How much is that hoagie in the window?

How much is that hoagie in the window?

Student Objectives: • • Define the term food cost • • Perform simple percentage food cost calculations • • Define the term formula pricing • • Describe the term product specification and relate its role in maintaining food cost • • Define the term minimum standard • • Define the term par stock and describe how it is related to food cost • • Define the term portion control and discuss how to implement effective portion control • • Define physical inventory and describe its importance in controlling and defining food cost • • Demonstrate the ability to calculate food cost and percentage food cost

I. What is food cost? Food cost is the cost of food prepared for and consumed by the customer. In a broader sense, it is part of The Cost of Sales which refers to the cost of all products, both food and beverage, consumed by the guest.

A. Food costs are traditionally expressed in both dollar amounts and as a percentage of sales. For example, if your operation’s monthly sales were $75,000 and your food costs were $25,000, what would your percent food cost be for that month? (33.3).

B. Actual food cost dollars are essential to keep track of, but food cost is a variable expense that rises and falls with the volume of sales • (i.e., its size is relative to the volume of sales). A percentage food cost can be a reliable indicator of performance and should remain consistent regardless of sales volume.

C. There is no “magic number” when it comes to food cost percentage. • Percentage food costs are what your operation decides for them to be. • Your operation’s targeted food cost will vary depending on the market segment you serve, your volume of business, fixed expenses and overhead, other variable costs, desired profit and your sales and pricing strategies.

D. Percentage food costs are valuable to the foodservice manager because • they can readily be compared to previous reporting periods, budgets and industry averages for operations that fall into similar categories (i.e. quick-serve Mexican restaurants in central Texas with an annual sales volume of $750,000 to $1,000,000). In this way the manager can gather quick feedback for comparison and can judge optimal performance.

II. Controlling food cost • A. The menu • 1. When costing and pricing the menu, each individual item is not “formula priced” according to the targeted food cost. If this was the case, given a 30% targeted food cost, a glass of iced tea that costs your operation 5 cents to produce would only sell for 20 cents. • Consequently, if your operation used formula pricing for a shrimp cocktail that costs $5 to produce, your selling price would be $20 (not a likely price point). • Pricing strategies are designed to derive an average food cost from all items on the menu and the frequency of sales for each item in the menu’s product mix.

II. Controlling food cost • B. Purchasing • 1. Specifications (specs): All of the food, beverages and supplies that your operation has selected to meet certain minimum specifications to ensure the quality and consistency your customers have come to expect when they visit your facility.

B. Purchasing • 2. These specifications are in writing, and will determine the cost of goods being purchased from outside vendors.

B. Purchasing • 3. Most operations put their product “specs” out to bid or enter into a buying agreement with a trusted, reputable vendor.

B. Purchasing • 4. Prices may fluctuate with the seasonality of items and other supply and demand situations. • Try to determine pending price fluctuations in advance through discussions with your vendors and apprise management of any pending price changes.

B. Purchasing • 5. Vendors adherence to minimum specifications must be monitored with each delivery.

B. Purchasing • 6. Price is not always the determining factor. Service, flexibility, consistency and trustworthiness of the vendor must be taken into consideration.

B. Purchasing • 7. Sometimes food cost can actually be too low. Remember that specifications are carefully outlined in order to achieve customer satisfaction and expectations. If the purchasing agent compromises quality for price, food cost may drop but so will your customer base.

B. Purchasing • 8. Most operations have a written code of ethics for purchasing that forbids the purchasing agent to receive any personal compensation from suppliers, either in the form of kickbacks or gifts.

C. Receiving and storage • 1. Delivery times should be scheduled to meet the needs of the operation. Trained personnel must be present to check in, weigh, count and examine each delivery at the time of delivery. • 2. Discrepancies and/or rejected products must be noted at the time of delivery. • 3. Invoice prices must match those quoted on the order form. Adjustments or credit memos should be issued immediately. • 4. Management should be notified about any discrepancies, back-orders, out-of-stocks or rejected product.

5. All perishable inventory should be rotated into stock immediately upon • delivery. • 6. All inventory should be dated upon receipt. • 7. All storage facilities should be monitored regularly for temperature and sound storage practices to maintain maximum product quality, shelf life and safety. • 8. All products should be inventoried and accounted for on a regular basis. • 9. Minimum par levels should be established and maintained to avoid over-and under ordering. • 10. FIFO (first in, first out) stock rotation should be practiced and monitored.

D. Preparation • 1. Food preparation staff should be issued only the supplies needed for that day’s/shift work needs. • Requisitions should be maintained for all goods taken from storage for production, and these requisitions should be logged. • 2. Perpetual inventories should be taken on high cost items (steaks, lobster tails, etc.) and matched against sales and waste sheets. • 3. A.P. to E.P. yield tests should be done frequently. • 4. Portion control procedures should be set in place and carefully monitored.

D. Preparation • 5. Waste sheets should be in place and monitored. • 6. Use small batch preparation and progressive cooking principles. • 7. Production schedules should be in place and updated daily. • 8. Production charts and carry-over foods need to be logged and identified for immediate use. • 9. Make sure scales are in place and portion control is being followed. • 10. Food preparation staff needs to be well trained.

E. Controlling inventory • 1. Complete physical inventories should be taken frequently. • 2. Most foodservice operations take inventory at least twice a month. • 3. The end-of-month (EOM) inventory reflects the end of an accounting • period and is the inventory that is entered into the monthly profit and loss • statement (a.k.a. financial statement); other inventories are for proactive • control by management.

E. Controlling inventory • 4. All food items are entered into a record and that record is extended to reflect the as-purchased value of all food items. (A similar inventory is taken for all products related to alcoholic beverage service.)

E. Controlling inventory • 5. Physical inventory sheets should be designed to be taken shelf-to-sheet. • 6. This value of the closing inventory is then used with the food revenues for • the same time period to determine the cost of goods sold (C.O.G.S., or • food cost).

E. Controlling inventory • 7. The dollar value of closing inventory of any given accounting period is • also the value of the opening inventory for the next accounting period. • 8. The formula for determining food or beverage cost is expressed as follows: • Opening Inventory + Purchases = Total Available - Ending Inventory = • Cost of Food

E. Controlling inventory 9. A useful mnemonic tool for the student to recall this formula is “OPEC”. Example: Grey Goose Café Month Ending 05/30/2001 Cost of Food Opening Inventory $2,000 + Purchases $6,000 = Total Available $8,000 - Ending Inventory $3,000 = Cost of Food $5,000 Cost of Food/Revenue = % $5,000/$18,000 = 28% Budgeted Cost = 30% Actual = 28% Variance = 2%

10. Determining prime cost • —Prime cost is a measure of your critical variable expenses • a. Cost of sales • b. Cost of labor • c. The above two items subtracted from your revenue equals your prime costs • d. The prime cost is a principle indicator of performance and profitability by determining contribution to overhead

11. Customer ordering • a. Ensure effective communications procedures are in place between the line cooks and the service personnel. • b. Remove any barriers (physical or otherwise) to efficient service and correctly-produced customer orders.

11. Customer ordering • c. Monitor line or service personnel who are frequently involved in menu items being misfired, improperly prepared, improperly served or sent back by the customer.

11. Customer ordering • d. Line and service staff need to be a well-trained team focused on customer satisfaction.

III. Six tips for controlling food cost • A. Frequent line checks: conduct a line check prior to each meal period or day segment. Some things to look for

1. Taste the food 2. Check the holding temperatures 3. Make sure recipes are being followed 4. Ensure minimum specifications are being used 5. Ensure proper portion control is in place 6. Check line pars against forecast 7. Inspect in-line storage and refrigeration for organization 8. Check back door security A. line check, Some things to look for:

III. B. Employee training • 1. Observe employees at work • 2. Note where minimum standards are not being met • 3. Schedule retraining on those standards

C. Schedule regular meetings—Have frequent kitchen meetings. Daily, post shift meetings are good forums for • 1. Discussing all the shift events and offering praise • 2. Reviewing what went wrong, involving the staff in discussing solutions • 3. Updates on food cost status from previous day

D. Menu analysis • 1. Review your product sales mix daily • 2. Track your best and worst selling items • 3. Investigate the worst selling items

D. Menu analysis • 4. If all specs and procedures are being followed, determine if item(s) should be replaced on the menu by successful specials • 5. Check your menu for infrequently-used items and recipe ingredients and try to find a way to remove them. Simplify your inventory! • 6. Stay on top of vendor price changes; it may impact your menu, recipes and menu pricing

E. Establish security systems • 1. Meat and alcoholic beverage storage is locked • 2. Perpetual inventories are reconciled • 3. Back door remains locked

E. Establish security systems • 4. Managers are highly visible • 5. Employees are accounted for • 6. Trash runs are periodically and randomly accompanied by a manager

F. Monitor systems • 1. Management follow-through • Check inventories • Due line checks • Follow up on all employee and maintence issues.

F. Monitor systems • 2. Managing by example • Be highly visible • On floor • In back of the house Be consistent in how you deal with customers and employees, “ Are you thinking what is best for the business when making decisions.

F. Monitor systems • 3. Maintain ticket and transaction control, audit frequently: • Check for: • A beverage for every guest • An entrée for everybody • Randomly compare table contents to what is on check/ make note of variances and settle all disputes at checkout.

F. Monitor systems • 4. Investigate all till variances at all POS systems and reconcile • Why is there a variance • Who is responsible for the error • Was food being prepared without a ticket • Is there a possibility of wrong doing or just an honest mistake

How much is that hoagie in the window?