Essential Food Cost Controls for Independent Restaurants

Key Practices to Reduce Waste, Spoilage, Theft & Other Problems 

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Program Presented By

Jim Laube works with restaurant operators who want practical advice to improve their business management practices to build a more profitable restaurant and valuable business. Jim began his restaurant career at the age of 15 working for a quick-service restaurant and earned his way through college as a server and bartender. After earning his degree, he worked for a regional restaurant chain and an independent fine dining restaurant. In these organizations he held positions in both the operational and financial areas as a restaurant manager, controller and CFO. As an author, Jim is a contributor to Restaurant Startup & Growth, Restaurant Hospitality, Nations Restaurant News, Foodservice.com, Pizza Today,” the Society for Foodservice Management's "SFM Source,” and American Express’ Briefing newsletter. He recently completed the production of two comprehensive CD-ROM programs with the Texas Restaurant Association entitled “Restaurant Numbers” and “Food Cost Fitness.” Jim is also the creator and publisher of RestaurantOwner.com, an extensive web site specifically for independent restaurant operators. It features business management resources in the form of streaming, Flash-animated, multimedia training programs as well as articles, business tools, downloadable forms, report templates, checklists and a wide variety of restaurant operating procedures. It is one of the most popular restaurant sites on the World Wide Web. During the past 15 years, Jim has conducted over 500 presentations to thousands of restaurant professionals in the U.S., Canada and Europe. His clients include Red Lobster, Papa John’s Pizza, KFC, Marriott, Hard Rock Café, Cornell University, Aramark, the National Restaurant Association and many state restaurant associations.

Jim Laube

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Why It’s Easy to Have a Food Cost Problem Problem Lots of .

Many products with short shelf lives

Lots of involved

Difficult to losses

Most restaurants have a food cost problem to some degree. And it’s often a “very” expensive

problem.

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Introduction

How Restaurant Profits Are Lost Working With Food

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Purchasing

Receiving

Storage

Preparation

Serving & Settlement

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Introduction

Your Food Cost Is Determined By . . .

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The most effective way to reduce your food cost is to improve . . .

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Introduction

Remember, You Take Dollars to the Bank Bank

Menu Price Ingredient Costs * .

1. Cheeseburger $4.45 $1.07

2. Steak Sandwich $6.95 $2.78

* Ideal food cost calculated using each menu items' recipe portions and cost of ingredients.

Case #1:

Case #2:

Menu Menu Food Food Sales Total TTL IdealItem Price Cost Cost % Mix Sales Cost

1. $4.45 $1.07 24% 2,000 $ 8,900 $ 2,136 2. 6.95 2.78 40% 750 5,213 2,085

Totals 14,113 4,221

Sales $ 14,113 100%Ideal Food Cost 4,221 29%Gross Profit 9,892

Menu Menu Food Food Sales Total TTL IdealItem Price Cost Cost % Mix Sales Cost

1. $4.45 $1.07 24% 750 $ 3,338 $ 801 2. 6.95 2.78 40% 2,000 13,900 5,560

Totals 17,238 6,361

Sales $ 17,238 100%Ideal Food Cost 6,361 36%Gross Profit 10,877

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Introduction

Food Purchases versus Food Cost Review

Key Points: Fluctuations in inventory levels do not affect food cost, provided an

accurate beginning and ending inventory is taken.

An inaccurate ending inventory means a dollar for dollar misstatement of your true food cost

No Inventory Adjustment

With Inventory Adjustment

FOOD COST CALCULATIONFood Purchases $ 40,000 $ 40,000Add - Beginning inventory 10,000Deduct - Ending inventory (20,000)Food Cost 40,000 30,000

OPERATING STATEMENTFood Sales 100,000 100% 100,000 100%Food Cost 40,000 40% 30,000 30%Gross Profit 60,000 60% 70,000 70%

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High Impact Food Cost Controls

1. Reduce Inventory Levels (increase inventory turnover) Process

Carrying too much inventory . . . 1. Ties up your valuable . 2. Leads to .

3. Creates more and spoilage 4. Encourages .

Evaluating inventory levels – Number of days inventory on hand

STEP 1: Calculate Average Daily Food Cost

Food CostNumber of Days in Period

Ave. Daily Food Cost =

STEP 2: Calculate Days Sales In Inventory

Ending Food Inventory

Average Daily Food CostDays Sales in Inventory =

Example: Assume you’ve just received your latest financial statements. You’ll need the following information to calculate your number of days sales in inventory -

Number of days in the period 30 Ending food inventory $10,000 Food cost $30,000

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High Impact Food Cost Controls

STEP 1: Calculate Average Daily Food Cost

Average Daily Food Cost = = $1,000

STEP 2: Calculate Days Sales In Inventory

Days Sales in Inventory = = 10 Days

When you maintain lower (yet adequate) inventory levels you will see . . .

1. More . 2. Higher . products

3. product utilization 4. Lower . 5. More .

$30,000 30

$10,000 $1,000

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High Impact Food Cost Controls

2. Calculating Food Cost Weekly Process

Maintain an “Invoice Log” of all food purchases -

Prepare a “Weekly Food Cost Report” -

InvoiceDate Invoice Vendor (Credit) Food Paper Cleaning

Number Amount Supplies Supplies Amount DescriptionBALANCE FORWARD 13,865.81 8,256.50 953.93 397.58 4,257.80

36055 3514 Hank's Produce 351.58 351.58

36055 485-541118 Specialty Products 326.80 326.80

35691 3258 Kenny Meat 647.58 647.58

35691 8879512 Puritan Supply 258.47 258.47 Tableware

35691 58473 Victor Wholesale 327.23 203.40

35691 H-32581 Atlantic Foods 1,348.52 1,348.52

35691 757741 General Supply 238.40 238.40 Misc.

TOTALS 17,364.39 10,604.18 1,280.73 600.98 4,754.67

Miscellaneous

Riviera GrillInvoice Log

Week of August 20 - 26

Page 5

Add Deduct

Mon Tue Wed Thu Fri Sat Sun Beginning Ending $ %

Inventory Inventory

SALES:

Food 3,158.00 3,495.80 3,675.84 4,289.40 5,576.22 7,249.09 4,123.82 31,568.17 100.0%

Total Sales 3,158.00 3,495.80 3,675.84 4,289.40 5,576.22 7,249.09 4,123.82 31,568.17 100.0%

COST OF SALES:

Food 10,604.18 6,123.75 (5,618.20) 10,985.72 34.8%

Gross Margin 20,582.45 65.2%

Customer Count 298 325 294 340 514 751 423 2,946

Check Average 10.58 10.75 12.50 12.61 10.85 9.65 9.75 10.72

Riviera GrillFood Cost Worksheet

Week of August 20 - 26

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High Impact Food Cost Controls Illustration of food cost improvements from calculating food cost and tracking inventory levels weekly -

Why calculate food cost and inventory levels weekly?

1. Makes people in the kitchen more aware and accountable 1. Problems are recognized quickly 2. Problems can be responded to quickly 3. Food cost will go down (usually 2 to 5 points)

Week 1 Week 2 Week 3 Week 4Weekly Sales $ 25,000 $ 25,000 $ 25,000 $ 25,000

Beginning Inventory 15,000 15,000 14,000 12,300 Purchases 10,000 8,500 7,500 6,500 Goods available for sale 25,000 23,500 21,500 18,800

Less Ending Inventory (15,000) (14,000) (12,300) (10,000)

Food Cost 10,000 9,500 9,200 8,800

Food Cost % 40% 38% 37% 35%

Ending Inventory -Amount $ 15,000 $ 14,000 $ 12,300 $ 10,000

Days Sales In Inventory 11 10 9 8

Calculation of Days Sales In Inventory:

Ending Inventory 15,000 14,000 12,300 10,000 Ave. Daily Food Cost 1,429 1,357 1,314 1,257

Calculation of Average Daily Food Cost

Food Cost 10,000 14,000 12,300 10,000 # of Days in Period 7 7 7 7

=

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As Inventory Is Reduced

The better you control inventory and the more frequently you calculate food cost, the lower

your food cost will be. PERIOD!

Food Cost GOES DOWN!

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High Impact Food Cost Controls

3. Keep a “Running Inventory” on Key Products Process

Maintain a “running inventory” on those 8 to 12 products that make up the largest share of your food cost -

Some operations do this once a day, some at the end of each shift.

Why count inventory frequently?

Inventory is . . .

BEEF PATTIES (EA)

Opening Inventory 20 Yes terday's ACTUAL en din g in ven tory

Purchases 100 Today's delivery

Total Available 120

Less Sales (40) From th e poin t of s a le

Ending Inventory - IDEAL 80

Ending Inventory - ACTUAL 78 From doin g a ph ys ica l cou n t

Difference - over (short) (2)

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High Impact Food Cost Controls

Running Inventory Worksheet

DATE > 7/21 7/22 7/23 7/24 7/25 7/26 7/27 TOTAL

DAY > MON TUE WED THU FRI SAT SUN VARIANCE

BEEF PATTIES (EA)Beginning Inventory 20 78 24 108Received 100 0 150 0Total Available 120 78 174 108Sold 40 54 65 85Ending Inventory - IDEAL 80 24 109 23Ending Inventory - ACTUAL 78 24 108 21Difference - over (short) (2) 0 (1) (2)

RIB-EYE 8 OZ (EA)Beginning Inventory 10 73 18 84Received 108 0 132 0Total Available 118 73 150 84Sold 42 53 64 75Ending Inventory - IDEAL 76 20 86 9Ending Inventory - ACTUAL 73 18 84 6Difference - over (short) (3) (2) (2) (3)

T-BONE 18 OZ (EA)Beginning Inventory 35 54 16 56Received 42 0 95 0Total Available 77 54 111 56Sold 25 37 51 41Ending Inventory - IDEAL 52 17 60 15Ending Inventory - ACTUAL 54 16 56 18Difference - over (short) 2 (1) (4) 3

PRIME RIB (LB)Beginning Inventory 25 66 12 65Received 90 0 120 0Total Available 115 66 132 65Sold 45 52 61 41Ending Inventory - IDEAL 70 14 71 24Ending Inventory - ACTUAL 66 12 65 21Difference - over (short) (4) (2) (6) (3)

SHRIMP 16-20 (LB)Beginning Inventory 35 95 8 105Received 140 0 175 0Total Available 175 95 183 105Sold 75 85 72 93Ending Inventory - IDEAL 100 10 111 12Ending Inventory - ACTUAL 95 8 105 5Difference - over (short) (5) (2) (6) (7)

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1. Purchasing

2. Receiving

3. Storage

4. Preparation

5. Serving & Settlement

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Purchasing

1. Evaluate the process

2. Consider a arrangement

Potential advantages of a prime vendor arrangement –

lower “overall” prices

less bookkeeping and administrative work (less invoices to deal with)

creates more of a partnership with the vendor (better service)

less management time involved in purchasing

opportunity for rebates based on quantities, prompt payment, drop shipment size & more

may be easier to purchase electronically

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Purchasing

Sample Vendor Cover Letter

November 1, 2011 Mr. Robert Smith Broadline Foodservice Supplier 9140 Bayview Road Anywhere, USA 77085 Dear Mr. Smith: We are planning to implement a prime vendor program and would like to invite your company to submit a proposal. The relationship we have in mind is a year-long non-contractual agreement that can be canceled at any time by either party. The enclosed Weekly Order Quote Sheet outlines the specifications and the average weekly usage of our principal products. Assuming that your company was the prime vendor and that we were purchased the amounts indicated, please extend each item based on the invoice price we could expect as of November 1, 2011. In addition, please provide the formula by which you would set the price (cost plus a percentage or cost plus a fixed amount per unit) over the term of the prime vendor relationship. To help you calculate the cost to service our account, I have included a Prime Vendor Information Sheet that outlines the parameters we expect in dealing with our prime vendor. Your quotes should represent your best-price bids. There will be no additional negotiation on prices or pricing formulas prior to awarding the prime vendor designation. In the event that actual purchases differ from our projected usage by more than 20% (up or down), I expect that the price quotes and formulas would be subject to renegotiation. If you are interested in being considered for selection as our prime vendor, please complete the enclosed information and return it to me no later than the close of business on Friday, November 28, 2011. In addition to the weekly order quotes, your response should also outline the method to be used to audit adherence to the pricing formulas during the term of the agreement. We hope to announce our selection by December 10, 2011 and initiate the prime vendor program on January 1, 2012. Please call me if you have any questions. With best regards, Matthew Jones Owner / Operator

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Prime Vendor Information Sheet

DELIVERY FREQUENCY We will want deliveries on the following days: Monday Tuesday Wednesday Thursday Friday Saturday Sunday

DELIVERY TIME We will accept deliveries at the following times: (check all that apply) Before 9am 9am – 11am 11am – 1pm 1pm – 5pm After 5pm

ORDER LEAD TIME We will place our orders the same day 1 day before 2 days before 3 days before we expect delivery.

METHOD OF ORDERING We will place our orders by the following means: By telephone directly to your company By giving the order to your sales representative By electronic transmission directly to your company

DESIRED CREDIT TERMS We would like to do business on the following terms: COD Net 7 days Net 14 days Net 30 days Other .

SEASONALITY The seasonality of our business is approximately as follows:

Jan – Mar % Apr – Jun % Jul – Sep % Oct – Dec %

OTHER FACTORS We expect to give the prime vendor % of our business in those product categories they serve. Where quality/specifications are equal, we prefer to use house brands national brands. We expect do not expect to be ordering items you would not normally carry in inventory. We will will not permit automatic substitutions when an item we order is not in stock.

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Purchasing 3. Use PURCHASE ORDERS .

Will help you verify – you got WHAT you ordered you got the QUANTITY you ordered you are charged the PRICE you were quoted

Vendor PO #Order DateTo Be Delivered On

UnitProduct Description Quantity Price Extension

Sales TaxFreightTotal

Special Instructions:

Ordered By:

Bay Street CaféPurchase Order

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Receiving

1. the purchasing and receiving functions 2. Use a . 3. Use a . 4. receiving clerks to follow specific receiving procedures

Receiving is an area where the combination of poor systems, carelessness,

and mistakes can add up to big problems and losses in any restaurant.

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Receiving

ACKNOWLEDGEMENT OF RECEIVING PROCEDURES

All products purchased by this restaurant are to be received in accordance with the following procedures.

1. Count the products actually received, then verify that the counts correspond to the quantities on the purchase order or order sheet. Check quantity, brand, size, etc.

2. Weigh products that are purchased by weight and compare actual weight to weight shown on invoice.

3. Inspect for quality, condition and consistency with our standards and specifications.

4. Verify that the prices charged on the invoice agree with the prices quoted on the PO.

5. Bring any irregularities to the attention of the driver immediately. Resolve irregularities immediately and note adjustments, returns, etc. clearly on the invoice. Initial invoice changes along with driver.

6. Attach invoice to purchase order or order sheet and route to accounting.

7. Transfer boxed, perishable product into clear plastic food boxes.

8. Immediately place all products in the appropriate storage areas.

I understand and acknowledge the above procedures. Employee Signature Date .

Signing an invoice legally obligates a company to pay that amount, which makes it equivalent to

signing a check.

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Storage

1. the storage areas

easy access to high use products small, expensive products away from storage room doors leafy vegetables away from refrigeration fans

2. to storage areas

3. Use .

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Preparation

1. Use consistently

helps ensure product consistency improves control over the use of expensive ingredients necessary to accurately calculate costing of menu items saves time in training new employees

Steps to Standardizing Recipes:

2. Implement and enforce a policy

Suggestions – have a good employee meal program let employees know how much products cost educate employees about foodservice being a “low margin” business

3. whenever possible

4. Use the right ? scales, cups, scoops ladles keep enough utensils on hand perform portion & utensil audits post correct portions in work areas

1. Determine exact quantity of ingredients 2. List ingredients in order of use 3. Reference equipment to use and include temperature, cooking

times, mixer speeds 4. Show exact container sizes 5. Include yields and portion sizes 6. Give garnish specs of each plate 7. DISPLAY PHOTOS OF FINAL PLATE PRESENTATION

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Preparation

5. Serve hot food .

Consider – making food in the window a TOP priority server paging systems heating plates

6. kitchen trash cans

7. Keep knives and blades ? a 8. Use ? a 9. Don’t let the staff ? a

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Serving & Settlement

1. Assign one cash drawer to person only

2. Perform surprise .

3. A must be generated and presented to each customer. No exceptions.

4. Assign one cash drawer to person only

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Food Cost Check List

Where to look when you suspect a food cost problem -

1. Has there been a recent shift in the sales mix?

2. Have there been any recent price increases on key products?

3. Is there too much inventory on hand?

4. Review and observe the receiving procedures.

5. Monitor the usage of key products on each shift.

6. Watch for unrecorded sales.

7. Audit portioning procedures and controls.

8. Inspect the trash.

9. Are standard recipes being followed consistently?

10. Are products being properly rotated?

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Ideas to Implement

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