In 1991, my wife Jackie and I spent two weeks in the Finger Lakes area of New York State. We decided to stay at a hotel in Ithaca. Near Cornell University, we found a terrific bookstore with a big red dot on the door. Once inside, I went hunting for books on food purchasing and restaurant cost control.
After a half hour of browsing through the available books, I purchased two excellent selections - SPECS by Lewis Reed and Controlling and Analyzing Costs in Foodservice Operations by James Keiser and Frederick J. DeMicco.
My goal in working with these two books was to develop a set of spreadsheets to help clients improve their food cost performance.
During the next 3 years, I learned how to build recipe models using four different software systems. The number crunching needed to calculate ideal food costs was out of reach for many restaurant owners and managers. The software made this possible.
At the same time, I used WinFax Pro to deliver a newsletter - POSitive ROI - to New York City restaurants. I had time to chat with my early New York clients, as the slow computers worked for hours to get the ideal use report. These restaurant owners would ask me about my background and for any tips to improve profitability. Many times, I recommended the two books I had purchased from the book store in Ithaca, NY.
A few years ago, I received a phone call from Dr. Fred DeMicco, the co-author of the book on controlling and analyzing costs. He invited me to join a team he was organizing to create an e-book for restaurant management. I accepted the invitation with great enthusiasm and we began the project.
After many months, the book has been published by Kendall Hunt. The team at KH has done a wonderful job of editing the book and giving it the right look. This book is designed to help current and future restaurant owners and managers improve their knowledge of essential restaurant management skills and techniques.
The final two chapters in the book focus on budgeting and break even analysis. Most restaurant professionals can benefit from the advice in these two chapters. In today's volatile environment, restaurants need to deal with wage inflation, increased health care costs, big swings in food costs and tremendous competition.
Year to year comparisons can be difficult due to weather events, business interruptions, natural disasters, droughts, diseases and many other factors which we see on the news. A well prepared budget can be quickly modified to reflect actual operating conditions when you face an unanticipated change in your business environment.
Your break even point can change in a hurry with a minimum wage boost or a new group health care plan for your employees. Should you open a second location? What will be the impact? Break even analysis can help provide answers to these questions.
The book may be purchased directly from Kendall Hunt's website in paperback or e-book format.
Friday, March 27, 2015
Monday, January 19, 2015
Food Cost Tips - Fabrication and Butchering
BASIC BUTCHER YIELDS
Many restaurants purchase large wholesale cuts of meat. Generally, these cuts offer a lower price point to the skilled butchers. They take advantage of their diverse menu selections and utilize the trim associated with these cuts. Packers offer restaurants a selection of quality grades including prime, choice and select. It is important to purchase prime or choice cuts for steaks and chops.
Stew meat and ground meat do not require prime cuts. If you butcher a prime cut and are left with stew meat and ground meat trim, how should you treat this in your food cost? The best way to determine the proper credit is to pretend you needed to buy stew meat or ground meat. This purchase price should be used to determine the credit. You need to know the current cost per pound of ground meat and for stew meat.
Most butcher yield sheets have one to three primary uses for the meat. In addition, these sheets record usable and unusable trim weights. The key to success is following the total price paid for each wholesale cut (or box of several pieces) all the way through to the cost per portion for each primary use.
It really isn't necessary to track unusable trim in the portion cost calculations. You may want to record these weights for future negotiations with your meat suppliers.
The total amount paid for the meat put into production needs to be assigned to the products yielded in the fabrication process.
If you weigh the usable trim and use the current prices for stew meat and ground meat, you can determine the credit to be applied to the total amount paid. The net amount, after applying the credit, needs to be assigned to your portions produced.
If you have only one objective, for example filet mignon 8 ounce steaks, you simply divide the net amount by the number of portions you produced. The total of all portions valued at the net price per portion and the value assigned to the trim must equal the total amount paid for the meat.
COMPLEX BUTCHER YIELDS
Many wholesale cuts of meat produce more than one end use. These cuts may produce roasts, steaks, chops, shanks, scallopini, and cutlets. The process of assigning the proper value to each unique end use is more art than science.
Start with the primary reason you purchased the wholesale cut of meat. Just like the trim meat, we need to know the price per pound for this retail cut. Once you have this information, you can properly value all of your meat in this butcher yield.
The total amount paid for the wholesale cut remains our starting point. From this number, you need to subtract the value for the trim meat to determine the net cost to assign to the main cuts. Using the retail price per pound for the primary item produced, you multiply the weight by the price to determine the total for this cut. Subtract this from the net amount after assigning the trim credit. This calculation will supply the dollar value to assign to the other main cuts produced. You also need the weight of these other cuts.
We are now ready to determine portion costs for each of our main cuts.
Trim weight is valued using the current prices for stew meat and ground meat. The primary cut portion cost is calculated next. You have the total weight and the cost per pound from current prices. Multiply these two numbers to find the total cost to assign to primary cut portions. Divide the total cost for this cut by the number of portions produced.
Finally, we can determine the value for all other cuts using the total dollars after subtracting the trim credit and the credit for the primary cut. Take the net dollar value and divide this amount by the total weight of all other cuts. This will determine the cost per pound and the cost per ounce for these cuts. Depending on the portion sizes for each cut, use the cost per pound or ounce to determine the portion cost.
To check your work, make sure the total dollars for trim and portions of the primary cut and all other cuts equal the total amount paid for the meat purchased.
INVENTORY CONTROL
When you butcher meat, the goal is to remove the cost of the meat you purchased from your food inventory and assign this total to the portions produced. You will credit the value of the raw product taken from stock and debit the value of the products produced. If you had a vendor called BUTCHER, you would have an invoice with a net amount of zero. You would send this vendor the raw meat as a credit or negative number. For each cut produced, you would buy the number of portions at the price per portion from your yield sheet. The invoice total would be zero.
Most inventory control systems allow you to handle credits using a negative number for the quantity (pound, portion, etc.). They always use a positive number for the price. The process is similar to handling deposits and returns, short shipments and other credits.
SUMMARY
Using well documented butcher yield sheets, actual purchase prices for wholesale cuts, current retail prices for trim items, and current retail prices for primary use items, you will be able to accurately track portions produced by your butcher. If you use a system which has ideal cost reports, the techniques above will allow you to eliminate poor yields as a source of variance.
Your inventory will reflect the proper cost for each wholesale cut (not yet butchered), each portion and the trim weight.
NOTE: You may have meat with bones. If the bones are not served to customers, they are trim. Only credit the bones if you would have to purchase bones to create a base menu item. Otherwise, you should treat the bones as unusable trim.
Many restaurants purchase large wholesale cuts of meat. Generally, these cuts offer a lower price point to the skilled butchers. They take advantage of their diverse menu selections and utilize the trim associated with these cuts. Packers offer restaurants a selection of quality grades including prime, choice and select. It is important to purchase prime or choice cuts for steaks and chops.
Stew meat and ground meat do not require prime cuts. If you butcher a prime cut and are left with stew meat and ground meat trim, how should you treat this in your food cost? The best way to determine the proper credit is to pretend you needed to buy stew meat or ground meat. This purchase price should be used to determine the credit. You need to know the current cost per pound of ground meat and for stew meat.
Most butcher yield sheets have one to three primary uses for the meat. In addition, these sheets record usable and unusable trim weights. The key to success is following the total price paid for each wholesale cut (or box of several pieces) all the way through to the cost per portion for each primary use.
It really isn't necessary to track unusable trim in the portion cost calculations. You may want to record these weights for future negotiations with your meat suppliers.
The total amount paid for the meat put into production needs to be assigned to the products yielded in the fabrication process.
If you weigh the usable trim and use the current prices for stew meat and ground meat, you can determine the credit to be applied to the total amount paid. The net amount, after applying the credit, needs to be assigned to your portions produced.
If you have only one objective, for example filet mignon 8 ounce steaks, you simply divide the net amount by the number of portions you produced. The total of all portions valued at the net price per portion and the value assigned to the trim must equal the total amount paid for the meat.
COMPLEX BUTCHER YIELDS
Many wholesale cuts of meat produce more than one end use. These cuts may produce roasts, steaks, chops, shanks, scallopini, and cutlets. The process of assigning the proper value to each unique end use is more art than science.
Start with the primary reason you purchased the wholesale cut of meat. Just like the trim meat, we need to know the price per pound for this retail cut. Once you have this information, you can properly value all of your meat in this butcher yield.
The total amount paid for the wholesale cut remains our starting point. From this number, you need to subtract the value for the trim meat to determine the net cost to assign to the main cuts. Using the retail price per pound for the primary item produced, you multiply the weight by the price to determine the total for this cut. Subtract this from the net amount after assigning the trim credit. This calculation will supply the dollar value to assign to the other main cuts produced. You also need the weight of these other cuts.
We are now ready to determine portion costs for each of our main cuts.
Trim weight is valued using the current prices for stew meat and ground meat. The primary cut portion cost is calculated next. You have the total weight and the cost per pound from current prices. Multiply these two numbers to find the total cost to assign to primary cut portions. Divide the total cost for this cut by the number of portions produced.
Finally, we can determine the value for all other cuts using the total dollars after subtracting the trim credit and the credit for the primary cut. Take the net dollar value and divide this amount by the total weight of all other cuts. This will determine the cost per pound and the cost per ounce for these cuts. Depending on the portion sizes for each cut, use the cost per pound or ounce to determine the portion cost.
To check your work, make sure the total dollars for trim and portions of the primary cut and all other cuts equal the total amount paid for the meat purchased.
INVENTORY CONTROL
When you butcher meat, the goal is to remove the cost of the meat you purchased from your food inventory and assign this total to the portions produced. You will credit the value of the raw product taken from stock and debit the value of the products produced. If you had a vendor called BUTCHER, you would have an invoice with a net amount of zero. You would send this vendor the raw meat as a credit or negative number. For each cut produced, you would buy the number of portions at the price per portion from your yield sheet. The invoice total would be zero.
Most inventory control systems allow you to handle credits using a negative number for the quantity (pound, portion, etc.). They always use a positive number for the price. The process is similar to handling deposits and returns, short shipments and other credits.
SUMMARY
Using well documented butcher yield sheets, actual purchase prices for wholesale cuts, current retail prices for trim items, and current retail prices for primary use items, you will be able to accurately track portions produced by your butcher. If you use a system which has ideal cost reports, the techniques above will allow you to eliminate poor yields as a source of variance.
Your inventory will reflect the proper cost for each wholesale cut (not yet butchered), each portion and the trim weight.
NOTE: You may have meat with bones. If the bones are not served to customers, they are trim. Only credit the bones if you would have to purchase bones to create a base menu item. Otherwise, you should treat the bones as unusable trim.
Thursday, August 28, 2014
Operators Are Watching Portion Sizes Carefully
I have been traveling through New England and Upstate New York this summer. While driving on major highways, the meal choices are limited to major chains for the most part. Menu prices tend to be 10% higher at the rest area food courts.
Most of the popular concepts have strict portion control built into their service. I did not notice many changes in portion size. The main observation in the chain concepts was the tight control over complimentary condiments. Gone are the handfuls of ketchup and mustard. Napkins are also being strictly controlled at the grab and go locations. You need to ask for cream for your coffee at every place I visited.
My favorite meals were in off the beaten path locations. Most operators were watching the portion sizes.
We stopped for a chicken BBQ at a church near Keuka Lake in Hammondsport, NY. For $8, they served one half chicken, one roll, one butter patty, one serving spoon of salt potatoes and one container of cabbage salad (similar to cole slaw).
The utensils and napkin were carefully distributed - one per guest. The lemonade was technically unlimited but the cup size was designed to limit consumption. It was a very satisfying meal and I complimented the pit crew on my exit.
I want to emphasize the portions were carefully controlled. This does not mean they were small. On a trip from Amherst to Concord, MA, we stopped for fried clams. I decided to order one quart for three people. We were overwhelmed with clams but the portion was controlled. The way the operator handles portion size is as follows: a waxed one quart container with flaps for the cover is placed in a paper bag. The server fills the container all the way to the top of the flaps.
We would have been satisfied with a pint. However, I observed the same paper bags at the picnic tables nearby. The amounts seemed exactly the same. The parking lot was completely full and the seasonal shack had an impact on the local traffic patterns.
The server handed me three containers of tartar sauce (one per person) and let me know more was available if needed. Guests helped themselves to napkins.
We enjoyed a terrific breakfast of Eggs Benedict in Concord. This dish was carefully put together with one english muffin, two poached eggs, two slices of back bacon, a serving spoon of hollandaise sauce and 3 ounces of home fries. We were all offered a second cup of coffee or extra water for the tea. The potatoes were excellent and we all had exactly the same size portion.
Massachusetts has world class ice cream stands and terrific donut shops. It's impossible to travel through the state without stopping at least once for each temptation.
While the medium cup of ice cream would have been called large in the Mid-Atlantic, every customer was served the same overloaded cup. Donuts are easy to portion. The napkins were self-serve at the ice cream stand. We each received a single napkin at the donut shop. Control of napkins, sugar and cream was the norm at several coffee shops we visited.
Amherst, MA is part of the five college consortium between the Berkshire Mountains and the Quabbin Reservoir. Although we were in town when school was out for the summer, the main street shops were open for business.
We enjoyed one of the best roast beef sandwiches in many years at a sub shop and bakery. The fresh baguettes were sliced in half and the freshly sliced beef was weighed (5 ounces). The lettuce and tomatoes and the condiments were all carefully portioned. We received two napkins per sandwich. I noticed the baked goods were all pre-sliced. Some cookies were wrapped in 3-packs.
Our favorite spiedie pit in the Southern Tier area (near Binghamton, NY) serves generous portions. The spiedies are portioned prior to cooking on skewers. The meat is served on a single pita with one spoonfull of sauce. All condiments and vegetables are measured carefully.
We split a large french fries order. They use a bag method similar to the fried clams stand but smaller. All of the patrons at the tables near ours had the exact same bag size filled to the brim. For beverages, they hand you a cup and you can refill the cup.
There is an outdoor market/bazaar operation outside Penn Yann at the top of Keuka Lake. We were told to see the Polish Princess for her pierogies. She was sold out of everything except the pierogies since we arrived near closing time.
We each received five pierogies and we were allowed to spoon on the sour cream and dill sauce. She chatted with us and encouraged us to enjoy the sauce. The orders sold for $5.75 per portion or $1.15 per pierogie.
She looked like she had a busy day.
With so many restaurants wrestling with tactics to lower their food cost this year, it is important to watch your portion sizes like a hawk. Make sure you are consistent. If you are known for generous portion sizes, it is important to meet your customer's expectations.
Most of the popular concepts have strict portion control built into their service. I did not notice many changes in portion size. The main observation in the chain concepts was the tight control over complimentary condiments. Gone are the handfuls of ketchup and mustard. Napkins are also being strictly controlled at the grab and go locations. You need to ask for cream for your coffee at every place I visited.
My favorite meals were in off the beaten path locations. Most operators were watching the portion sizes.
We stopped for a chicken BBQ at a church near Keuka Lake in Hammondsport, NY. For $8, they served one half chicken, one roll, one butter patty, one serving spoon of salt potatoes and one container of cabbage salad (similar to cole slaw).
The utensils and napkin were carefully distributed - one per guest. The lemonade was technically unlimited but the cup size was designed to limit consumption. It was a very satisfying meal and I complimented the pit crew on my exit.
I want to emphasize the portions were carefully controlled. This does not mean they were small. On a trip from Amherst to Concord, MA, we stopped for fried clams. I decided to order one quart for three people. We were overwhelmed with clams but the portion was controlled. The way the operator handles portion size is as follows: a waxed one quart container with flaps for the cover is placed in a paper bag. The server fills the container all the way to the top of the flaps.
We would have been satisfied with a pint. However, I observed the same paper bags at the picnic tables nearby. The amounts seemed exactly the same. The parking lot was completely full and the seasonal shack had an impact on the local traffic patterns.
The server handed me three containers of tartar sauce (one per person) and let me know more was available if needed. Guests helped themselves to napkins.
We enjoyed a terrific breakfast of Eggs Benedict in Concord. This dish was carefully put together with one english muffin, two poached eggs, two slices of back bacon, a serving spoon of hollandaise sauce and 3 ounces of home fries. We were all offered a second cup of coffee or extra water for the tea. The potatoes were excellent and we all had exactly the same size portion.
Massachusetts has world class ice cream stands and terrific donut shops. It's impossible to travel through the state without stopping at least once for each temptation.
While the medium cup of ice cream would have been called large in the Mid-Atlantic, every customer was served the same overloaded cup. Donuts are easy to portion. The napkins were self-serve at the ice cream stand. We each received a single napkin at the donut shop. Control of napkins, sugar and cream was the norm at several coffee shops we visited.
Amherst, MA is part of the five college consortium between the Berkshire Mountains and the Quabbin Reservoir. Although we were in town when school was out for the summer, the main street shops were open for business.
We enjoyed one of the best roast beef sandwiches in many years at a sub shop and bakery. The fresh baguettes were sliced in half and the freshly sliced beef was weighed (5 ounces). The lettuce and tomatoes and the condiments were all carefully portioned. We received two napkins per sandwich. I noticed the baked goods were all pre-sliced. Some cookies were wrapped in 3-packs.
Our favorite spiedie pit in the Southern Tier area (near Binghamton, NY) serves generous portions. The spiedies are portioned prior to cooking on skewers. The meat is served on a single pita with one spoonfull of sauce. All condiments and vegetables are measured carefully.
We split a large french fries order. They use a bag method similar to the fried clams stand but smaller. All of the patrons at the tables near ours had the exact same bag size filled to the brim. For beverages, they hand you a cup and you can refill the cup.
There is an outdoor market/bazaar operation outside Penn Yann at the top of Keuka Lake. We were told to see the Polish Princess for her pierogies. She was sold out of everything except the pierogies since we arrived near closing time.
We each received five pierogies and we were allowed to spoon on the sour cream and dill sauce. She chatted with us and encouraged us to enjoy the sauce. The orders sold for $5.75 per portion or $1.15 per pierogie.
She looked like she had a busy day.
With so many restaurants wrestling with tactics to lower their food cost this year, it is important to watch your portion sizes like a hawk. Make sure you are consistent. If you are known for generous portion sizes, it is important to meet your customer's expectations.
Saturday, May 10, 2014
Food Cost Tips for Excel Pros
Lots of restaurants control their food cost using a target food cost percentage combined with a purchase recap and an ending inventory value. They use Excel to do the calculations for the ending inventory.
If you use the calendar for inventory cutoffs, you will be counting the stock on various days of the week. You need to make sense of the count for any given day of the week. For example, we'd expect to find high inventory levels closer to the weekend and lower levels early in the week at many dinner houses.
One simple exercise can greatly improve your knowledge of how your food cost varies. You need to get a feel for the 25 items you spend the most amount of money on over the entire year. Vendor tracking reports and invoice reviews can quickly isolate these items.
Closely track the cases purchased for each of these 25 items in a separate Excel file or worksheet. The data would include the date, number of cases and the cost (use the extension figure). Each month, you need to recap the purchases for each item. All we need is the summary data: total cases and total cost.
On your inventory matrix, add a column for PURCHASED to the right of the inventory extension column. For each of the top 25 items, add the total purchases amount in the new column.
Create another column to the right of PURCHASED called DAYS. For each of the top 25 items, you will divide the inventory total by the purchased total in parentheses and multiply by the days in the month. For example, if your inventory for burger patties was $1,200 and you purchased $3,000 in a 30 day month, your number of days would equal 12 days.
Put the number of days for each of the top 25 items in context. Is the item frozen, fresh, canned or dry? Most fresh items should yield a low number of days. You would not want to see 45 days of fresh boneless, skinless chicken breasts. The freezer may have been stocked due to an especially low cost on a small number of selected items. Make sure the cost per case for all over stocked frozen items justifies the quantity purchased.
Fresh fish, poultry and meat should have less than 7 days in stock. Remember all over stocked items are using cash which could be used in other areas.
If you use the calendar for inventory cutoffs, you will be counting the stock on various days of the week. You need to make sense of the count for any given day of the week. For example, we'd expect to find high inventory levels closer to the weekend and lower levels early in the week at many dinner houses.
One simple exercise can greatly improve your knowledge of how your food cost varies. You need to get a feel for the 25 items you spend the most amount of money on over the entire year. Vendor tracking reports and invoice reviews can quickly isolate these items.
Closely track the cases purchased for each of these 25 items in a separate Excel file or worksheet. The data would include the date, number of cases and the cost (use the extension figure). Each month, you need to recap the purchases for each item. All we need is the summary data: total cases and total cost.
On your inventory matrix, add a column for PURCHASED to the right of the inventory extension column. For each of the top 25 items, add the total purchases amount in the new column.
Create another column to the right of PURCHASED called DAYS. For each of the top 25 items, you will divide the inventory total by the purchased total in parentheses and multiply by the days in the month. For example, if your inventory for burger patties was $1,200 and you purchased $3,000 in a 30 day month, your number of days would equal 12 days.
Put the number of days for each of the top 25 items in context. Is the item frozen, fresh, canned or dry? Most fresh items should yield a low number of days. You would not want to see 45 days of fresh boneless, skinless chicken breasts. The freezer may have been stocked due to an especially low cost on a small number of selected items. Make sure the cost per case for all over stocked frozen items justifies the quantity purchased.
Fresh fish, poultry and meat should have less than 7 days in stock. Remember all over stocked items are using cash which could be used in other areas.
Friday, April 04, 2014
How to Cover the Higher Cost of Food Items
We are in a difficult year for protein purchases. The bad weather, diseases and continued use of grains in fuel for autos will make 2014 a challenging year for purchasing managers. If you missed the chance to sign a long term contract before all the bad news, your company will see a significant food cost increase this year.
How should you react to this year's higher cost of food? The higher prices are not restricted to restaurant operations. Grocery stores are charging higher prices for many protein items. Your customers are paying these higher prices along with you. There is an expectation of higher menu prices. Major weather events and the porcine epidemic diarrhea virus were front page stories.
The question is not whether to raise your menu prices. A better question to ask is "How high should I raise my menu prices?"
The answer to this question will depend on your specific market conditions. Highly competitive restaurant markets offer value menu customers very low prices on many popular menu items. If you operate in a price sensitive market, you need to be careful with price increases on your high volume items.
One strategy involves a small increase in a beverage ordered by a high percentage of patrons.
We'll use an example to illustrate. Our top menu selections include a protein item with a $2 per portion cost. We expect the cost per portion to increase 10% to $2.20. Our annual sales of these menu items equals one million portions. This is a $200,000 increase in our costs. Our customers purchase two million portions of fountain beverages each year. If we increased the selling price of fountain beverages by ten cents, we would cover the increase in the protein portions.
If the most popular menu item currently has a selling price of $6, we could raise the price to $6.20 to cover the increased cost of sales in our example. This price increase will generally have higher visibility than the increase in fountain beverages. If you sell a high percentage of value meals, I'd recommend leaving the price of the sandwich at $6 and increasing the value meal price by twenty cents.
All of your food and beverage menu items need to be adjusted on a routine basis (either quarterly, semi-annually or annually). You may operate in a seasonal market. Timing of the menu price increases should be in sync with these routine adjustments. Your customers may balk if you increase prices too frequently.
Some restaurant owners and managers fear a major business loss from setting menu prices too high. I have seen prices freeze near many popular price points including $0.99, $1.99, $4.99 and $9.99. If you can demonstrate a quality advantage to your customers, they will be willing to pay the new price. Once you break through these barrier price levels, I think you will find it easier to adjust prices in the future.
Hopefully, we will see better crop conditions this year. If protein prices take a drop later in 2014, you can put the profits in the bank to cushion you from the next upturn.
If you are confident in your knowledge of the market, you could find an opportunity to lock in lower prices later this year. A significant price decline could offer you an opportunity. Most major distributors and manufacturers can help their customers with these issues.
One mistake to avoid is going long when prices are already high. This locks the higher prices in for a longer time period. Be patient and pay the market prices until you see a significant drop. Pretend you have a huge freezer behind your restaurant. When would you want to fill the freezer with product purchased on sale? This is a good way to decide when to go long.
How should you react to this year's higher cost of food? The higher prices are not restricted to restaurant operations. Grocery stores are charging higher prices for many protein items. Your customers are paying these higher prices along with you. There is an expectation of higher menu prices. Major weather events and the porcine epidemic diarrhea virus were front page stories.
The question is not whether to raise your menu prices. A better question to ask is "How high should I raise my menu prices?"
The answer to this question will depend on your specific market conditions. Highly competitive restaurant markets offer value menu customers very low prices on many popular menu items. If you operate in a price sensitive market, you need to be careful with price increases on your high volume items.
One strategy involves a small increase in a beverage ordered by a high percentage of patrons.
We'll use an example to illustrate. Our top menu selections include a protein item with a $2 per portion cost. We expect the cost per portion to increase 10% to $2.20. Our annual sales of these menu items equals one million portions. This is a $200,000 increase in our costs. Our customers purchase two million portions of fountain beverages each year. If we increased the selling price of fountain beverages by ten cents, we would cover the increase in the protein portions.
If the most popular menu item currently has a selling price of $6, we could raise the price to $6.20 to cover the increased cost of sales in our example. This price increase will generally have higher visibility than the increase in fountain beverages. If you sell a high percentage of value meals, I'd recommend leaving the price of the sandwich at $6 and increasing the value meal price by twenty cents.
All of your food and beverage menu items need to be adjusted on a routine basis (either quarterly, semi-annually or annually). You may operate in a seasonal market. Timing of the menu price increases should be in sync with these routine adjustments. Your customers may balk if you increase prices too frequently.
Some restaurant owners and managers fear a major business loss from setting menu prices too high. I have seen prices freeze near many popular price points including $0.99, $1.99, $4.99 and $9.99. If you can demonstrate a quality advantage to your customers, they will be willing to pay the new price. Once you break through these barrier price levels, I think you will find it easier to adjust prices in the future.
Hopefully, we will see better crop conditions this year. If protein prices take a drop later in 2014, you can put the profits in the bank to cushion you from the next upturn.
If you are confident in your knowledge of the market, you could find an opportunity to lock in lower prices later this year. A significant price decline could offer you an opportunity. Most major distributors and manufacturers can help their customers with these issues.
One mistake to avoid is going long when prices are already high. This locks the higher prices in for a longer time period. Be patient and pay the market prices until you see a significant drop. Pretend you have a huge freezer behind your restaurant. When would you want to fill the freezer with product purchased on sale? This is a good way to decide when to go long.
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