When it comes to food and beverage purchasing management, Food Buyers Network has often found both hotel and restaurant operators unfamiliar with how to construct the best purchasing programs for their operation. As purchasing management is a critical component of food cost control and overall hotel or restaurant profitability, these operators fail to maximize their potential food service or hotel operating profit. To be clear, we find that while every operator recognizes that purchasing best practices are integral to cost control, many often do not invest the time to research and execute these procurement best practices. While any successful operator will want to get the right product at the best price, we have found that there are as many hotel and food and beverage purchasing methods in use as there are operators. Often times, we find that operators simply do not address or fully recognize everything involved in a comprehensive procurement program—for both food and beverage, as well as hotel categories such as engineering, amenities, linen, chemicals and office supplies. The following will take a look at several considerations when looking at food and beverage purchasing management.
Food Cost Control Begins with Understanding Your Needs. The first critical step in good purchasing is to develop specifications for all product needs. Each product has a set of specifications that makes that product unique--sometimes these specifications make the quality better or worse; sometimes it just makes the product different. In addition to the taste and quality differences—varying specifications also impact the product’s price. If an operator does not identify the proper product specifications, then it is probable that both consistency and price will fluctuate. If products being purchased by an operation are consistent, it is critical to thoroughly examine the specifications of these products to ensure that what is currently being ordered is the best for your operational needs. Often times, this consistency may be due to either product decisions that were not researched or because the supplier chose a product that seems to have met an operator’s needs.
While this may seem good, it is possible that other products would also be suitable for less cost. For example, we recently on boarded a new member that was very happy with the quality of oranges that they were consistently receiving from their supplier. This made sense, as they were top quality oranges without any exterior blemishes. However, because these oranges were being used by the kitchen to produce fresh squeezed orange juice, there were other oranges available that, while having exterior blemishes, were just as well suited for making orange juice as the expensive ones that their supplier had been shipping to them.
Whenever we execute these specification analyses for new Food Buyers Network members, we find examples of this practice.
Lower Supply Chain Costs (should) Lower Operator Costs. Food Buyers Network often finds operators that believe hard negotiation and bidding out products is the best way to purchase. We believe this is often the case simply because it provides an operator with certain benefits, along with a sense of purchasing control, with limited time invested. The truth is that while negotiation is certainly important, tough negotiation, alone, will never produce the best possible results. Operators truly seeking to manage either food cost control or hotel cost control should recognize that getting the best price is also about lowering the cost for distributors and suppliers of the operator. Some may be wondering why that should be the concern of the operator. Here is an example:
If an average case costs $20 from the manufacturer and it costs the distributor $3 to deliver that case, then even the best negotiator will not get the price of the case below $23—this is simply an economic reality of doing business. While there may be times that an operator is able to push the distributor down on certain products, at the end of the day the distributor will always ensure that they cover both their cost and desired profit. While negotiation may help control the desired profit piece, it does not address the distributor’s cost, which is the other influence on the invoiced price. Now, in this example, if an operator is able to purchase in a manner that lowers the distributor's cost to deliver a case from $3 per case to $2, then that operator has created an opportunity to save an additional dollar on every case by reducing the distributor’s cost to service. The following are a few ways to achieve this.
The issues with "cherry picking".
We recognize that many operators bid out products among multiple distributors or suppliers in an attempt to get the best price. Dividing volume, however, simply adds costs to the supply chain that are passed on to the operator. Ultimately, choosing the most economically efficient way to receive product should always result in reduced costs for the operator. More specifically, operators should consider working with a single distributor so that volume can be consolidated, reducing the cost per case to deliver. Of course, we recognize that with this operators now have to worry about whether they are getting the best price since they are not getting the visibility provided by utilizing multiple suppliers. The best way to manage this is through a prime vendor agreement that commits volume to a single supplier in return for a contract that establishes pricing margins. Alternatively, many hotel and restaurant operators become Food Buyers Network members and take advantage of our national prime vendor agreement, currently through Sysco and a host of hotel suppliers, that provides the same national pricing for all members across the country based on our $1 billion in purchasing leverage.
Drop Size.
Similar to "cherry picking," inefficient drop (delivery) sizes add costs to the supply chain because it takes more deliveries to transport the same amount of product. Obviously, adding an additional delivery will increase the average cost per case to deliver, which will ultimately be passed on to the operator. Setting realistic drop sizes will help whenever you negotiate a distribution program.
Payment Terms.
In today's economy, we are all aware of the cost of credit—which is a consideration for any supplier when an operator chooses to not be a “C.O.D.” account. Having payment terms other than C.O.D. is never just a benefit of being an established business, as the supplier will always factor in the cost of extending credit based on expected repayment—even if the terms are “net 30” and for the best accounts. Ensuring that you stay within your established payment terms with your distributor is essential when it comes to getting the best possible pricing, as well as negotiating a supplier contract. While you may not get pressure from your distributor for paying late, you can be sure that you will pay more for your products or that you will be unable to get the most advantageous supplier contract. Also, you may be able to work with your distributor to get early pay incentives. For example, the Food Buyers Network program provides members with 7 day, 14 day and 21 day early-pay incentives, reducing our supplier invoices when paid early.
Online Ordering.
If you walk into a Whole Foods or similar high-end grocery store, you will have no problem finding a staff member to provide any necessary service. Walk into a Costco or similar volume operation and it may be a bit more difficult. Of course, the prices are not the same, either. Having a distributor sales representative take each order in person or over the phone is certainly nice, but this process is inefficient and adds costs to the distributor, which are passed on to the operator. It is because of this that Food Buyers Network provides all members with a dedicated account manager from their local Sysco distribution center to provide customer support and product information, but requires members to order their products online. Doing so has cut out a major distribution cost and has resulted in a distribution agreement that provides significantly lower pricing. If you are not a Food Buyers Network member, it is most likely possible to get setup using an online order system and may be possible to negotiate a lower pricing structure.
Proper Ordering and Receiving.
Finally, it is absolutely critical that operators execute ordering and receiving best practices to ensure that sufficient product is ordered and that it is delivered as expected. Failing to execute inventories when placing orders by using a clear order guide will lead to missed product that requires additional distributor deliveries or recovery trips from the distributor representative--both of which add costs to distribution that will be passed on to the operator. Often, we find that operators will have more scheduled deliveries per week than necessary not because they don't have the room for storage, but because they like the flexibility of having extra deliveries to cover them when they forget to order product. Unfortunately, this practice will drive up an operator's costs.
Sometimes It Is About Good Old-Fashioned Leverage. Up to this point, we have discussed how leverage alone will not produce the best possible product pricing. While true, leverage is certainly important. Using your volume to negotiate the best distribution program is critical in developing the best possible contract. In fact, a significant factor in Food Buyers Network being able to provide members with a "best in nation" distribution contract, is because of our $1 billion that we have as leverage.
Manufacturer Contracting. An additional purchasing consideration is the need to negotiate deviated product pricing directly with the manufacturers of your products. Unfortunately for many operators, doing so requires time, expertise and significant volume, which are often not available. Even more unfortunate is the fact that no purchasing program can ever come close to maximizing opportunities if the operator does not put manufacturer contracts in place. Very simply, while it is absolutely critical to negotiate a strong program to control your distribution costs, the available margin for distributors is relatively low due to intense competition among distributors—limiting the actual savings that can be gained by negotiating only with hotel suppliers or food service distributors. While savings can certainly be obtained through good distribution management, the majority of available savings comes from the manufacturer. Because barriers to entry are significantly higher for manufacturers, due to brand recognition and capital expenses, manufacturers enjoy a much higher profit margin. Because of this, if an operator is truly interested in establishing the most beneficial purchasing program, then negotiation with manufacturers on top products will be necessary. Again, this can be extremely difficult for operators because of the time, expertise and required volume necessary to put these contracts in place. To effectively achieve this it is often necessary to employ teams of internal procurement professionals to oversee and manage this process. Of course, this is only possible if the operator has the volume to justify this expense and meet the manufacturers’ minimums for engaging in such contracts. Alternatively, Food Buyers Network members of all sizes and volumes are able to benefit from our procurement expertise and product category experts by getting access to over 20,000 products that have been negotiated back to the manufacturers by our team. For our members, these products are available at prices 10-20% cheaper because of the manufacturer's deviated price contract and our "best in nation" distribution program. If operators have the ability to execute this internally, then these savings can also be achieved through that method.
"Trust But Verify." The last consideration that we will examine in this article is the need to audit invoices, as well as your distributor and manufacturer contracts. As this is a routine part of the Food Buyers Network program, we can attest to the fact that pricing mistakes are common. To be fair, in almost all cases these mistakes are not malicious and are just the result of clerical or careless mistakes. Regardless, these mistakes can be costly for an operator. Unfortunately, executing these audits can be a costly practice in terms of both time and money. Our recommendation for operators is to invest in a technology partner that will electronically monitor your invoices and contracts to ensure that billing is accurate. Again, another possibility is to become a member of Food Buyers Network, as every line item of every invoice for each member is compared to our contracts using bleeding-edge technology to ensure that every price is correct for our members. This, combined with our routine supplier and distributor audits, ensures that our members are always invoiced based on our national supplier pricing.
When you think about all that goes into running a hospitality or food service operation, it is amazing that operators find a way to create successful businesses. It is no wonder why hospitality and food service operators are known for working long hours week after week. When you add the intricacies of running great shifts, managing staff in a high-pressured environment, controlling easily lost and often perishable inventory and ensuring guest satisfaction, even the most well-staffed operators will often find that they do not have enough time to address all of the purchasing considerations that we examined in this article. That being said, failing to execute a proper purchasing program can result in significant loss in potential profit.
Should you be interested in learning about how Food Buyers Network can provide your operation access to our procurement solutions and reduce the time and expense burden of managing this process internally, we would be happy to hear from you. You can contact us here and a Food Buyers Network Membership Director will be happy to explain our program and answer any questions. If you prefer, you can call us:
John Schalow
Director of Group Development
(800) 518-0727 x101
If you have been in food service or hospitality management for a while, you have probably come across the cliché about managing a shift like a duck swims in water. The adage goes something like this: from above, a duck seems to effortlessly glide along the water, but if you look below the surface, you will see the duck feverishly paddling his little legs to navigate about. The lesson of the metaphor is that the hospitality and food service manager should have a similar style. While to the guests and staff the manager should look as if he is just floating around calmly working the shift, underneath this cool exterior, the restaurant or hotel manager should be hard at work strategically supporting and controlling the direction of the operation.
I open the article with this cliché because I think the same lesson could be applied to another facet of the hospitality and food service industry--restaurant and hotel financial management. Food Buyers Network often encounters resistance when attempting to facilitate adoption of common financial best practices with independent and regional hospitality operators. Running successful shifts and producing happy guests is a difficult job, but one that all successful operators excel at. Unfortunately, this is not enough to produce a profitable business. Just like successful shifts take hard work, running a profitable business also takes dedication--neither happy guests nor strong income statements happen on their own or by accident. We recognize that many independent and regional operators prefer that their focus remains on daily operations and that they do not want to manage from the office or from a spreadsheet--often feeling that this focus is what differentiates them from national chain operators. While the importance of being engaged in operations and present during shifts is absolutely critical, it is not a substitute for strategic financial analysis and planning. Our recommendation is that even the most engaged operator needs to actively adhere to financial management best practices, even if this aspect of his daily routine goes unnoticed by everyone else--like the duck that seems to just effortlessly glide along the water.
The intricacies of financial management make it impossible to execute this role through gut reactions and "in the moment" decisions. While the intuition of a seasoned operator is critical in achieving profitability goals, this intuition must be harnessed through the use of commonly accepted financial best practices if optimum profitability and performance is to be achieved. The remainder of this article will attempt to highlight a few key reasons to adopt these best practices, as well as to provide a
free excel spreadsheet that can be used for sales projections, budgeting, declining budgets and performance review.
1) The practice of budgeting provides a high-level picture of the financial performance of an operation and allows the operator to understand how a change in one cost or revenue area affects the overall financial picture. It is important to realize that we are talking about relationships between expenses within an operation, not simply looking at each financial factor in a vacuum. For example, a rising food cost when examined as an isolated trend may evoke concern. What if this trend is examined in relation to other financial factors, however? Maybe there was a shift in the product mix towards higher priced items with a higher contribution margin, or maybe there was a menu change that had the same effect. The result of either of these may be a higher price point, resulting in a higher food cost, but more bottom line profit. In that case, maybe the higher food cost is desirable! But what if this higher price point, which produces more per guest profit, actually reduced the number of overall guests, reducing total revenue and profit? Maybe the new menu requires more staff to execute, increasing labor costs and negating any benefit from the higher contribution margin. This is just one of many scenarios that could occur on any given day in the hospitality or food service industry. So, while any seasoned manager could give a thumbs up or down on any financial indicator when examined in a vacuum, it gets much more complicated when trying to understand the financial relationship among each indicator and quantify the result if budgets are not utilized.
2) Another fundamental benefit of budgeting is that it forces operators to make tough business decisions by prioritizing expenses. This is a benefit often overlooked among operators, causing them to forego budgeting. Their thought process goes something like this: "I don't need to budget because I only spend what I need to." Budgets, however, are not designed to differentiate daft decisions from smart ones. Budgeting is a process of prioritizing expenses based on financial realities, regardless of whether each expense when examined on its own seems to be justifiable. The truth is, each expense, examined in a vacuum, may very well have seemed like a good expense, but when the overall impact on the bottom line is understood, it becomes much easier for operators to prioritize and eliminate expenses or to creatively uncover alternative solutions that reduce the initial expense. One of the ways this is achieved is through the use of declining budgets, as you will see in the attached budgeting spreadsheet.
3) Budgeting also provides valuable insight and data to help operators make decisions about future business initiatives. Should you open for breakfast? Should you build a patio? Should you expand the kitchen? Should you renovate the restaurant? All of these could be great ways for operators to improve their businesses, but investing in such initiatives can create huge financial burdens if they fail to perform as expected. Through the use of budgeting, break-even and ROI analyses can be completed that will better define the necessary components of achieving success when looking to undertake such initiatives. Again, the benefit of budgeting in these scenarios is that it looks at the relationship of a given initiative on each of the other expense and revenue areas, rather than judging the merits of a project in a vacuum.
4) Budgeting also creates objective goals that can be easily communicated to the entire management team and staff to ensure everyone is working in concert. The benefit of setting specific, measurable goals has long been understood. When it comes to budgeting and countering negative financial trends, it is much better to provide specific, quantifiable goals than to provide vague direction. For example, setting a weekly labor cost goal of 15% will have a much more significant impact than telling the team to "do better on labor." The objective goals used in budgeting also makes the process of performance review much easier and can create a sense of competition among motivated managers that are determined to "hit the number."
5) The budgeting process often can improve service and operational consistency. As a goal of budgeting is to get a picture of the financial future, operators can use this knowledge to plan accordingly. Specifically, operators can allocate for future expenses ahead of time to ensure that they are able to meet the needs of the operation while maintaining consistent profitability. Too often, mostly in corporate operations, we find businesses that fail to accurately budget and, therefore, overspend at the beginning of a financial period, forcing the drastic cutting of staff and supplies at the end of the period to try and hit the established financial goal. With proper budgeting, however, operators should be able to consistently and continuously deliver on operational needs while maintaining financial performance goals.
6) Lastly, Food Buyers Network sometimes works with operators that see value in budgeting for new businesses, but not those that have been around for a long time. Their thought is that they have continuously honed and sanded each facet of their operation over the years so that it is always running at maximum efficiency. This might be true if restaurants operated in a vacuum. Instead, restaurants and hotels operate in an ever-changing environment. From labor cost and food cost to economic pressures and political influences, the external environment can drastically alter the financial performance of even the most well run business. The extent of these influences on profitability is often difficult to quantify or understand unless actual performance is gauged against established budgets based on previous financial history.
These are only a few of the reasons that Food Buyers Network recommends that operators adopt budgeting as a financial best practice. To help those interested in pursuing this practice, you can download a free budgeting program here that will enable you to execute sales forecasting, budgeting, declining budgets and performance analysis.
Download Budgeting SpreadsheetDownload White Paper
Proper product storage procedures are critical in controlling food service costs, as well as managing restaurant product quality and consistency. While not the most interesting of food cost control topics, any restaurant cost control efforts that fail to include proper storage procedures will fall short of their mark. To better understand both the importance and details of correct food service storage procedures, it is helpful to first outline their goals.
Firstly, a fundamental goal of storage procedures should be to ensure that product is safely maintained until it is ready for production. Fulfilling this responsibility means working with approved suppliers, maintaining proper receiving procedures, ensuring correct cooking and handling behaviors and observing recommended storage practices. Often times, these storage practices are overlooked by operators as a possible key contributing factor in the spread of food borne illness, and failure to understand the impact that this can have on product safety can lead to significant financial losses for a food service operator, not to mention the ethical issues associated with the negligent spread of food borne illnesses.
Secondly, storage procedures should also be designed in a manner that enables inventory visibility and control, ensuring that on-hand product can be accurately counted and ordered. Failure to command this inventory visibility can lead to improper orders, resulting in a surplus of inventory that can result in spoilage and employee pilferage. Improper orders can also lead to insufficient product levels that can cause poor guest service because of out-of-stock product, as well as increased product costs and inconsistency as operators attempt to acquire product, last minute, at grocery stores or neighboring restaurants. In either case, failure to maintain accurate inventory levels can have significant negative effects on a business, and the first step in avoiding this is to understand what product is on the shelves. Instituting storage practices can help provide this inventory visibility.
Thirdly, storage procedures should facilitate easy access to products by those responsible for production and service. By properly organizing storage areas, personnel will be able to more easily locate the correct product needed for shift execution. Improper organization can mean not only delays for staff seeking product, but often also results in employees removing the wrong product from storage, as they fail to locate either a previously opened container of product or the oldest product container on the shelves that should have been utilized first. If you want to test the level of organization within your storage areas, we recommend taking a stroll through the walk-in and dry storage to see if there are multiple opened containers of like product. To be fair, this is not always due to improper organization, but also because of improper staff training. In fact, it is much more common to find multiple opened containers of product utilized by front of the house staff, such as dressings and bags of grated parmesan, than those products utilized by kitchen employees—not that front of the house staff are less trained, but rather that their focus and training is geared more towards service, whereas kitchen staff are typically better trained on product management. Getting products organized and grouped together, however, is a first important step in modifying this behavior.
Fourthly, storage practices should seek to secure product to reduce theft and pilferage. According to the National Restaurant Association, 75% of inventory shortages are attributable to food service employees, which is roughly equivalent to four percent of food service revenue. This means there is over $25 billion in annual food service employee theft. According to the US Department of Commerce, seventy-five percent of employees steal from their place of business at least once, with half of them stealing repeatedly. So, even if you have the most trusted and experienced food service team at your operation, statistics indicate that it is important to have systems in place to monitor behaviors and reinforce ethical practices.
Fifthly, proper storage procedures should help reduce product spoilage, which can result in both increased costs and diminished quality. The manner in which product is stored has a direct correlation to shelf life and quality. Most operators are very selective about the quality of products that they purchase to ensure a proper fit with how the product is utilized within the operation, as well as to ensure the best guest experience. As there is a cost associated with ensuring a specific product quality, it is critical that storage procedures are able to maintain this quality until the product is utilized for production or served to the guest.
Now that we have identified the main goals associated with restaurant product storage, we will attempt to highlight what we believe to be food service industry storage "best practices" for optimizing food cost control. When identifying each best practice, we will attempt to explain how they can be achieved and how they help reach one or more of the previous outlined goals.
1. Keep storage areas clean
Maintaining clean storage areas is critical in promoting the service of safe food. Not only does maintaining clean storage areas help fight illness causing bacteria, but it also reinforces the importance of cleanliness and safety as a priority for the business among your staff. To achieve this goal, it is recommended that operators utilize daily and weekly cleaning schedules for all storage areas. A few ‘must-haves’ on any cleaning schedule would be the daily mopping of storage area floors, routine cleaning of storage shelving and walls and the changing out of drip pans used to collect any blood/liquid from stored or thawing product.
2. Put products away immediately after receiving them
The first opportunity for product quality loss is directly after receipt of the product. To help prevent this, it is critical that product is immediately stored in its proper location once it has been received. Failure to do so can cause those products requiring refrigeration or freezing to be exposed to ambient temperatures that can reduce product quality within a relatively short period of time. Further, as product thaws, it will more easily contaminate other products surrounding it, creating both safety and quality concerns. Finally, until product is safely stored in its proper location, there is an increased likelihood of pilferage or utilization of the new product for production needs, rather than staff going into storage to procure the correct product. The key to executing this best practice is to ensure adequate staffing on delivery days, as well as managing the times of delivery with your suppliers.
3. Follow health/safety guidelines for shelf storage, including keeping items off the floor and following recommended storage room temperatures.
Maintaining proper temperatures and ensuring that products are stored in a manner that prevents cross-contamination is critical in the safe storage or products. There are a number of resources that outline these procedures, including HACCP materials and the NRA's ServSafe program, as well as our safe food temperature chart which can be downloaded form our website. Temperature is typically the most influential factor in product quality and spoilage reduction. It is critical that storage units are maintained at optimal temperatures and, for refrigeration and freezer units, their gaskets are in good repair and that doors are not left open. Next to temperature, the most critical storage safety concern is ensuring that products are zoned in a manner to help prevent the cross contamination of potentially hazardous foods from spilling or dripping. The materials previously referenced can provide acceptable product zoning procedures to help reduce the effects and possibility of cross contamination, or you can download our refrigeration storage chart from our website.
4. Follow recommended storage “zones” to maintain optimal product quality.
Depending on the storage limitations of a particular business, operators may wish to store products in product-specific coolers, such as separate meat, produce, seafood or dairy coolers. While this is often not possible because of space and financial limitations, at least segregating these items within a shared cooler can help maintain product quality, as these products have varying optimal temperatures and can suffer from being stored too closely to other products that can influence their flavor—fresh fish stored near butter, for example. It should be noted that this is a refinement of the previous best practice. While there are product zones that should be established to ensure safe product and limit cross contamination, there are also products that require separate zones to maintain quality, even if there is not a food safety concern, as in the previous example of the neighboring butter and fish. Ensuring all product is properly sealed can help prevent this quality issue, as well.
5. Store product in labeled "zones"
It is highly recommended that operators label storage areas and shelving so that personnel know the correct “home” for each product. The most common brand of storage shelving, Metro, makes a label clip that can be attached to the shelving unit so that a label can be affixed. Regardless of the method used to label product zones, be sure that labels will adhere to the surface over a long period of time. Once shelves are labeled, it should be clear to personnel where product should be stored, and much easier to train staff on how to routinely organize storage areas. Labeling and zoning storage areas will also help ensure that safety and quality objectives are maintained, even by staff members not familiar with the reasoning behind the specific zoning.
6. Do not store products in the shipping box/case, if product is stored in smaller boxes within the shipping case.
Unless product is utilized for production solely by the case in which product was received, product should be stored in the smaller product pack units of each case. Doing so helps conserve space on shelves, enables personnel to quickly grab a container of product as needed and enables an operator to better see what products are on the shelves at any given time. For example, #10 cans of product should be stored out of the cardboard container in which they were received.
7. Do not store product in opened containers, cans or boxes.
Once product is opened, it should be removed from its original container and stored in one that can be sealed and labeled--such as a cambro or lexan-style container. Following this practice will help personnel easily identify open product that should be utilized first, as well as prevent the exposure of product that can lead to quality loss or cross contamination.
Operators should also consider transferring product to heavy-duty containers for those products received in packaging that is susceptible to damage, such as bulk bags of sugar, flour or rice. As these bags can become easily punctured or exposed to moisture, using large, plastic sealable storage bins for these, and similar, products is recommended.
8. Sufficient refrigerated storage to enable proper thawing of frozen product.
Properly thawing product is critical to ensuring that product safety and quality is maintained. In keeping with this, it is important that operators have sufficient space set aside in walk-in coolers to enable the safe thawing of product—often referred to as “pull thaw”. Further, it is highly recommended that “pull thaw” pars are set so that personnel know how much given product to pull from the freezer on a given day to ensure sufficient time for product to thaw before being required for production. It is also important that personnel use drip pans for thawing products so that product does not rest in liquid or blood, nor drip onto products below.
9. Properly cooling product before storage.
It is important that prepared, hot product be either brought to a safe temperature prior to storage, or stored in a manner that will enable the safe cooling of the product. This can be done through ice baths, blast chillers or breaking the hot product down into smaller pieces or batches. Regardless of the method used, it is important that hot, prepared items are cooled down and stored so that they do not remain in the temperature danger zone for more than four hours once placed into storage. More information and recommendations on this are available through the NRA’s ServSafe program or HACCP, or by downloading our food service safe temperature chart from our website.
10. Label all opened product with the date the product was opened, as well as the name of the item.
Once a product is opened, it is important that product is labeled with the name of the product and the date the product was opened. For those operators that want to go a step further, it is not a bad practice to also label the expiration date of the opened product based on established shelf lives. There are a number of ways to complete this, but one of the easiest is to purchase dissolvable “day dots” that your staff can use to label product, and will then dissolve in the dishwasher when the pan is washed. Labeling products will enable operators to follow through on established shelf lives.
11. Establish shelf lives for your products and post these charts for staff to reference.
Products will most likely need to have an unopened shelf life and an opened shelf life. Establishing product shelf lives is critical in ensuring the safest and highest quality products. Further, it is essential that these shelf lives are communicated to operational personnel. A good way to help with this is by creating shelf life charts that can be posted in various operational areas, especially those used for product preparation. In most cases, products will need to have two shelf lives: one for unopened containers and one for opened product. Many of these shelf lives can be obtained from your suppliers. Based on these charts, employees can label product they open with the expiration date to ensure adherence to these dates or, at a minimum, dated product can be compared to posted charts to check shelf life.
12. Date each box placed into storage with the receiving date.
Just as product that is opened should be "dated" to ensure it stays within established shelf lives, unopened containers of products should be labeled with their receiving date to ensure that they not only are used before their shelf life expires, but also to ensure proper product rotation is being observed and that ordering pars make sense based on the usage of particular products. The easiest way to complete this is by using a “price gun,” similar to those used in stores to affix prices to products. Making this process as easy as possible will increase the likelihood that staff consistently executes the standard.
13. Restrict access to storage areas to only those that require it.
Every operator must find the balance between restricting access to product and the need for personnel to quickly access this product during production. For example, operators may wish to restrict access to liquor storage to management only, but may find this policy difficult to adhere to on busy shifts. As a general principle, however, operators should try and restrict access to product to only those personnel that require the product. For costly product, operators may wish to limit access to management only--such as for liquor, steaks and some seafood. If separate coolers are not possible for high-cost product, we recommend the use of product cages that can be setup within storage areas. Again, Metro is a common manufacturer of product cages.
14. Utilize the proper storage equipment and containers.
Setting the right standards with your staff will only be effective if they have the right tools to execute the established standards. This means that operators should be sure to have sufficient storage containers and lids, thermometers for storage areas, sufficient cleaning suppliers, enough drip containers/pans so that they can be routinely changed out, labels for containers, date "gun" for new product, etc. Having sufficient supply of these products requires an investment, but will help ensure that your product is being stored in the safest manner possible to protect your product and guests. Further, there is no better way to reinforce negative behavior in your personnel than setting a standard and then not supplying the necessary tools to achieve the standard--it is almost guaranteed that the standard will never be met.
This may be a good place to note that it is important that the storage equipment designated for particular products needs to work with the storage zone designated for the particular product. To do this, it is helpful to establish the maximum par of each product, figure out the number of containers needed to store that level of product and to then ensure that the established zone has the necessary room for the containers.
15. Periodically organize storerooms to return products to the proper zone.
One of the most critical, routine practices in restaurant storage management is having personnel regularly assigned to spending thirty minutes in each storage area organizing the room according to the established product zones and standards, as described in this article. This practice will prevent storage areas from getting too disorganized over a series of busy shifts, and will again stress the importance to your staff regarding the organization of the storage areas, as well as creating a “sense of ownership.”
16. Store products in a neat and organized manner, with labels facing up and forward and product stored towards the front of the shelves.
It is important that product, in addition to being stored in zones, is stored in a neat and uniform manner. This should include labels facing up and forward, as well as product being stored to the front of the shelves, leaving room towards the back for new product that may be received in the future. Storing product in this manner makes it much easier to view what is on the shelves, as well as execute orders, inventories and receive new deliveries.
17. Rotate product upon receiving.
Another critical factor in ensuring fresh product is the rotation of product upon delivery. It is essential that older product be moved towards the front of each product zone, making room in the back for newer product. This practice will help ensure that older product is utilized first, a practice commonly referred to as FIFO—first in, first out. FIFO, of course, is also an accounting practice that values inventory using the same philosophy. Labeling product upon receipt is a good way to validate this practice. While product rotation is relatively easy for some items, you may find staff avoiding this practice on heavy, bulk freezer items that require the movement of significant product in order to store new product. It helps to ensure that product pars are properly set so there is only a limited amount of each product on hand, making the rotation process a bit easier.
Hopefully, we have been able to successfully outline storage best practices, as well as the reason for their importance. We began this article stating that the subject matter is not very interesting. This is not only true of articles about restaurant storage procedures, but about the practice itself. Often times, operators overlook the importance of dedicating staff and time to this critical function because there seems to be many more important operational areas to focus on. That being said, we hope that we have been able to convey why following these best practices is important for food service operations and how executing them is critical in any comprehensive food cost control program.
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The past year has seen the emergence of many new food service distribution trends. Among these trends is the growing desire by restaurant owners and operators to gain access to the available pool of food service manufacturer rebates, along with the corresponding rise in food service buying groups. Unfortunately, this rising trend has often resulted in little more than frustration by all parties involved--restaurant owner, distributor and manufacturer. A closer examination of the rebate driven, non-committed procurement model as a food cost control technique, along with the history of this practice, reveals serious and inherent flaws in the system.
The underlying principle behind this reality has been addressed in a previous Food Buyers Network blog article, Strategic Relationships in Food & Beverage Management. The primary thesis of the article was that effective procurement strategies are not based on leveraged negotiation alone, but rather through a combination of negotiation and an understanding of the cost structure in the supply chain. In other words, to get the best price, operators need to not only negotiate pricing based on their available purchasing leverage, but to also try and reduce factors that inflate costs throughout the various points in the food service supply chain. Examples of such costs are delivery drop sizes, non-committed volume, cost of extending credit and the level of in-person customer service required. In short, our belief is that any effective procurement strategy will attempt to reduce costs throughout the supply chain, rather than adding to them.
The inherent failure of rebates as a procurement strategy is due to the fact that manufacturer rebates increase supply chain costs, rather than reducing them. As mentioned previously, the economic realities of such practices are the inevitable increase in costs for everyone--including the restaurant operator. To understand this, it is helpful to briefly examine the historical supply chain landscape that has led to the current rebate frustration. Over the years, distributors have served a role beyond that of merely shippers of products. Because manufactures had no direct access to the end consumer, manufacturers have turned to distributors to market their products. Specifically, manufacturers looked to distributor sales representatives to leverage their customer relationships and market products. To promote this relationship, manufacturers offered rebates to distributors, also known as allowances and earned income, that were based on the case movement of their products.
While under the original supply chain model these trade spend practices were logical, the supply chain landscape has shifted over the years, making the execution of rebates, as they were intended, inefficient and ineffective. As distributors began to offer far more private label products, manufacturers realized that distributor sales representatives no longer marketed the manufacturer's branded products, but rather the distributor private labels. This shift from partner to competitor has caused many manufacturers to question the effectiveness of their distributor allowance programs and seek alternatives. While distributors have continued to collect these rebates, it has become increasingly apparent by manufacturers that these rebates are being paid out on volume that would have existed regardless of any rebate programs, as the purchases were not the result of marketing efforts by the distributor.
The logical evolution of this practice was for manufacturers to try and provide these rebate incentives directly to the consumer and bypass the distributor as a means of marketing. Again, this seems to be a logical solution for manufacturers trying to influence consumer purchasing behaviors, once they were unable to rely on distributors to execute this role. Manufacturers, again, often had no access to the consumer to promote these rebates, other than food shows, so they required a replacement to the distributor sales representative. As a result, purchasing cooperatives and buying groups began to spring up to fill this roll, offering rebate incentives to influence member behaviors. The emergence of these buying groups, however, came with their own set of problems that has rendered them ineffective as a procurement management tool.
First, the emergence of these buying groups, also know as group purchasing organizations (GPO), have directly impacted distributor revenue, as rebates that are paid by manufacturers to the end consumer through buying groups are deducted from the allowances they pay to the distributor--this volume is known as non-qualifying volume. Normally, the distributors are the default recipients of these manufacturer rebates, but this revenue stream is reduced every time a manufacturer pays a rebate directly to the consumer through a buying group program. From an economic perspective, the manufacturer position makes perfect sense--they are willing to offer marketing rebates to whomever can drive case movement, which was the intended goal from the very beginning.
On the other hand, it is understandable that distributors do now wish to see their allowance revenue decreased--no company wants to lose an existing revenue line. Even so, a very strong and compelling argument could be made that this is simply an economic readjustment and that distributors will need to cope with the loss of this income, as it was not a direct result of their fundamental business model to begin with. This statement would be easier to make and execute, if it were not for prior distributor business decisions that now make the loss of these allowances impossible for the distribution model. Specifically, as consolidation and increased competition among distributors has increased over the years, distributors began to offer master agreements and street pricing that factored in this rebate revenue on the back end, as most rebates are considered "off-invoice" and do not factor into the cost of the product for the purposes of determining the customer sales price. For example, if a distributor had a break-even point of 8% over cost, they may be willing to extend an 8% contract to a potential new customer to gain their business, because they know the resulting volume will generate an average of 2% in allowances from the manufacturer, providing them the necessary margin to service the new business. So, while the master agreement extended to a consumer might be at the break-even mark, or a slight loss, this is balanced out by these manufacturer allowances. In our opinion, this is where a lot of the current trouble can be traced. Over the years, this type of practice became more prevalent among distributors, despite that as a business practice it was probably unwise for distributors to manipulate pricing in such a manner if they had considered the likely long-term possibilities. Regardless of its prudence, this practice has added a layer of complexity to the supply chain that needs to be more closely examined to uncover whether rebates will, in the end, provide any benefit to the restaurant operator, as it is unrealistic to expect that any business will operate at a loss.
As more consumers elect to participate in rebate buying groups, distributors are faced with losing the revenue that they relied on to make the master distribution agreements and street pricing they extended economically viable. In other words, their prior business model is seriously undermined if the economics of trade spend are realigned, as the growing popularity of buying groups is trying to do. The astute reader should begin to see the inherent flaw behind these rebates--that any operator savings resulting from these rebates will be countered by the necessary increase in distributor pricing so that they can continue to operate at a profit. A big part of the current acrimony between restaurant operators and distributors is due to the fact that most operators (those that have negotiated programs in place) are unaware that their current prices have typically been artificially lowered by the distributor because of these off-invoice allowances. It is worth noting, however, that we are looking at larger macro principles and that there are no doubt countless examples of distributors that are both charging a hefty profit, as well as collecting these rebates. Our goal in this article, however, is to address the economic weaknesses of rebates and trade spend, as well as the reality that rebates are not effective for those operators looking to seriously manage their procurement practices, because of these weaknesses.
The result of this reality is that distributors have recently made a concerted effort to block the growth of buying groups. This attempt by distributors has, in fact, proven to be highly successful in many cases. As buying groups often require the electronic transmission of client purchasing data directly from the distributor to process rebates, by refusing to provide this data feed, distributors are able to basically block an operator's ability to participate in these programs. By so doing, distributors are able to stave off the inevitable, uncomfortable reality of having to raise their prices because of this shift in trade spend.
There is another issue that has developed with the emergence of buying groups, as well. In the beginning, buying groups were setup to represent larger hospitality companies. Manufacturers would extend rebates to these groups because they would then work with the members to ensure purchases were aligned behind the participating manufacturers. As the strength of these group purchasing organizations grew, along with their book of manufacturer rebate deals, many of these groups decided to extend their programs to smaller, independent and regional operators. By so doing, these groups were able to increase their overall case movement and capture more manufacturer rebate dollars--some of which are passed on to the operator and some of which are kept by the group purchasing organizations as a fee. While this seems like a wise business strategy on their part, it often altered the spirit of the existing manufacturer rebate programs because these buying groups were reporting this independent and regional volume to collect available rebates, but they were doing little, if anything, to modify operator behavior in favor of participating manufacturers. In the end, manufacturers ended up with the same predicament that they had with distributors--they were paying rebates to operators for volume that they would have had regardless of whether they paid the rebates. The result is the failure of rebate buying groups to be an effective, long term solution because it fails to address the needs of the manufacturers, again adding costs to the supply chain.
Because of all these issues, we are seeing an increased pressure by both manufacturers and distributors to curb these rebate and trade spend programs. To be clear, it is not that either party is against offering valuable procurement programs to operators that provide mutual benefit, but that these programs are inefficient and ineffective at producing mutual benefit. Our belief, and recommendation, is that this non-committed trade spend should be removed from the supply chain ecosystem so that costs can be accurately assigned to each supply chain partner and the true cost of goods and services understood. From that point, more efficient practices and programs can be implemented that will result in benefit for all.
While there are undoubtedly operators that have been able to benefit from these rebate programs, we believe that the value derived from these programs is misleading. The very inefficiencies created by these trade spend practices, as defined above, should indicate to operators that there are better ways to manage procurement that will result in significantly higher savings. In fact, the average savings that an operator receives from rebate buying programs is 1% of their total spend--2% at best. That being said, there is incredible tension in the industry at the moment due to fighting over whom this 1% belongs to. The reality is that almost 100% of this trade spend is simply increasing supply chain inefficiencies, driving costs up for everyone--including the consumer. By focusing on these programs, operators are missing many procurement opportunities that can deliver actual procurement value. In other words, attention is being incorrectly directed towards rebate programs as a way of reducing procurement costs, rather than focusing on those programs that truly offer value by avoiding all of the inefficiencies described in this article.
We refer to these rebate programs as misleading, because operators often feel that they are extracting value from the supply chain by joining these buying groups--which are everywhere now. In reality, they are leaving about 13% in savings on the table because they are using a program that works against supply chain efficiencies and basic economic principles. In contrast to these rebate programs, procurement solutions, such as those of Food Buyers Network, work with restaurant owners, as well as manufacturers and distributors, to provide operators with procurement strategies that are able to significantly lower costs. The end result of programs such as ours are savings directly off the invoice, rather than rebates, of 10-15%. The point here is not to market the Food Buyers Network program, but to try and combat the rising industry tension surrounding rebate programs and offer some visibility through this current rebate tempest. For all of the previous reasons, operators should be wary about using any rebate program as part of their procurement strategy. Whether they decide to use Food Buyers Network as their procurement solution, or whether operators decide to manage their own procurement, our advice is to work with your suppliers, not against them, to get access to true procurement savings that will drive double digit savings--far beyond any non-committed rebate program.
If you are interested in learning about how Food Buyers Network is able to provide invoiced savings of 10-15% of your total spend, we would welcome you to join our Webinar next Tuesday, September 29th at 1:30PM Eastern time, to learn the details of the program. Regardless of whether you join Food Buyers Network, the supply chain and procurement principles discussed during the webinar should be highly valuable to any food service professional.
-Wednesday, September 29, 1:30-2:00 (Eastern Daylight Time)
A Note About This Blog:
The following short blog is
written to explain the benefits of a new, comprehensive Excel
spreadsheet that we just made available for download. This program
uses the collection of key data to automatically generate actual food
costs, ideal food costs, recipe card price changes and product order
guides. On Monday, we will be posting a more general blog that once
again returns to our food cost control focus. In the meantime, if you
are an independent or regional food service operator that is not
currently able to execute these critical cost control practices, you
may find this free restaurant spreadsheet program and article useful.
In
the past two months, Food Buyers Network has published whitepapers
about various restaurant food cost control topics, such as yield
management, recipe costing, menu engineering, product specification
development, product usage variances and ideal food costs. While
executing these restaurant cost control practices takes focus and
commitment, they also require the processing and management of
operational data.
While all of the data required to execute food
cost control practices is readily available, many operators often
access this data during specific food cost control tasks, rather than
systematically processing it in a manner that makes it
available for multiple food cost control reports. One example of this
is the often neglected practice of recipe costing through the use of
standardized recipe cards that are updated frequently to ensure the
most current pricing. While most operators update their product prices
prior to executing a food inventory, as this is a critical best
practice to ensure the proper valuation of inventory, they do not
manage this process in a manner that enables them to simultaneously
update both their inventory product prices and their recipe card
prices. Rather, mangers spend twice the time necessary by updating prices in two
separate areas or, more likely, the practice of updating menu item
recipe prices gets forgotten.
Quite frankly, getting access to
many of the powerful food cost control reports can be achieved
relatively easy, if key data is entered in a single location. To help
independent and regional food service operators achieve this, we have
developed a free Excel program that you can download from our site. By
creating a series of spreadsheets that collect key operationaldata,
such as product prices, menu item recipes, menu item prices, on-hand
inventory figures and the menu item sales mix, restaurant managers are
then able to easily generate ideal food costs, actual food costs, order
guides and recipe cards in a systematic fashion. Of course, executing
this process still requires a time commitment, but by utilizing a single
program to process key operational data, it will become much easier and
more efficient to generate these reports.
You can download this restaurant spreadsheet on our site. There are instructions, but this program is still in BETA, so there may be some glitches. If so, please shoot us an email or give us a call so we can fix them and get out a new version. As always, we hope you find these tools helpful.
Download Spreadsheet Here
Open any newspaper and it is quickly apparent that we are being
bombarded with signs of an economy in peril. While these predictions
have sometimes become self-fulfilling prophecies as publicized economic
fears have fueled consumer behavior, there are certainly economic
signals that indicate a struggling economy.
Consultants, manufacturers and vendors have provided us a plethora of
reasons for the rising costs in our industry. Oil, of course, seems to
be driving this sharper increase in the cost of goods. Oil prices have
driven shipping costs upwards, caused increased price pressures on the
corn market due to ethanol production, reduced the supply of other
vegetables as farmers shift production to corn, created a rise in
vegetable oils and shortenings, and raised the costs of products that
require animals fed from these high-priced grains, such as eggs,
poultry, dairy, beef, pork, etc. Operators, however, don’t need to look
at economic signals to realize that the cost of operating restaurants
has risen more sharply of the past year.
The problem of the current situation is being compounded by the fact
that consumers are being more cautious about spending, as they see
their disposable income shrinking and confidence in their own jobs
dwindling. These are, of course, generalizations. The two-fold nature
of the current situation, the rising cost of goods coupled with slowing
revenue growth, creates difficulties for restaurants seeking to
maintain a consistent bottom line.
Under a scenario where the cost of goods remains the same, but revenue
slips, it is easier for operators to offer discounts and promotions to
drive revenue. The additional expenses associated with discounts and
promotions can be absorbed in the P&L due to the stability of cost
of goods and the increased revenue these expenses will generate.
Conversely, a scenario of rising cost of goods, but consistent revenue
can be off-set, at least in the short term, through strategic price
increases. In our current situation of both sharply rising cost of
goods and decreasing revenue, however, operators are caught in a
catch-22. Raise prices to off-set the rising cost of goods and
operators risk driving revenue levels down even further. Lower prices
or offer promotions and discounts to try and maintain revenue levels
and operators will see profitability diminish as a result of shrinking
margins.
As we know, however, maintaining profitability is not impossible during
difficult economic periods. In fact, these difficult environments can
be used to an organization's benefit. Obviously, we all prefer times of
prosperity, as prosperous economies enable operators to utilize
improved cash flow to expand operations, invest in growth strategies
and benefit from increased profits. During these periods of prosperity,
time and capital is spent on increasing market share through the
opening of restaurants, improved advertising and marketing, new product
launches, store remodels, facility and equipment upgrades, outside
training and consulting, etc.
The nature of a free market economy, however, means that we can expect
both periods of economic growth, as well as recession. A strong
business can not only survive economic downturns, but use these periods
to add value to the organization and strengthen its position. While
periods of prosperity tend to result in expansion and strategic risks
taken to capture market share, they also represent periods when
businesses pay less attention to productivity, efficiency and cost
control. Therefore, it is imperative that while companies use
prosperous times to increase their market share, it is just as critical
that operators stay mindful of the fundamentals of restaurant cost
control basics. This can be achieved through the creation of "cost
control muscle memory." Like a golfer's swing, the muscles of an
organization must remember to exercise the basic fundamentals of
restaurant cost control in all endeavors and in any economic
environment. Of course, successful businesses incorporate cost control
procedures into their culture and training programs for the outset.
However, cost control systems are not hard-wired into a restaurant
along with the electric and plumbing—though this would be great!
Rather, cost control systems are an organic process, affected by
changes in management and personnel, as well as corporate priorities
and initiatives. In short, even the best companies can find themselves
losing focus on some of the basic cost control systems as focus is
diverted in other areas.
Therefore, operators can use economic downturns as a way to re-focus
the corporate body on restaurant cost control fundamentals, such as
portion control, receiving standards, product bids, labor pro formas,
risk and loss prevention, menu analysis and planning, vendor
negotiation, staff productivity metrics, utility conservation, etc. Of
course, for this re-focus to be successful, these fundamentals must
have already been part of the corporate culture and training. However,
using down cycles can be a great time to re-examine corporate
effectiveness with respect to executing these basics and fundamentals.
Using this time to focus on the basics will create the corporate cost
control muscle memory that will last beyond these slumps and into
periods of growth.
Nobody likes economic slumps. But economics 101 teaches us that these
slumps are a natural correction by the market resulting from bad
decisions or actions we have taken in the past, such as charging too
much on our credit cards, paying too much for a house, speculating in
risky markets and buying gas guzzling SUVs. Therefore, let’s take
advantage of the slump and learn its lesson by focusing on restaurant
cost control fundamentals so that we can position ourselves to be more
prosperous as the economic tides turn.
Restaurant cost control contains volumes of work relating to the food
service cost control trifecta: food, labor and alcohol costs. While
there are invaluable cost control systems and theories presented in
these works, operators often find it difficult to implement such
procedures, as they need to balance their time between running the
daily operation and managing cost control systems and procedures—of
course, these two things are certainly not mutually exclusive. Key Item
Management, however, is a relatively simple method of effectively
managing food cost without a tremendous time investment. While it is
not recommended that an operator limit their food cost control efforts
to only Key Item Management, it is probably the best place to begin and
also the most important food cost control system to stay current with.
Presented here are the basics of Key Item Analysis and Key Item
Management.
Step One: Identify your key items. The best way to achieve this is by
requesting a descending purchase recap from your distributor(s). This
report will rank all purchases during a specified time period in
descending order based upon the total dollar amount spent for each
item. It is recommend that operators focus on no more than the top ten
items identified on this report for the purposes of a Key Item Analysis
during the first attempt at this process. Focusing on only the top ten
items makes the task manageable, while still having a significant
impact on food cost. Think of this methodology as the food cost 80/20
rule.
Step Two: Examine Key Item purchasing specifications. While product
specifications are an inherent part of the process described in step
three, they are also so critical that they deserve specific analysis
and attention. When examining key items, operators need to question the
factors that have influenced the current purchasing specifications.
Manufacturer and brand, quality specifications, trade and federal
grades, fat content, unit size, case size, production region, receiving
condition and many more specifications all have cost implications on a
given product. In general, the more lenient the specifications are for
a particular product, the cheaper the landed cost will be for an
operation. However, the less strict an operator is with specifications,
the less consistent the product will also be. Therefore, the benefits
of reducing a key item cost in this manner need to be weighed against
the potential effect on product quality and consistency. That being
said, an operator should examine all available specifications for a key
item and determine which are important for the intended use. Once these
specifications are determined, operators will be more effective in
managing key item product costs, as described in the next paragraph.
Often times, operators will realize that certain specifications have
been assumed by the distributor. Other times, operators may simply be
unaware of the varying product specifications that are available,
therefore, they many not be taking advantage of potential
opportunities. Operators should be sure to pay particular attention to
case sizes, package sizes and the use of split cases. By merely
adjusting these packing specifications, operators can experience
significantly lower landed costs. It is worth noting at this point that
when determining key item specifications, care must be given to how a
particular specification will affect the edible portion cost. What
might appear to be a better price for a particular product based upon a
spec change might, in fact, be more costly in the end. Meat grades and
fat percentages are a good example of this. This is of critical
importance to operators with Prime Rib as a key item.
Step Three: Manage the price paid for each key item. Depending on what
the item is, operators may be able to negotiate contracted prices for
key items. Whenever possible, it is recommended that operators
negotiate contracted prices for key items to simplify the purchasing
process. A good contracted price might not always bring the landed cost
of the product in below bid pricing at a given point in time, but on an
annualized average the contracted price should have a net positive
effect on purchasing. Because key items inherently represent
significant purchasing volumes, an operator may be able to negotiate
with a broker or manufacturer to get manufacturer price deviations that
will be passed on through the distributor. This method of negotiation
should be examined to see whether it is possible, as it rarely has
negative impacts on the distributor and, therefore, has fewer potential
downsides. If a price deviation is negotiated through a broker or
manufacturer, it will typically be available through the vendor of your
choice. Therefore, even with manufacturer price deviations in place, an
operator may still want to bid out the item to several distributors to
keep their mark-up on these items in check. For many operators, bid
pricing is the method of choice for purchasing decisions. This method
is also commonly referred to as “cherry picking.” While this method can
work, operators are required to actively examine bids and stay vigilant
that distributors are not passing their lost profits from bids onto
other, non-bid items. If an operator negotiates a purchasing contract
with a particular distributor, they need to look at both a market
basket report, as well as the pricing structure for the key items under
the contract. A cost plus contract could seem to be a great deal, until
you realize that a particular vendor is unable to be competitive on
certain key items because of their particular market share and case
movement sizes.
Step Four: Complete a yield analysis for all key items whose edible
portion cost is different than the “as purchased” cost and for all key
items that are utilized in sub-recipes or prep recipes. Key items that
are utilized in these two ways can translate into significant,
unnecessary food cost expense if yields are not tracked and managed to
ensure consistency. Once acceptable yield standards have been
established, continuous monitoring of yields should occur to ensure
compliance to production and purchasing specifications. The most common
issue with yields among the key item category for operators occurs with
meats. Meats that are cooked off prior to portioning or that are broken
down in house can often times have huge yield variances that can play
havoc with food cost. The following paragraph deals with managing menu
item profit margins with respect to key items, but before establishing
accurate menu item costs, accurate yields need to be established to
determine the accurate edible portion costs.
Step Five: Manage the profit margin for menu items that utilize key
items as ingredients. This process is relatively easy, but requires
some initial time investment, as well as a bit of ongoing effort. To
analyze the profit margin and menu item food cost, recipe cards should
be created for each menu item. Based upon the results of the recipe
cards, operators should determine if the profit margin and food cost
are acceptable according to an operation’s standards. If menu items
that utilize your key items have a disadvantageous pricing structure,
an operation will always struggle with achieving a desired food cost.
It is highly recommended that an operator execute menu engineering for
menu items that utilize key items, although simply using and updating
recipe cards to keep tabs on shifting profit margins will also have a
positive effect. Operators should be certain that recipe cards utilize
the edible portion cost of particular items, rather than the “as
purchased” cost. Not to beat a dead cow, but operators that serve Prime
Rib need to be very careful and vigilant during this step.
Step Six: Complete an ideal usage for your key items. By comparing
actual key item usage against ideal usage, operators can identify
operational issues effecting key items. Operators can easily determine
ideal key item usage by multiplying menu item sales counts located on a
product mix report by the standardized key item portion for that
specific menu item. This process should be repeated for all menu items
that utilize the key item and the sum of these represents the ideal
usage for the key item. Comparing this ideal usage with the actual
usage that can be determined utilizing purchasing data and inventory
extensions will reveal the usage variance for key items. Ideally, the
usage variance should be zero. While this is often an impossible goal
for all but value-added, convenience items, operators should examine
all key item variances that are above established tolerance levels and
create a strategy to reduce the variance.
Step Seven: Attack the usage variances! Once the ideal usage comparison
previously described has been completed, an operator should begin
attacking the identified variances above the tolerance threshold. I
have included a few of the common problem areas when trying to attack
key item usage variances. First, check current yields against the
established acceptable standards. These variances can be due to
improper training and production procedures, as well as a change in the
key item specifications. For example, flank steak that is cooked off
and pre-portioned will have a decreasing yield as the fat content in
the flank steak is increased due to improper purchasing or distributor
error. Second, operators should increase the awareness of key item
variances within the operation. It is not enough to see the variance on
paper, but rather habits in the field need to be tweaked and adjusted
if this variance is to be corrected. Raising awareness should include
staff training on what the proper recipe specs are and how to execute
portion control. Raising awareness and communicating concerns often
goes a long way to help reduce variances. Third, make sure that there
are portion control systems in place to control portioning and that all
necessary supplies are in place. It does no good to tell a cook to put
1/2 cup of cheese on a pizza if he does not have a 1/2 cup, or if he
refuses to use it. Fourth, execute sensitive inventories. Store
managers should do beginning and ending inventories for key items that
have variance issues and compare the actual usage from these
inventories against the product mix by following the procedures set
forth above. Operators should also make sure that accurate inventories
are being taken and that purchases are being accurately recorded. It is
recommended that when trying to identify key item usage variances that
operators do not use too small of a sampling period. The larger the
sampling period, the greater the accuracy of the result. I recommend
that quarterly variance analysis be executed at first to identify usage
variance trends that require further investigation. Following this
method will eliminate wild goose chases that end up being a result of
poor inventory figures, rather than actual usage variances.
In conclusion, it is a well-know fact that the food service business
can be one of both stress and excitement. Operators often find
themselves trying to prioritize and balance their time amongst the
competing needs required by the operation. Executing the key item
analysis and key item management techniques described above have helped
many operators balance their time constraints with the need for
implementing effective food cost control systems.
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