked out?

Badal

The food cost figure does include waste and spoilage Badal. Your food cost totals will include the cost of any unusable trim from cleaning and butchering protein items and vegetables. In addition, any waste from overproduction is included. All spoilage is included.

Regarding the calculation question, your food cost formula will not change. It is always the same basic model:

FOOD COST = BEGINNING INVENTORY + PURCHASES - ENDING INVENTORY

Waste, spoilage, trim, theft, over production waste and improper portion control are all major sources of variance. Your variance reports should be setup in a manner which will help management reduce food cost through lower unfavorable variances.

I prefer to handle yield data from butchering and cleaning processes with standard recipes. Every fish butchering batch would have a different actual yield which should be compared to the standard. The ideal cost would flow from the standard yield. Any over or under trim is a variance.

Spoilage and waste should be calculated differently depending on the production phase. Raw food stock variance may be calculated using the purchase price times the weight or volume. Work in progress and finished goods should be calculated using the standard recipes. For example, if you had a fish soup spoil you would calculate the variance using the volume of soup discarded times the cost from the standard recipe.

Portion control systems which use production data, sales data and standard recipes will help you reduce the impact of poor portion control and theft. The trick is to closely monitor the food placed in production. Once highly perishable stock is placed in production, it should be sold quickly or tracked on a waste sheet.

A comprehensive variance report would show the traditional food cost model followed by a recap of variance. Routine trim yields will not be a part of this report. The report should highlight excessive loss due to poor quality protein items (those with yields below the standard), spoilage, production waste, and missing portions.

Lower Your Food Cost By Joining Our Group

Thanks to Jeff Marshall of the Arizona Republic for his article this week regarding group purchasing organizations. Dynamic Chains has members in Massachusetts, Maryland, Virginia, District of Columbia, Michigan, Illinois, Indiana, New Jersey and Texas. Our members have between 5 and 50 units and have a master distribution agreement with a major distributor.

For more information, please call us at (800)949-3295.

Daily Food Cost Calculation Question

I'm in the hotel industry and to get an exact food cost every day, I have a point of sale system. From there I have the net cost of purchases, and the net income.

My question is: If I use those parameters (net cost divided by net revenue) is this the true food and beverage cost?

The reason I ask is because of tax, should I calculate the purchase price with tax? The revenue with tax. I think not.

Just want to ask someone else that seems to know allot about F&B cost control.

Thanks,

Pieter

Pieter, I'm going to start with your term "net cost of purchases" since this is the key term. I would include the taxes paid on goods purchased in my cost of goods sold. If we hadn't purchased stock, we would not have been taxed. The tax is directly tied to your purchases. However, very few operations spread taxes paid over all items in an accurate manner. Most operators expense the tax immediately in the cost of goods sold total. Why is this the case?

If taxes were included in inventory calculations (item by item in the cost per unit used to extend the quantity), the tax would be allocated accurately to the cost of goods sold. By leaving tax out of the cost per item, operators are being conservative since they recognize the expense as soon as they book purchases in their accounts payable journal.

We all need to pay sales tax directly to the various governments. This tax is not available to cover other expenses or profit. Therefore, I would omit the tax on revenue and use net revenue in my calculation.

To get an exact food cost every day, you need to monitor goods leaving your inventory stocks. Closely monitoring purchases is an excellent idea but it won't provide you with the correct numerator in the formula. If you purchased a case of canned tomatoes and only used one can on the day of the purchase, your inventory of canned tomatoes would increase by 5 cans. These cans shouldn't be included in the food cost for the date of purchase.

Most operators do not monitor goods requisitioned from inventory. Many hotels do track transfers but it is very rare in restaurants. The daily transfer recap would provide you with the figure needed to do an exact daily food cost.