Food Cost Analysis

If you have been reading the past few posts about food cost, you probably have deduced that I do not like to be surprised.  I especially do not like to be surprised by a bad bottom line result.

I entered my career in restaurants in the days of paper and pencils, and calculators. 

I spent lot of time studying food cost and how to manage it successfully.

No surprises meant that I had to have a very good handle on the factors that contributed to managing my food cost: pricing menu items, watching waste, managing yields, tracking inventory and monitoring team activities.

And I got very good with a calculator and pencil.

If you are using the tools that we discussed in the earlier posts, inventory and plate costs, you will have the tools for analysis of your food cost.  

I always had my inventories set up so that I could compare each food cost category group to both projections and previous results.  For instance, I broke out meat as a category and a subtotal so that the “meat cost of sales” could be tracked as a component of the total food cost. 

If my food cost ran higher than projection, I could go back over each category subtotal and review what the problem might be.  This allowed me to hard target the problem, rather than “swagging” (Scientific Wild A** Guess) to my team. 

For “Plate Cost” I knew the cost of each menu item, what it costs to produce the item and what margin I needed for each item.  I also know the menu mix for each

Item, so I can assess the impact for both my food cost and my bottom line. 

Using that information, I could react very quickly if the cost of the ingredients changed, if my yields changed or if the pricing of the menu item changed. 

For example, in one job that I worked, my General Manager approached me about “my high food cost” on my shifts. His advice to me was “to get my portions and waste under control or he would fire me” and hire someone who would not blow up his food cost.  I didn’t know whether to laugh or swear at his ignorance, but I certainly wasn’t going to take his challenge lightly.  Using my knowledge of inventory and plate cost, I prepared a report for him that clearly demonstrated that I WAS NOT the problem, that his discounting and coupons were the cause of the food cost problem.  Quite simply, he was not charging enough for his food!

Even more interesting, the Area Manager got wind of my little project and asked me to expand my report for the entire last accounting period.  He wanted to share the discounting and coupon revelation with his boss and his entire team.  While I reflected in amazement that the entire organization seemed clueless about the impact of the mandated discounts and coupons, I welcomed the opportunity to bring some common sense to the process. 

I prepared the requested report, for an entire accounting period that clearly demonstrated that our unit had excellent portion control, minimum waste and effective yield management.  The food cost problem was the menu discounting and coupons, something that was corporate mandated. 

While a good case can be made for the coupons driving top line sales, the discounts was used, targeting low margin entrees, hurting the food cost because they did not take into account the high redemption rate by our guests that used the discounts and the price of the food that was used to create the menu items. 

My report certainly did stir things up, from the unit level right up to the regional level.  I gathered several new “friends” in the company, and got labeled the “smart guy”, because I understood Food Cost and could figure it out.   

Of course, being labeled the “smart guy” was also a pretty good career move for me, earning me several promotions, from unit to area to regional within that company, and then beyond.   

They definitely got smarter when they changed the coupons to drive top line sales by “packaging” multiple entrees and appetizers into a special deal, and keeping a very profitable margin while focusing our guests on higher perceived value.  

Still, my goal has always been focus to be very smart about my food cost. 

Food cost is a variable cost, but remember it always tracks with your revenue.  It should remain the same percentage of revenue, no matter what direction your revenue heads, either up or down.  As with labor cost, it is much easier to manage as your revenue goes up, because you have more offsets for errors. 

But you still must have very tight control over the costs for food and the revenue it generates, so it doesn’t impact your bottom line.   

Cheers! Here’s to building profits!