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
Countless times, Food Buyers Network has been engaged by food service operations of all sizes to help uncover the reasons behind apparent food cost control and profitability issues. When we begin to investigate potential causes, however, it often becomes quickly apparent that the primary problem is not with restaurant cost control practices, but rather with the restaurant inventory data and food cost accounting methods used to generate the restaurant cost accounting figures. Unless restaurant inventory best practices and proper restaurant cost accounting methods are being observed, food cost control figures will not be able to provide any accurate picture into restaurant performance and profitability. The following article will examine some of the critical restaurant inventory and food cost accounting best practices to ensure reliable restaurant cost control figures.
Deciding What to Count & Remaining Consistent
One of the most important best practices in creating accurate food cost figures is remaining consistent with what items are counted during each restaurant inventory. When it comes to making the determination of what should be counted, there is a wide range of industry practices. Some operators believe in counting every item in the restaurant, whereas others focus only on high dollar and sensitive products, such as meats, seafood and poultry. Regardless of your particular inventory methodology, the important thing to remember is that the decision must be consistently executed during each inventory. In other words, make a decision about what gets counted each inventory, and stick to it. Altering what gets counted will create anomalies in your inventory value delta between two consecutive periods, skewing the actual food cost figure.
The Right Time & Date
Achieving accurate restaurant inventory figures is greatly dependent on ensuring the correct date and time of the physical restaurant inventory. Specifically, it is critical that inventory is valued prior to the use or consumption of any product for revenue attributable to the next food cost accounting period. Further, it is equally critical that inventory is valued after all product has been consumed for all food revenue that will be attributed to the current food cost period. For example, if a restaurant manager wanted to calculate a food cost for the month of August, then inventory should occur once all food production has ceased on the last day of August, but before any food is consumed on September 1. Simply put, this means that the inventory should be either taken after the close of business on the last day of the period, or before the start of production on the first day of the following period. Unfortunately, this typically means late night or early morning counts.
There are additional benefits, as well, to executing inventory during non-operating times. Counting during these times, while not enjoyable, typically enables those executing the restaurant inventory to focus on the task at hand, which is ensuring that an accurate restaurant inventory is executed. Attempting to take an inventory during operating hours means trying to manually adjust and contend with products being removed from storage as needed or put back into storage during end of shift procedures. Further, if a manager is involved in the counting process, it is very likely that there will be frequent interruptions to the inventory process because of other operational needs that require attention.
The Right Tools & Technology
The days of the black inventory ledger used to manually count product, update pricing and calculate extended values is gone. At least, they should be. Today, restaurant managers and operators have access to a wide range of food cost control and restaurant inventory tools: from the ultra-expensive and complex food cost control and restaurant inventory software programs, to the do-it-yourself Excel spreadsheet program. With the relative ease of creating a restaurant inventory program in excel, this should be the bare minimum for restaurant operators. To save some time, restaurant managers and operators can download either our simple restaurant inventory template or the more complex product management program from our website. Both of these tools are free.
Using Proper Inventory Count Sheets
Accurate inventory figures begin with count sheets that are designed properly. First, inventory count sheets should be in storage shelf order. This eliminates the need to shuffle around looking for the right product on the count sheets. This not only saves time during the inventory process, allowing for a more concentrated focus on the task at hand, but also helps to ensure that inventory is being counted in a shelf-to-sheet fashion, which will be discussed shortly. Second, inventory count sheets should display not only the product name, but also the inventory unit of measure and the price associated with that unit of measure. This information enables the counter to ensure that they are counting product by the correct unit of measure.
Often times, products will be stored in various locations. In such cases, these products should be listed multiple times on the inventory count sheets. Again, this will help ensure the critical process of counting in shelf-to-sheet fashion.
Organizing the Storage Areas Prior to Inventory
One of the best ways to ensure accurate counts is to spend about an hour prior to starting the inventory organizing all storage areas. Specifically, products should be grouped together in "zones" and organized with labels facing forward and in a straight line, as much as possible. For those highly motivated operators, we recommend labeling these zones to make it easier for others to store product, organize shelves and take inventory. Taking the time to organize storage areas prior to beginning the inventory process will not only
expedite inventory and ensure more accurate counts, but
affords the opportunity to "touch" each product and
get a feel for what is on the shelves--a critical component to ongoing product management.
Further, product should be stored on shelves in the unit in which they are removed from storage during operations. For example, unless entire cases of #10 cans of tomato sauce are used at once during prep procedures, they should be stored on the shelf in cans, not in the original case. The same methodology should be applied to all products in storage. Storing product in these smaller units will ensure that proper inventory and product orders are taken and will make it much easier for operators to quickly look at shelves and notice any anomalies or potential shortages.
Two People Completing the Inventory
As inventory values are used for the calculation of financial figures, it is always recommended that two people work together to execute an inventory. This helps avoid the temptation of manipulating inventory figures to gain advantageous results, as well as helps avoid any counting oversights.
Following the Proper Order: Shelf-to-Sheet
To ensure that all inventoried products are counted, we highly recommend that operators start at the top left of a storage area and work their way to the bottom right, using what is on the shelf to determine what gets counted next, rather than using the product order on the count sheets to determine this. If the inventory count sheets are in order of shelf storage, then this should be a relatively easy process. This is the number one cause for counting errors, in our experience.
Accurately Counting the Inventory Unit of Measure
As we discussed previously, restaurant inventory count sheets should display the inventory unit of measure, as well as the associated cost, to ensure that product counts reflect these specific units and costs. For example, counting pre-portioned steaks by the "each" will have disastrous effects on food cost accuracy if the inventory unit of measure used to determine the inventory product value is "pound."
Further, it is important that operators accurately represent the on hand value of each product by accurately measuring the product based on the assigned unit of measure. This, of course, is relatively easy for those items whose inventory unit of measure can be visually identified, such as those counted by "each." However, if the unit of measure is a weight, then a scale should be used to create the on hand value. Every restaurant operator should have a heavy duty scale that can be used during inventory to count such items. It is worth noting that ensuring accurate weight counts is critical not just for creating accurate food cost figures, but so that accurate product usage variances can also be calculated. You can learn more about how to create product usage variances here.
Price Changes
It is imperative that before valuing a current inventory, that product prices are updated to reflect current costs. While there are several pricing methods, such as first-in-first-out (FIFO), last-in-first-out (LIFO), and average price paid, our recommendation is to use the simplest method, last price paid. Using the last price paid pricing model for calculating inventory means that all products inventoried will be assigned a cost based on the most recent invoiced price for that product. To ensure that inventory values are correct, though, the cost of each inventoried product on the count sheets or inventory program must be adjusted to reflect the most recent invoiced cost of the product.
New Items
Prior to beginning the inventory process, new items should be added to the inventory count sheets. If they are forgotten, however, and those completing the inventory are following the "shelf to sheet" counting process, then these items should be detected during inventory, though they will need to be written down in margins until they can be added to the count sheets at a later time. We highly recommend that any new products are immediately added to the count sheets when they are brought into inventory, as it is not uncommon for us to look at historical inventory count sheets when doing operational audits and to find the same products written in the margins month after month because the time was never taken to update the inventory count sheets. This will often result in counting inaccuracies.
Determining the Inventory Unit of Measure
Determining the inventory unit of measure should be aimed at creating the most accurate inventory figures. Therefore, we recommend that product be counted in the smallest whole unit in which it is stored. So, in the previous example of the tomato sauce, an operator should use "can" as the inventory unit of measure, and ensure that the corresponding inventory cost for this product reflects this unit of measure. In other words, it is critical that the cost associated with tomato sauce is the cost per can, not case. It is not uncommon for us to find unit costs on inventory sheets that do not reflect the inventory unit of measure used for counting. For example, we often find items inventoried by the "each," but that have a unit of measure cost by the "case." Obviously, issues such as these create huge inventory value issues, greatly skewing food cost.
As previously mentioned, specific products are often stored in multiple storage locations and in different storage containers. For example, the tomato sauce from the above example may be stored in cans in dry storage, but in plastic 1/3 pans in the walk-in. In cases such as these, we recommend using multiple inventory units of measure. As we already mentioned, products that are stored in multiple locations should be listed multiple times on the inventory count sheets, and the inventory unit of measure in each instance should reflect how the product is stored in that specific location.
Invoice Cut-Off Dates
Another critical mistake is the failure to assign invoices to the correct accounting period. More specifically, the amount of an invoice needs to be posted to the correct food cost accounting period based on the exact date that the product was physically received into inventory. Usually, this date is the date of the invoice, unless it was a drop-shipped item.
We often find problems with this at the beginning and end of food cost accounting periods. Rather than posting invoices to the correct food cost period based on the date the product was received into inventory, invoices are posted to the day they are recorded in the general ledger, accounting system or inventory program. Often times, we will find this is being inconsistently practiced--the accounting department codes the invoices correctly in the general ledger, but the inventory manager codes them incorrectly in the inventory system. In either case, these mistakes will lead to incredibly inaccurate food cost figures.
Proper General Ledger Account Coding
Another common restaurant cost accounting issue we run across when executing audits is the inconsistent coding of invoices to the correct general ledger/P&L account. While the actual number and methodology of these general ledger accounts will differ from operation to operation, the key to accuracy is ensuring that once they are established, invoices are coded accurately, month after month, to the established accounts.
Often times, single invoices will contain products attributable to multiple general ledger accounts, such as food, paper and chemical. This is especially true for broadline invoices from suppliers such as Sysco and US Foodservice. Because of this, it is critical that operators review each invoice carefully and create coded sub-totals that reflect the specific general ledger accounts represented on the invoice. We often find that operators will mistakenly code the entire invoice to a single general ledger account, creating inaccuracies in the resulting income statement figures.
Reviewing & Verifying the Results
Once an inventory is complete, it is important to review the results to ensure their accuracy. There are a few red flags that may indicate possible errors.
1) The overall food cost percentage changed, in either direction, by a significant amount--usually by more than 1.5% without any known explanation.
2) A scan of the product extensions uncovers particular products that have an unusually high on-hand value. Often times, this will be due to data entry mistakes or improper costs assigned to the unit of measure.
3) A scan of the product extensions uncovers products with a zero value, indicating that the product may have been missed during inventory.
4) There are major on-hand dollar fluctuations in food cost categories, such as produce, meats, grocery, etc. Such shifts may indicate a counting error in an item within that category. Examining the category on-hand amounts makes it a bit easier to target possible counting mistakes.
5) There is a major shift in the total inventory on-hand value.
As a final take-away, operators should always be able to explain WHY a food cost figure changed during a given period, regardless of whether it was a positive of negative shift. It is not enough to get excited about a good food cost if the reason behind it is unknown. It is very possible that an unexplained shift in food cost is due to an inventory or accounting error, rather than improved food cost control practices. If the shift is accurate, it is critical to understand the underlying reasons so that behaviors can be altered or duplicated, depending on the direction of the shift.
Download this article as a PDF
Download the Inventory Count Sheet Template
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Still have questions, use the free "Ask the Experts" section on our website to ask us a follow-up question.
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
Almost every restaurant and food service operator in the country shares a similar monthly routine—the completion of a product inventory and the subsequent generation of a food cost percentage. This process not only enables the creation of a restaurant profit and loss statement that illustrates the financial health of the business, but can also uncover emerging operational performance issues. Unfortunately, not as common among restaurant operators is the routine generation of a theoretical food cost that can supplement an actual food cost percentage by providing a food cost target, or baseline. This article will examine the practice and benefits of routinely generating an ideal food cost as part of a holistic approach to food cost control management.
If you stood on the floor of Chicago’s McCormick Place during the National Restaurant Association show and polled attendees to uncover the universal ideal food cost, you would probably get a myriad of responses, quickly discovering that there is no universal ideal food cost consensus. This, of course, is because a theoretical food cost, also known as an ideal food cost, is determined by the particular performance characteristics of a business; specifically, the menu pricing, product costs and menu sales mix of a given restaurant. Not only is it impossible to pinpoint an industry-wide universal ideal food cost, but it is also equally impossible to determine a restaurant-specific, consistent ideal food cost percentage. If this were not the case, the process of evaluating actual monthly food cost figures would be quite easy, as one could simply compare the actual food cost to the restaurant’s established ideal food cost policy. Achieving this, however, would require an operator to establish their desired ideal food cost percentage and then price every menu item accordingly. Stated differently, every item sold would need to have the same mark-up margin that would produce the ideal food cost percentage goal. This is both an unrealistic and undesirable pricing strategy, as it does not take into consideration market pressures, competition and menu item contribution profit. Further, it would also require the constant re-pricing of menu items to compensate for the slightest shift in specific menu item product costs. Since doing so is obviously not advantageous or realistic, it should be understood that a particular restaurant’s ideal food cost will continuously fluctuate, and that routine re-calculation of the ideal food cost must occur if an accurate performance evaluation of the actual food cost is to be established. Armed with the increased knowledge and visibility provided by this information, an operator can efficiently target cost control efforts in the proper direction. Specifically, a significant variance between these two numbers will indicate a behavioral and performance issue, while a slim variance will indicate a change in the product costs or menu item sales mix.
Rather than routinely generating an ideal food cost percentage to serve as a baseline, as previously described, restaurant managers and operators often look at historical food cost percentage trends to evaluate current monthly food cost performance. While using historical data to generate actionable trending information is highly valuable in both food cost control and restaurant profit and loss management, it can also lead to misleading results if this practice is not supplemented by the use of a theoretical food cost. While historical data does serve as an indicator of food cost performance, this indicator can be misleading, as using historical data as a benchmark, or ideal target, does not address a possible shift in the product cost, menu pricing or menu sales mix, as we previously illustrated. If any of these variables change, then using a past food cost percentage, as a measure of current employee food cost control performance, would be misleading. It would, likewise, be just as misleading to use the same information to write off an increase in the actual food cost percentage as simply a result of rising product costs.
In addition to using historical trends, managers will often also rely on their operational experience, awareness and knowledge when evaluating an actual food cost percentage. While operational familiarity is critical in uncovering restaurant cost control issues, our experience has shown that there are too many variables involved for gut-reaction management to be effective in gauging food cost control performance. The algorithm used to determine an ideal food cost looks at three variables, each of which is determined by a multitude of factors. Quite frankly, attempting to determine the cause of a rising, or lowering, food cost percentage without the baseline provided by a theoretical food cost is, at best, an educated guess.
It is worth noting that a rising food cost percentage is not always cause for alarm. If both actual and ideal food costs trend upward, then further investigation may uncover that this upward trend is due to a shift in the menu sales mix, rather than product cost increases or behavioral issues. Because products with a higher food cost percentage often have a higher contribution profit, a rising food cost due to a shift in the menu sales mix could be a positive trend, as it may result in higher profits. For example, while a significant increase in the number of lobster or filet mignon dishes sold may increase the overall food cost percentage, it may also result in increased bottom line profit, as these items provide higher contribution profits despite their higher food cost percentages. Uncovering such intricacies, however, is very difficult if ideal food costs are not calculated and used as a baseline when evaluating current food cost. Imagine the time wasted and the morale issues created if an operator reacted negatively to a rising food cost that was simply the result of different guest choices, creating additional profit for the business. This issue is very common among businesses that have frequently changing menu offerings and product mixes, such as hotels, caterers and conference centers.
The actual process of calculating a theoretical food cost is not overly complicated and can be routinely executed with some minor preparatory work. The first step in creating an ideal food cost is to collect the data necessary to complete the theoretical food cost equation; specifically, the menu item recipe costs, menu item prices and menu item sales mix. For most operators and restaurant managers, the menu item prices and menu item sales mix information is relatively easy to acquire, as almost all restaurant POS computer systems offer a detailed reporting of menu items sold. Menu item recipe costs, however, are not always as easy to come by. Access to this data requires routine recipe costing that includes the ongoing maintenance and updating of menu item recipe cards. It is important to note that calculating an ideal food cost using menu item costs that are outdated will produce significantly skewed results that may not reflect the true ideal food cost. While completing and maintaining recipe cards does require a time investment, it is absolutely critical to complete recipe costing to ensure that menu item cost trends are tracked. Once all of this data is collected, calculating the ideal food cost is easy. The theoretical food cost formula is simply the total ideal food expense, divided by total ideal revenue, which is easily calculated using the data previously mentioned. To greatly simplify this process, we recommend that you either create your own spreadsheet to perform the calculations, or download our free ideal food cost calculator from the Food Buyers Network website.
As a final note, operators should be realistic in their attempt to execute this critical food cost control practice. Determining a perfectly accurate ideal food cost is very time-intensive, as it is necessary to cost every single item sold. As you can imagine, this would be a very difficult process, as an operator would need to track and cost every side-item, add-on and special order sold during a given period. Fortunately, a highly accurate ideal food cost can be generated by focusing efforts solely on the items listed on the menu, including frequent specials. While not completely accurate, the aggregate volume of these items will rarely be affected by the ideal food cost of those items that you did not track. Just keep in mind that the ideal revenue figure that is used in the calculation is the ideal revenue of only the items being tracked, and not the total food revenue, as one would find on a restaurant income statement. The end result of this process is an ideal food cost that is sufficiently accurate to gauge food cost performance, without spending too much time on calculating an exact number.
Hopefully, this article has effectively communicated the need to routinely calculate theoretical food costs as part of a larger food cost control management program. Again, we recommend that you download our free spreadsheet to make these calculations easier.
Download this article as a PDF
Download the Ideal Food Cost Spreadsheet Calculator
Generating periodic food cost percentages is likely a common routine for most food service operators. While establishing these costs is highly valuable, the mere act of calculating food cost figures does nothing to lower costs, unless the underlying causes of food cost variances are identified and eliminated. The difficulty with doing so is that identifying these variances is not always an easy task. While monthly food cost percentages may indicate a cost control problem, they are often too vague to indicate the exact nature of the problem. Without this knowledge, cost control efforts cannot be effectively focused on resolving issues and improving profitability. Unlike food cost percentages that do not provide the necessary detail to target cost control actions, a product usage variance analysis will identify the exact usage variance for each product analyzed. By uncovering this critical information, food cost control measures can be taken to reduce and eliminate these costly variances.
Before proceeding, it should be noted that product usage variances are
dependent on standardized recipes, as recipe standardization is
necessary in establishing ideal usages. These recipes should contain
standardized units of measurement for the products being analyzed so
that this information, along with menu mix or menu item sales data,
will enable the calculation of ideal product usages that will serve as the baseline when determining variances. Once recipe
standards have been established, determining product variances is a
relatively easy task.
A product usage variance is the difference between the ideal and
actual usage volumes of a specific product, most commonly expressed as a quantity, percentage or cost. Identifying a product usage variance begins with the identification of all menu item, prep and batch recipes that utilize the product being analyzed. Then, using menu item or batch recipe production counts and the standardized product portion utilized in these recipes, ideal usage figures can be calculated. This, along with the actual usage figures determined using inventory extensions and the product purchasing history, will enable the calculation of product usage variances. To help
with creating your own product usage variances, you may find it useful to download the Product Usage
Variance restaurant spreadsheet that is available on our website.
While it may, at first, seem advantageous to calculate a product usage variance for every purchased product, doing so is not highly recommended. The
amount of time necessary to calculate variances for all
purchased products would greatly diminish the benefits of executing such a comprehensive
analysis. Rather, operators should be pragmatic when executing routine food cost control procedures, and focus efforts in a manner that will make the greatest impact in the least amount of time. Limiting a usage analysis
to only key items will not only save time, but will also have the greatest food
cost impact. This concept is commonly known as the Pareto
principle and, applied to this scenario, states that 80% of your costs (or revenue)
are a result of 20% of your products (the 80/20 rule). Therefore, by focusing usage analysis on only the top twenty percent of products by total spend,
an operator can make a significant cost control impact
without a significant time investment.
To help identify the key items
that should be routinely analyzed, we recommend that an
operator request a velocity report from their suppliers for the prior
quarter. This report will list each product purchased in an
aggregated, descending dollar format. Our recommendation is to begin
with only the top five to eight products on this report. While only a
handful of products, these key items represent the majority of your
purchasing expense and any strides made in eliminating variances with
these items will result in significant cost control and profitability
improvements.
The report in Figure 1, below, is a portion of an actual velocity report that lists the top eight products purchased for a restaurant. While we have truncated the report to save space, the full report indicates that this restaurant spent $234,042 during the given quarter, of which 49% was a result of the top eight products--those listed in the report. Put another way, the top 5% of products purchased represent almost 50% of the total spend.
To illustrate how executing product usage variances for key items can result in substantial food cost improvements, we have calculated the actual product usage variances for these top eight products, as indicated in the two right columns of the report. The average product usage variance for these items is 8%, which represents $9,178 lost dollars each quarter for this restaurant--4% of total spend! This restaurant could quickly lower their food cost expense by 4%, simply by closely monitoring the top eight items.
Figure 1
Total number of items: 147
Total Spend: $234,042
Total Spend of top eight products: $115,188
Total Variance for top eight items: $9,178, which equals 4% of spend
While the ambitious operator will recognize the opportunity to gain an
additional 4% by tackling the remaining 139 items, doing so will be
incredibly time intensive. This does not mean, however, that these opportunities should be completely ignored. Rather, after
repeated variance analysis on the top products has resulted in the
elimination of usage variances, operators can begin to substitute other products into the usage analysis. It is recommended that operators routinely analyze sensitive, high dollar
products that are prone to waste, spoilage or theft. Additionally, operators should stay vigilant during shifts to uncover operational issues that may be causing variances on specific products. Based on this operational awareness, these additional products can be added to the usage analysis. Following this methodology will result in the targeted reduction of food cost variances for all products over time.
Once key products are identified and usage variances determined, the critical function of investigating these variances and establishing procedures to reduce them must begin, as the identification of variances will not lower food costs unless the root cause is determined and eliminated. A few of the possible problems that could lead to usage variances are:
- Failure to properly charge for items, especially add-ons and extras
- Incorrect portions being used for menu items or batch recipes
- Yield goals not being consistently met
- Theft
- Improper receiving procedures
- Spoilage & Waste
- Employee Error
- Failure to follow recipe, cooking and preparation procedures
- Inventory/Counting/Transfer Mistakes
While this is not a complete list, the underlying cause of usage variances can often be linked to employee behavioral issues. it is widely accepted that modifying employee behavior is best achieved
when specific actions are targeted and measurable goals set. By using
product usage variances, specific and quantifiable goals
can be established to gauge employee performance and modify behaviors.
Managing employee performance based on vague food cost percentages will
typically not produce the same positive results that can be achieved by
using specific product usage variance information when coaching staff.
Further, demonstrating to staff that specific operational issues
can be monitored and tracked will often result in the self-policing of
behaviors, increasing standards and procedures compliance.
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Several of our previous restaurant cost control articles have been dedicated to the topic of recipe cost and menu development. This article will continue on that trend by examining the principles of menu engineering and how they can help improve restaurant profitability and food cost control. Today's concept of menu engineering is a product of Michigan State University's School of Hospitality, and the goal of the exercise is to comparatively rank your menu items according to both profitability and popularity and to then graph these results using the BCG Matrix. This matrix utilizes four quadrants, and though the names have changed a bit during their application to the hospitality industry, their meaning has remained generally consistent.
Quadrant Definitions:
"Stars" are those menu items that are both the most popular and the most profitable. These are often house specialties and are the menu items that you want to sell most frequently due to their high contribution margin.
"Plowhorses" are menu items that are above average in popularity, but not in profitability. Overall, these items produce consistent profit for the business, but are not stars because their contribution margin is below average.
"Challenges" are the converse of plowhorses. They are highly profitable menu items, but not very popular.
Finally, "Dogs" are those items that are neither popular nor profitable, in comparison to your other menu items. Serious consideration should be given to eliminating these items from the menu.
The Mechanics of Menu Engineering:
To determine the correct quadrant for each menu item, menu engineering looks at both the average popularity and contribution margin of your menu items. Based on the results, each menu item is plotted on a graph, using the average profitability and popularity as the x and y axes. Each quadrant corresponds to a particular menu engineering label, as illustrated below. While menu engineering labels can be assigned to menu items without actually completing a graphical representation, we do not recommend this. Completing a graphical menu analysis in addition to simply labeling each menu item with the appropriate quadrant tag will provide a more exact and complete picture into how each menu item ranks in comparison to others. A plotted menu item that is on the border of another quadrant may require a different approach than one that is firmly situated in a specific quadrant--a subtlety that is only noticeable when menu items are actually plotted on the graph. While this may seem complicated, it can actually be quite simple once you become familiar with the process. Further, by downloading our free menu engineering spreadsheet you will be able to execute many of these functions and graphs automatically.
Popularity
Determining the average popularity is relatively simple, just take the reciprocal of the total number of menu items, expressed as a percent. For example, if you have twenty menu items, the average popularity would be 5% (1/20). Any menu item that represented more than 5% of the overall product mix sold would be considered a popular item, making the item either a star or a plowhorse, depending on the contribution margin of the item. To keep things simple, both popularity and profitability are automatically calculated in our free menu engineering spreadsheet.
Profitability
Menu engineering uses contribution margin as the metric for defining profitability. To calculate the contribution margin of each item, one simply needs to deduct the ideal food cost from the menu price for each menu item. For example:
Once the contribution margin is calculated for each menu item, the average can be easily calculated--divide the sum of each menu item's contribution profit by the total number of menu items. Any menu item that has a contribution margin above this average would be considered "profitable," making it either a challenge or a star, depending on the popularity of the item. Some schools of thought advocate the use of prime costs in contribution margin calculations, including incremental labor costs into the food cost figure, but unless this is a typical internal cost accounting practice for your operation, we do not recommend it.
Once you have determined the comparative popularity and profitability of each item, you can then graph the results using the specific calculations into a four quadrant graph and identify each item with the corresponding matrix label, as discussed previously. Again, to assist with executing the above steps, we recommend that you download our free menu engineering spreadsheet that will do these calculations for you. You can also develop your own restaurant spreadsheet with a little work or purchase one from various restaurant consultant agencies. Once this process is complete, however, the real work begins.
Analyzing the Results of Your Menu Analysis
The primary benefit of using menu engineering as your menu analysis tool is that after only a little preliminary work and calculation, you are able to get an in depth picture into how well your menu items perform in comparison to each other. With this information in hand, it becomes much easier to make strategic menu decisions aimed at improving restaurant profitability. Further, the repetitive use of menu engineering over a period of time will help you gauge the effectiveness of past menu decisions, such as price changes, re-formats, deletions & additions, position changes, etc.
Challenges: A Few Suggestions & Solutions
As we discussed before, challenges are those items that have a high profit margin, but don't sell very well. Because of their high contribution margin, the "challenge" for these items is to think of ways that profit margins can be maintained, while making the item more appealing to customers.
What do your guests think?
If you are trying to figure out why an item
is not selling, start with those that are not
buying. Guest feedback is typically the most accurate method in collecting information on why particular menu items are not popular. Based on this guest feedback, changes can be made to improve the popularity of items. Collecting guest feedback doesn't mean holding hospitality focus groups sessions, of course, it just means doing restaurant table visits and talking to guests--paying particular attention to repeat, loyal guests that may be able and willing to provide valuable insight into some of their least favorite menu items.
Is the profit margin driven mainly by a center of the plate item?
If so, maybe the answer is maintaining the center of the plate menu item and portion size, but changing the preparation method. For example, chicken saltimbocca may not be a very popular dish on your menu, but by changing the preparation to chicken marsala, you may be able to create a dish that has the same profit margin as the previous dish, but is now more popular. This flexibility is very common among pasta, veal and seafood dishes, as well.
Is there a minor problem with the recipe that may need adjusting?
This issue is similar to the previous example, except that it does not call for a re-working and re-naming of the entire menu item, but rather just a tweaking of the recipe. This is an issue that is often times brought to an operator's attention through guest feedback. Typical examples of this issue are food being too spicy or bland, too tough, inconsistent in quality, inadequate portion size, etc. These are important issues to identify to ensure a consistent guest experience and satisfaction level. Once identified, operational systems and changes can be put in place to correct the recipe or preparation deficiency.
A final note on this subject is that we recommend that a log be kept of all guest feedback. Using this log will enable you to look back over a period of time and identify any menu item comment trends that may not have been apparent during each individual guest comment. Many times, these mistakes are caught only after the repeat "comping" or voiding of items off checks, but the use of a log should help identify these trends prior to this happening--saving both money and guests.
Are people aware of the item, or is it buried in the menu? Is the menu description appealing?
Putting menu items in the "sweet spots" of menus, or highlighting them with bold font or boxes, can help drive attention to those items and increase sales. Further, using your staff to suggest a dish as a favorite or feature can go a long way in getting a profitable challenge item sold. Also, attempts at promoting an item through improved menu placement, staff recommendations or re-worked menu item names or descriptions will help identify whether the menu item has a marketing or culinary problem. If it is only a marketing issue, then these solutions may be sufficient to move a profitable menu item into the star quadrant.
Is the quality specification for the menu item ingredients appropriate?
Sometimes, operators can create overly restrictive quality specifications that result in higher menu prices than guests are willing to pay. In other words, guests do not perceive enough value in the higher quality specification of a product ingredient to pay more for the menu item because of it. Think of all the quality identifiers that we see on menus: line caught, wild, choice, organic, certified angus beef, imported, free range, grass fed, kobe, sushi-grade, etc. The decision regarding when it is best to opt for a higher quality, and more expensive, product is not always an easy decision. While we never advocate lowering quality simply as a way to increase profit, the quality specification of menu item ingredients needs to consider whether the clientèle values this identifier and whether the quality level is appropriate for the menu item use. Choice strip loin, for example, may be the best product for your NY Strip, but may not be the best product for your burgers. Trying to persuade your guests to pay three dollars more for their burger because it is made with choice meat may, or may not, work. It is always nice to serve the finest available ingredients, but the necessary increase in the menu item price means that the guest must value the quality enough to pay more, as well. In short, overly restrictive product specifications for menu ingredients can sometimes create higher prices for menu items, thereby turning a potential star into a challenge due to guest price sensitivity. It is always a best practice to look at the specifications for your menu item ingredients to ensure that your are purchasing the products best suited for their use.
Is the price too high?
Recalculate your ideal food cost for challenge menu items to make sure they seem reasonable. Further, we recommend doing market research to find out what other restaurants are charging for similar menu items. It is possible that what you perceive as a reasonable ideal food cost for a particular menu item actually leaves the item priced significantly above market competition.
If your ideal food cost for a challenge menu item looks a little too good, or if competitors consistently offer a comparable product at a lower price, you may want to consider lowering the price a bit to kick start sales. Remember, your price may be higher than competitors because of either your portion sizes or quality specs. As mentioned previously, this should be examined if guests seem to be favoring competitor products at lower prices, despite a reduction in the quality or portions. Tweaking the menu item a bit and then lowering the price may put the item back in line with market competition, thus improving sales while maintaining margins.
Plowhorses: A Few Suggestions & Solutions
With plowhorses, the problem is not popularity, but profitability. The goal with these menu items, therefore, is to find ways to improve upon the profitability of an item, without sacrificing its popularity.
Is the item so popular because it is priced too low?
If so, tweaking the price a bit might improve profitability without significantly impacting the popularity of the menu item. Again, executing some basic market research will help indicate the price range and market "white space" available when deciding on a menu item pricing strategy. If a menu item is significantly priced under market standards, and is struggling with profitability, then an operator probably has some room to raise the price without seriously impacting popularity.
Is the portion size too big?
While it is important to ensure that guest loyalty is not compromised by reducing portion sizes on popular items, it is possible that too much food is being served on particular plowhorse menu items. The best place to learn whether this is the case is in the dishroom. By watching how much leftover food is being wasted, operators can quickly determine if the portion size they are serving is more than expected by guests. In this case, making an adjustment will improve profitability, without impacting the popularity of an item.
Are the right ingredients being used to produce the item?
This, again, is a question about using the right quality specification for menu item ingredients. For plowhorse items, quality and specification issues are a factor when operators use higher quality ingredients without adequately charging for the increased cost of these items. Often times, this is because they realize that guests won't pay the additional cost for a higher quality product ingredient in certain scenarios. Rather than using a different specification, however, operators use the higher quality product, but just fail to charge for it. While this is admirable, it can have serious implications on profitability. Using high quality ingredients is always a recipe for success, however, guests must pay for this added quality. So, the real goal is to use the highest quality ingredients that your guests value and are willing to pay for.
Can the preparation be tweaked to improve the profit margin?
In some cases, a popular item can be redesigned so that the price can be raised, creating a higher contribution margin. One example of this has been the increased focus on sandwiches and bistro salads as menu items. Realizing that guests desired having sandwich and salad options on the menu, and realizing that these items often times had low price points and relative small contribution margins, operators began designing large bistro salads and signature burgers/sandwiches. The end result was taking popular menu items and re-designing them so that they could fetch a higher price.
Dogs: A Few Suggestions & Solutions
Typically, our recommendation with dogs is to remove them from the menu. There is no point wasting inventory dollars on items that are neither profitable nor popular. These items just confuse the menu, drawing attention away from those items that you are trying to sell. Further, these items increase product spoilage, kitchen training and labor costs, as well as creating an overall decrease in kitchen productivity due to a more complex menu.
Stars: A Few Suggestions & Solutions
Keep selling these items! Make sure that these items stay well positioned on the menu and that you stay on top of your operational systems to ensure that these items remain consistent. Dropping the ball during execution of these items can be very dangerous, as increased inconsistency on star menu items can lead to a decline in popularity--which can have very negative effects on profitability.
In conclusion, nine out of ten times, each dollar of profit is generated from an
order off the menu. Whether you are a quick service operation with
menu boards and combo meals, or a five-star, relais gourmand restaurant
with tasting and pre fixe menus, the choice of what menu items make the
lineup, what their price will be and how they are positioned and
delivered to your guests will determine how well your menu is able to
drive revenue through to your bottom line. The right menu lineup, like the
right sports team starting lineup, is what creates the potential for
success and profitability. It all begins with the right menu items, at
the right price, delivered in a manner that makes them attractive to your customers. The fundamentals of our game--pricing, cost
control systems, etc.--are there to protect and support this potential
success and natural menu "talent" by ensuring that the hard work of the menu items is not
lost to simple execution errors. Without the right menu, however, the
best pricing and food cost control systems in the world will not be able to make a
profitable restaurant.
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Properly tracking the amount of finished product yielded from the
preparation of raw products and ingredients is a critical component in
food cost control management. This practice is especially important
for those operations that cut their own meats, make batch recipes, cook
items in bulk or prepare large quantities of raw produce. If done
properly, tracking yields can be a relatively easy process and should
be frequently done for those raw products that you spend the most on
each month. To simplify this process, you can download our free Yield Calculator Spreadsheet.
Determining
accurate recipe and menu item costs are the foundation of menu item
pricing. Without establishing an accurate menu item cost, it is
impossible to determine a menu pricing strategy that will achieve your
restaurant food cost and profitability goals. To establish an accurate
menu item cost, it is important that the ingredient and recipe cost for
a given menu item is determined properly. To achieve this, it is
important to distinguish between the "as purchased" product price and
the "edible portion cost" for your menu item ingredients. Using a
yield analysis spreadsheet will enable an operator to easily calculate
this edible portion cost.
Prime rib is an excellent example of
a menu item that can benefit from a yield analysis to ensure the
correct menu item pricing is established. As an example, imagine an
eleven pound rib that has an "as purchased" cost of $5.50/lb. After
the cooking process is complete, this eleven pound rib might produce an
eight pound prime rib. Since prime rib is cut, portioned and sold
based on the cooked weight, it is important that the operator calculate
what the cost per pound is for the cooked prime rib (the edible portion
cost), not the invoiced cost per pound (the "as purchased" cost). In
this case, the edible portion cost for the prime rib is $7.56--more
than two dollars above the raw "as purchased" invoice cost of $5.50.
Any menu item price calculations need to consider the portion size that
will be served to the guest, the desired food cost percentage AND the
edible portion cost of the prime rib.
It is not sufficient to
do a yield analysis only once for your key
products for the purpose of calculating menu prices and then to stop
with any future yield
calculations. Rather, routine analysis for each key item should be
executed to ensure that yield results remain consistent over time. Any
change in
yield results that go unnoticed will have a significant impact on your
profitability for that menu item and will undermine any
menu item pricing strategy you put in place. Further, executing routine
yield calculations for your key items will help create yield trends and
averages that are invaluable in gauging ongoing product and employee
preparation performance by ensuring consistent achievement of the
established acceptable product yields.
In
the previous prime rib example, the yield after cooking was 73%. If
73% was considered an acceptable yield, then subsequent weekly yield
calculations should produce a yield relatively similar to this figure.
Any significant variations from this number will have a significant
profitability impact on that menu item.
It is important to
understand that executing a yield analysis, alone,
will not have any effect on your food cost and restaurant
profitability. Rather, the goal of yield calculations is to make aware
the fact that there are product or performance inconsistencies that are
affecting menu and recipe costs. In
other words, yield calculations bring to light that there is a problem,
but the problem must then be identified and solved if yield results and
profitability are to return to normal. Changes in product yields can
be attributed to a number of factors. Just a few possible causes that
an operator might want to examine are changes in product specification
(fat content, quality grade, size, origin, etc.), brand or manufacturer
or cooking procedures. Another common reason for variable yield
results is the inconsistent trimming and breaking down of meats.
Operations that cut their own meats often times have different yields
based on the employee executing the preparation. By executing yield
calculations, operations can set benchmarks and monitor employee
performance against these standards. Further, routine yield
calculations on meats that are broken down in-house can help quickly
identify a change or inconsistency in the raw product from the supplier
before the change becomes noticeable by looking at the bottom line.
While executing routine yield calculations can seem like a
time-intensive and daunting task, it need not be. Using a spreadsheet,
like the free one that we provide on this website,
can make yield calculations relatively easy. Further, the little extra
time that it takes the employee responsible for the preparation of the
product in tracking what they produce will let them know that you are
vigilant about maintaining standards and this will help them police their
own performance.
Once
you have a tracking spreadsheet in place, the best place to begin is
identifying the items to track. Our recommendation is to request a
tracking report, also known as a velocity report or descending dollar
report, from your supplier. This report lists all of your purchases in
a given time period in a descending dollar format. We recommend that
an operation routinely execute a yield analysis for at least the top
five items listed that are prepared or cooked before portioning for
sale.
Our final recommendation is to stay consistent with the
execution of this practice and to review the results frequently. Often
times these types of procedures can begin to get overlooked in the
bustle of the restaurant environment. However, staying on top of your
yields, especially for those items that you spend the most money on,
will help ensure that you are getting every possible penny of profit to
your bottom line.
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Many firms that make their income through consulting or the sale of
systems to help operators become more profitable through cost control
often find that their business peaks during economic slumps. It seems
that many operators become more concerned about effective cost control
systems when it is critical to the survival of the restaurant, rather
than when these systems could help the business thrive and prosper.
Often, the initial call made by an operator to a cost control
consultant is out of a sense of confusion, concern or desperation.
Often times the owner or operator is feeling the squeeze from a
tightening economy and is wondering why they see their gross margin
slipping period after period as a result of an increasing food cost. Of
course, the answer to this question could potentially be very complex
and detailed. Many times, however, operators fail to rule out the
obvious possibilities first, before enlisting the aid of an expensive
cost control consultant. I guess psychologically this makes sense. The
frustrated operator many times assumes that they were managing food
cost properly before, so any problem in food cost must be complex and
require deep analysis from a specialist. Maybe, maybe not.
During times of prosperity, operators may seem less concerned with
verifying their cost control systems and ensuring that costs are being
accounted for accurately. Rather, operators are content to not question
profitable times and results. Ironically, profitable times do not mean
that restaurants are operating efficiently. In fact, times of increased
revenue may very well provide positive cash flow and overall
profitability, but an analysis of costs may very well indicate that a
significant amount of money is being left on the table each period.
Don't forget the adage "high volume hides a multitude of sins." This
being the case, it is always recommended that operators start at the
beginning when trying to ascertain the reason behind a rising food cost.
The result of this diligence is often the identification of a
fundamental operating flaw: operators either have out-of-date recipe
cards or, believe it or not, no recipe cards at all! Because operators
are, therefore, unable to gauge actual food cost against a theoretical
food cost based upon menu recipe cards, operators often assume the
answer to a rising food cost is theft, improper portion controls or
poor server performance. While this may be true, it might also have
absolutely nothing to do with the situation. Unless recipe cards are
completed for each menu item and kept up to date by adjusting
ingredient prices as they increase by a predetermined threshold, there
is very little way for an operator to know that the rise in food cost
is due to mismanagement, rather than a simple cost of goods increase.
Because operators often fail to have basic cost control systems in
place, such as the use of recipe cards, they often spend countless
hours hunting down fictitious thieves, invest thousands on unnecessary
consultants and lower morale through the constant correction of
employees and managers on not doing a better job on portioning and
waste control. One might think that this logic would be intuitive for
even the moderately successful operator, but often times it is not. Too
often, operators that do not utilize menu cards have an inaccurate view
of the purchasing situation and, consequently, their ideal/theoretical
cost of goods. These operators may believe that purchases have been
managed through the selection and procurement of specific deals that
were thought important, through a minimal bid process that focuses on a
core group of key items or by assuming that the overall cost of the
menu has stayed the same from when it was written! Often times this is
not the case. Vendors and salesmen are often magicians. They are
acutely aware of what an operator's purchases are and they are also
well aware of which of these items are increasing in cost during a
given period. Salesmen are very effective at keeping an operator
focused on one category, while prices skyrocket in another. The only
difference between the salesman and the magician is that it is your
profit that disappears, not the rabbit! Of course, this statement is
not intended to imply that all vendors and salesmen are dishonest, but
rather to communicate that operators must maintain vigilance through
proper fundamental systems.
The result after a year of no recipe cards may be a menu with an ideal
food cost two or three percent higher than when it was written. Of
course, it is worth noting that the converse may also be true. It is
very possible that an operator has too much confidence in their
employees and might assume that the rising food cost is due to price
increases and automatically increases the menu pricing when, in fact,
the cost of goods increase was due to operational inefficiencies, such
as theft and improper portioning. The moral of the story is stay on top
of your food cost by knowing what your ideal cost is through the
creation of recipe cards for each menu item and by keeping them
updated.
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