As for any other business, profitability in foodservice is just a simple equation: Income (revenue) minus Expenses (costs) equals Profitability. This assumes, of course, that your income is greater than your expenses! The problem with foodservice is that the business becomes more complex when we begin to examine the components of the equation related to costs.
As a consultant, I have the opportunity to work with many types of operations, including hotels, restaurants, private clubs, motion picture studios, and contract and catering operations. With few exceptions, operators are not achieving their profitability potential.
Because of the complexity of cost control, I have developed a 100-plus question outline, used in conjunction with our on-site operational review. Because costs are primarily related to four key areas-food, beverage, labor and operating expense-our audit questionnaire seeks to define and identify some of the underlying reasons leading to high costs.
Here are just a few of the questions I ask and what the answers mean to your bottom line:
1. What is the number of menu items by meal period?
Menus containing many items typically contribute to higher-than-normal food and labor costs. Lengthy menus can also mean:
* More time spent reviewing current inventory before placing orders.
* More time spent in the ordering process.
* More time spent receiving, storing and issuing goods.
* More time spent preparing food to ensure all menu items are available for sale.
* More staff required to ensure that all items are ready on time for the specific meal period.
* More potential for spoilage and waste because you will not sell out all items on a daily basis.
2. Which are the high-profit items, and where are they on the menu?
In order to identify which are the most profitable items on the menu, you must determine what the net plated cost of each item on the menu is. Then you can determine profitability based upon the selling price of the item.
Far too often operators become fixated on percentage cost and forget the adage that dollars go to the bank, not percentages. Once you have identified your high-profit/high-acceptance items, you can "engineer" your menus to maximize sales of those items.
Studies done at Michigan State University related to eye-scanning patterns on menus, by page and by cate-gory, show how menu placement can affect consumer purchasing patterns. Our experience has shown you can achieve a decrease of 1 percent to 1.5 percent of food cost through menu re-engineering. With some of our larger clients, this could equate to a savings of $25,000 to $35,000 annually.
3. What is the impact of specials on food cost?
Daily specials need to be planned carefully to avoid driving up food cost. Because some operators believe that a daily special must be a loss leader to begin with, the failure to plan properly for any leftovers can prove disastrous. What is going to happen to the product prepared for a Saturday special if the restaurant is closed on Sunday? Some products do not hold well even for an extra day.
Overproduction during a given meal period may not transfer into the next meal period and may necessitate a product's being thrown out, especially if the operation is closed the next day or doesn't have a catered event for the next few days.
4. Are you using par stocks, build-to orders or standing orders?
A good purchasing program can easily decrease food cost another 1 percent to 2 percent. It is not a matter of buying the cheapest items available. More often than not, the purchasing philosophy of buying the cheapest itemsleads to increased cost of sales.
Two factors come into play here. No. 1 is purchasing the right product for its intended use. No. 2 is determining the yield factors to ensure achievement of the maximum yield.
We did a study for one of our studio clients who was purchasing produce from a purveyor who he thought was less expensive. After completing yield tests on green leaf products alone, we found savings of more than $5,000 a year. The second purveyor, whose case price was higher, had a weight of almost 40 pounds per case of 24 heads of iceberg lettuce. The purveyor whom he was purchasing from charged $4 less per case; however, the cases weighed less than 30 pounds for the same 24 heads of lettuce.
It's all about yields, and you must test yields seasonally on high-use items because weather conditions, growing region and growing practices all come into play.
"Par stocks" and "build-to" purchasing programs are OK, providing that you monitor cover counts, item popularity and kitchen production closely. We deal with consumers who are always looking for new items to try. An item that has been popular for a long time may slip in popularity with a change of menu, leaving the unprepared operator with an abundance of "dead stock" to run off, possibly at a loss.
Standing orders are the most dangerous of all insofar as a standing order of "10 cases per week" can easily inflate inventory even before you realize that an item has fallen in popularity.
5. Do you use forecasting to control both over- and under-purchasing?
Forecasting of covers-by meal period and item popularity-is necessary to control purchasing and production. When a forecasting system is not in place, we typically find an inflated inventory as the result. Afraid to run out of product and unsure what they will need, both the purchaser and the chef will generally "over order" to protect themselves - a practice that, of course, ties up operating capital.
6. Does the chef have access to sales abstracts with popularity percentages?
If the chef has no information on forecasts, item popularity counts and production schedules, then the kitchen is likely to overproduce. This costly waste of food and labor is as much management's fault as the chef's. The chef could use the time wasted preparing an unnecessary item to attend to another responsibility or to reduce labor costs. A large Las Vegas hotel client recently saved more than a million dollars thanks to restructuring its labor in the food and beverage areas.
7. Are plates designed to facilitate efficient service?
With today's creative chefs, you must be careful to ensure that the plates not only have excellent taste, eye appeal, color, elevation and texture, but also may be produced quickly and consistently so as not to slow down the order of service. Successful foodservice operations budget to achieve a predetermined number of covers during a given period of time at an established check average. When you cannot turn tables in a specified period of time because of the inability to get the food out of the kitchen, the chances of even meeting budgeted goals are poor.
8. Does dish-up for group functions disrupt the flow of dining room service?
Coordination and communication are the keys to ensuring that the group in the banquet room does not interrupt the flow of service in the dining room. Ideally, the kitchen will have a separate line to dish up banquets. But for restaurants that don't have this luxury, it is essential that good communication is in place.
For restaurants with considerable banquet space, a weekly catering meeting is vital to discuss the timing of the event and how it might affect the dining room. Also, the banquet menu should be posted for the dining room personnel so that they are aware of the foods being served, dish-up time and order of service, and they can adjust their dining room service accordingly.
Obviously, waitstaff should never tell dining room guests, "You'll have to wait a minute; we're dishing up a banquet right now." Proper reading of guests-whether they are having cocktails, appetizers and so on-will affect how dining room servers handle customers. These procedures must be taught, not left up to the discretion of the servers.
9. What should your food cost be?
Looking at comparisons with last year's costs or industry averages is of little benefit to foodservice operators. You cannot get around the hard work of properly costing individual items and preparing a cost potential based upon the relative popularity and cost of all menu items. Once this is completed, you can establish a benchmark to evaluate the effectiveness of management and production staff.
It is of little benefit to say our food cost has improved by 2 percent compared with last year's figures when the menu has been revised twice, we've changed vendors, we're using costing information from two or three years ago, and so on.
While this series of questions is not intended to answer all the possible scenarios related to declining profits, I hope it will give some insight into the process and into the areas a typical consultant might want to review. For new operators, or those remodeling existing facilities or menus, I recommend that you bring your consultant into the planning process as early as possible in order to maximize your profit potential.