how much is that hoagie in the window?

How much is that hoagie in the How much is that hoagie in the window?window?

Student Objectives:Student Objectives: • • Define the term food costDefine the term food cost • • Perform simple percentage food cost calculationsPerform simple percentage food cost calculations • • Define the term formula pricingDefine the term formula pricing • • Describe the term product specification and relate its Describe the term product specification and relate its

role in maintaining food costrole in maintaining food cost • • Define the term minimum standardDefine the term minimum standard • • Define the term par stock and describe how it is Define the term par stock and describe how it is

related to food costrelated to food cost • • Define the term portion control and discuss how to Define the term portion control and discuss how to

implement effective portion controlimplement effective portion control • • Define physical inventory and describe its Define physical inventory and describe its

importance in controlling and defining food costimportance in controlling and defining food cost • • Demonstrate the ability to calculate food cost and Demonstrate the ability to calculate food cost and

percentage food costpercentage food cost

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

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

B.B. Actual food cost dollars are essential to keep Actual food cost dollars are essential to keep track of, but food cost is a track of, but food cost is a variable expensevariable expense that that rises and falls with the volume of sales rises and falls with the volume of sales

(i.e., its size is relative to the volume of sales). A (i.e., its size is relative to the volume of sales). A percentage food cost can be a reliable indicator of percentage food cost can be a reliable indicator of performance and should remain consistent performance and should remain consistent regardless of sales volume.regardless of sales volume.

C.C. There is no “magic number” when it comes There is no “magic number” when it comes to food cost percentage. to food cost percentage.

Percentage food costs are what your Percentage food costs are what your operation decides for them to be. operation decides for them to be.

Your operation’s targeted food cost will vary Your operation’s targeted food cost will vary depending on the market depending on the market segment you serve, segment you serve, your volume of business, fixed expenses and your volume of business, fixed expenses and overhead, other variable costs, desired profit and overhead, other variable costs, desired profit and your sales and pricing strategies.your sales and pricing strategies.

D.D. Percentage food costs are valuable to the Percentage food costs are valuable to the foodservice manager because foodservice manager because – they can readily be compared to previous they can readily be compared to previous

reporting periods, budgets and industry averages for reporting periods, budgets and industry averages for operations that fall into similar categories (i.e. quick-operations that fall into similar categories (i.e. quick-serve Mexican restaurants in central Texas with an serve Mexican restaurants in central Texas with an annual sales volume of $750,000 to $1,000,000). In this annual sales volume of $750,000 to $1,000,000). In this way the manager can gather quick feedback for way the manager can gather quick feedback for comparison and can judge optimal performance.comparison and can judge optimal performance.

II.II. Controlling food costControlling food cost A.A. The menuThe menu

– 1.1. When costing and pricing the menu, each When costing and pricing the menu, each individual item is not “formula priced” according to the individual item is not “formula priced” according to the targeted food cost. If this was the case, given a 30% targeted food cost. If this was the case, given a 30% targeted food cost, a glass of iced tea that costs your targeted food cost, a glass of iced tea that costs your operation operation 5 cents to produce would only sell for 20 5 cents to produce would only sell for 20 cents. cents.

– Consequently, if your operation used formula pricing for Consequently, if your operation used formula pricing for a shrimp cocktail that costs $5 to produce, your selling a shrimp cocktail that costs $5 to produce, your selling price would be $20 (not a likely price point). price would be $20 (not a likely price point).

– Pricing strategies are designed to derive an average Pricing strategies are designed to derive an average food cost from all items on the menu and the frequency food cost from all items on the menu and the frequency of sales for each item in the menu’s product mix.of sales for each item in the menu’s product mix.

II.II. Controlling food costControlling food cost

B.B. PurchasingPurchasing – 1.1. Specifications (specs): All of the food, Specifications (specs): All of the food,

beverages and supplies that your operation has beverages and supplies that your operation has selected to meet certain minimum specifications selected to meet certain minimum specifications to ensure the quality and consistency your to ensure the quality and consistency your customers have come to expect when they visit customers have come to expect when they visit your facility.your facility.

B.B. PurchasingPurchasing

2.2. These specifications are in writing, and These specifications are in writing, and will determine the cost of goods being will determine the cost of goods being purchased from outside vendors.purchased from outside vendors.


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


4.4. Prices may fluctuate with the seasonality of Prices may fluctuate with the seasonality of items and other supply and demand situations. items and other supply and demand situations.

Try to determine pending price fluctuations in Try to determine pending price fluctuations in advance advance through discussions with your vendors through discussions with your vendors and apprise management of any pending price and apprise management of any pending price changes.changes.


5.5. Vendors adherence to minimum Vendors adherence to minimum specifications must be monitored with each specifications must be monitored with each delivery.delivery.


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


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


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

C.C. Receiving and storageReceiving and storage 1.1. Delivery times should be scheduled to meet Delivery times should be scheduled to meet

the needs of the operation. Trained personnel must the needs of the operation. Trained personnel must be present to check in, weigh, count and examine be present to check in, weigh, count and examine each delivery at the time of delivery.each delivery at the time of delivery.

2.2. Discrepancies and/or rejected products must Discrepancies and/or rejected products must be noted at the time of delivery.be noted at the time of delivery.

3.3. Invoice prices must match those quoted on the Invoice prices must match those quoted on the order form. Adjustments or credit memos should be order form. Adjustments or credit memos should be issued immediately.issued immediately.

4.4. Management should be notified about any Management should be notified about any discrepancies, back-orders, out-of-stocks or rejected discrepancies, back-orders, out-of-stocks or rejected product.product.

5.5. All perishable inventory should be rotated into All perishable inventory should be rotated into stock immediately uponstock immediately upon

delivery.delivery. 6.6. All inventory should be dated upon receipt.All inventory should be dated upon receipt. 7.7. All storage facilities should be monitored All storage facilities should be monitored

regularly for temperature and regularly for temperature and sound storage sound storage practices to maintain maximum product quality, shelf practices to maintain maximum product quality, shelf life and safety.life and safety.

8.8. All products should be inventoried and All products should be inventoried and accounted for on a regular basis.accounted for on a regular basis.

9.9. Minimum par levels should be established and Minimum par levels should be established and maintained to avoid over-and under ordering.maintained to avoid over-and under ordering.

10.10. FIFO (first in, first out) stock rotation should be FIFO (first in, first out) stock rotation should be practiced and monitored.practiced and monitored.

D.D. PreparationPreparation 1.1. Food preparation staff should be issued only Food preparation staff should be issued only

the supplies needed for that day’s/shift work needs. the supplies needed for that day’s/shift work needs. Requisitions should be maintained for all goods Requisitions should be maintained for all goods

taken from storage for production, and these taken from storage for production, and these requisitions should be logged.requisitions should be logged.

2.2. Perpetual inventories should be taken on high Perpetual inventories should be taken on high cost items (steaks, lobster cost items (steaks, lobster tails, etc.) and tails, etc.) and matched against sales and waste sheets.matched against sales and waste sheets.

3.3. A.P. to E.P. yield tests should be done A.P. to E.P. yield tests should be done frequently.frequently.

4.4. Portion control procedures should be set in Portion control procedures should be set in place and carefully monitored.place and carefully monitored.

D.D. PreparationPreparation 5.5. Waste sheets should be in place and Waste sheets should be in place and

monitored.monitored. 6.6. Use small batch preparation and progressive Use small batch preparation and progressive

cooking principles.cooking principles. 7.7. Production schedules should be in place and Production schedules should be in place and

updated daily.updated daily. 8.8. Production charts and carry-over foods need Production charts and carry-over foods need

to be logged and identified to be logged and identified for immediate use.for immediate use. 9.9. Make sure scales are in place and portion Make sure scales are in place and portion

control is being followed.control is being followed. 10.10. Food preparation staff needs to be well Food preparation staff needs to be well

trained.trained.

E.E. Controlling inventoryControlling inventory 1.1. Complete physical inventories should be Complete physical inventories should be

taken frequently.taken frequently. 2.2. Most foodservice operations take inventory Most foodservice operations take inventory

at least twice a month.at least twice a month. 3.3. The end-of-month (EOM) inventory reflects The end-of-month (EOM) inventory reflects

the end of an accounting the end of an accounting period and is the inventory that is entered period and is the inventory that is entered

into the monthly profit and loss into the monthly profit and loss statement (a.k.a. financial statement); other statement (a.k.a. financial statement); other

inventories are for proactive inventories are for proactive control by management.control by management.

E.E. Controlling inventoryControlling inventory

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


5.5. Physical inventory sheets should be Physical inventory sheets should be designed to be taken shelf-to-sheet.designed to be taken shelf-to-sheet.

6.6. This value of the closing inventory is This value of the closing inventory is then used with the food revenues for then used with the food revenues for

the same time period to determine the the same time period to determine the cost of goods sold (C.O.G.S., or cost of goods sold (C.O.G.S., or

food cost).food cost).


7.7. The dollar value of closing inventory of any The dollar value of closing inventory of any given accounting period is given accounting period is

also the value of the opening inventory for also the value of the opening inventory for the next accounting period.the next accounting period.

8.8. The formula for determining food or The formula for determining food or beverage cost is expressed as follows:beverage cost is expressed as follows:

Opening Inventory + Purchases Opening Inventory + Purchases = Total Available - Ending Inventory = = Total Available - Ending Inventory =

Cost of Food Cost of Food

E.E. Controlling inventoryControlling inventory9.9. A useful mnemonic tool for the student to recall this formula is A useful mnemonic tool for the student to recall this formula is

“OPEC”. Example:“OPEC”. Example:Grey Goose Café Month Ending 05/30/2001 Grey Goose Café Month Ending 05/30/2001

Cost of FoodCost of FoodOpening Inventory Opening Inventory $2,000$2,000+ Purchases+ Purchases $6,000$6,000= Total Available= Total Available $8,000$8,000- Ending Inventory- Ending Inventory $3,000$3,000= Cost of Food= Cost of Food $5,000$5,000

Cost of Food/Revenue = %Cost of Food/Revenue = % $5,000/$18,000 = 28%$5,000/$18,000 = 28%

Budgeted Cost = 30%Budgeted Cost = 30%Actual =Actual = 28% 28%Variance = 2%Variance = 2%

10.10. Determining prime cost Determining prime cost

——Prime cost is a measure of your critical Prime cost is a measure of your critical variable expensesvariable expenses

a.a. Cost of salesCost of sales b.b. Cost of laborCost of labor c.c. The above two items subtracted from your revenue equals The above two items subtracted from your revenue equals

your prime costsyour prime costs d.d. The prime cost is a principle indicator of performance and The prime cost is a principle indicator of performance and

profitability by determining contribution to overheadprofitability by determining contribution to overhead

11.11. Customer orderingCustomer ordering

a.a. Ensure effective communications Ensure effective communications procedures are in place between the line procedures are in place between the line cooks and the service personnel.cooks and the service personnel.

b.b. Remove any barriers (physical or Remove any barriers (physical or otherwise) to efficient service and correctly-otherwise) to efficient service and correctly-produced customer orders.produced customer orders.


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


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

III.III. Six tips for controlling food Six tips for controlling food costcost

A.A. Frequent line checks: conduct a line Frequent line checks: conduct a line check prior to each meal period or day check prior to each meal period or day

segment. Some things to look forsegment. Some things to look for

A.A. line check, Some things to look forline check, Some things to look for::

1.1. Taste the foodTaste the food 2.2. Check the Check the

holding holding temperaturestemperatures

3.3. Make sure Make sure recipes are being recipes are being followedfollowed

4.4. Ensure Ensure minimum minimum specifications are specifications are being usedbeing used

5.5. Ensure proper Ensure proper portion control is in portion control is in placeplace

6.6. Check line pars Check line pars against forecastagainst forecast

7.7. Inspect in-line Inspect in-line storage and storage and refrigeration for refrigeration for organizationorganization

8.8. Check back door Check back door securitysecurity

III. B.III. B. Employee training Employee training

1.1. Observe Observe employees at work employees at work

2.2. Note where Note where minimum standards minimum standards are not being metare not being met

3.3. Schedule Schedule retraining on those retraining on those standardsstandards

C.C. Schedule regular meetings—Have frequent Schedule regular meetings—Have frequent kitchen meetings. Daily, post shift meetings are kitchen meetings. Daily, post shift meetings are good forums forgood forums for

1.1. Discussing all the shift events and offering Discussing all the shift events and offering praisepraise

2.2. Reviewing what went wrong, involving the Reviewing what went wrong, involving the staff in discussing solutionsstaff in discussing solutions

3.3. Updates on food cost status from previous Updates on food cost status from previous dayday

D.D. Menu analysisMenu analysis

1.1. Review your Review your product sales mix dailyproduct sales mix daily

2.2. Track your best Track your best and worst selling itemsand worst selling items

3.3. Investigate the Investigate the worst selling itemsworst selling items

D.D. Menu analysisMenu analysis

4.4. If all specs and If all specs and procedures are being procedures are being followed, determine if item(s) followed, determine if item(s) should be replaced on the should be replaced on the menu by successful specialsmenu by successful specials

5.5. Check your menu for Check your menu for infrequently-used items and infrequently-used items and recipe ingredients and try to recipe ingredients and try to find a way to remove them. find a way to remove them. Simplify your inventory!Simplify your inventory!

6.6. Stay on top of Stay on top of vendor price changes; it may vendor price changes; it may impact your menu, recipes impact your menu, recipes and menu pricingand menu pricing

E.E. Establish security systemsEstablish security systems

1.1. Meat and alcoholic beverage storage is Meat and alcoholic beverage storage is lockedlocked

2.2. Perpetual inventories are reconciledPerpetual inventories are reconciled 3.3. Back door remains lockedBack door remains locked

E.E. Establish security systemsEstablish security systems

4.4. Managers are highly visibleManagers are highly visible 5.5. Employees are accounted forEmployees are accounted for 6.6. Trash runs are periodically and Trash runs are periodically and

randomly accompanied by a managerrandomly accompanied by a manager

F.F. Monitor systemsMonitor systems

1.1. Management follow-throughManagement follow-through– Check inventoriesCheck inventories– Due line checksDue line checks– Follow up on all employee and maintence Follow up on all employee and maintence

issues.issues.


2.2. Managing by exampleManaging by example– Be highly visible Be highly visible

On floorOn floor In back of the houseIn back of the house

Be consistent in how you deal with customers and Be consistent in how you deal with customers and employees, employees, ““ Are you thinking what is best for the Are you thinking what is best for the business when making decisions.business when making decisions.


3.3. Maintain ticket and transaction control, Maintain ticket and transaction control, audit frequently:audit frequently:

Check for:Check for:– A beverage for every guestA beverage for every guest– An entrAn entréée for everybodye for everybody– Randomly compare table contents to what is on Randomly compare table contents to what is on

check/ make note of variances and settle all check/ make note of variances and settle all disputes at checkout.disputes at checkout.


4.4. Investigate all till variances at all POS Investigate all till variances at all POS systems and reconcilesystems and reconcile– Why is there a varianceWhy is there a variance– Who is responsible for the errorWho is responsible for the error– Was food being prepared without a ticketWas food being prepared without a ticket– Is there a possibility of wrong doing or just an Is there a possibility of wrong doing or just an

honest mistakehonest mistake

how much is that hoagie in the window?

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