101 Ways to Deal with Food Cost - Part 4 - Purchasing and Receiving

Part 4 in our series “101 Ways to Deal with Food Cost” deals with Purchasing and Receiving, providing useful tips in dealing with food cost in these areas.

Purchasing Tips:

The goal of purchasing is to obtain wholesome, safe foods to meet your menu requirements. The operation must have food to serve customers when needed. The food needs to be the right quality consistent with the operation’s standards and purchased at the lowest possible cost.

Inventory Levels

The first step in computing what item to order and how much you need is to determine the inventory level, or the amount needed on hand at all times. This is a simple amount you need to order, you must first know the amount you have in inventory. Walk through the storage areas and mark in the “ On Hand” column the amounts that are there. To determine the “Build to Amount” you will need to know when regularly scheduled deliveries between deliveries. Add on about 15% to the average amount used; this will cover unexpected usage, a late need to order is the difference between the ‘Build to Amount’ and the amount “On Hand”. Experience and food demand will reveal the amount an average order should contain. By purchasing too little, the restaurant may run out of suppliers before the next delivery. Ordering too much will result in tying up money and putting a drain on the restaurant’s cash flow. Buying up items in large amounts can save money, but you must consider the cash flow costs.

Purchasing and Ordering

What exactly is the difference? Purchasing is setting the policy on which suppliers, brands, grades and varieties of products will be ordered. These are your standardized purchase specifications; the specifics of how items are delivered, paid for and returned. These specifications are negotiated between management and distributors. Basically, purchasing is what you order and from whom. Ordering, then, is simply the act of contacting the suppliers and notifying them of the quantity you require.

Purchasing Specifications

By creating purchasing specifications, you can control which items you purchase and you can maintain which items you purchase consistency. This information is extremely important if you have more than one person that does ordering in your operation.

Purchasing and Inventory Software

Purchasing and Inventory Software is readily available to restaurant operators. Many larger organizations are using inventory control software that saves a significant amount of time and money. Most managers are used to the monthly grind, standing in walk-ins counting eggs, butter pats and frozen chickens. With inventory control software, mangers can use a laser scanner, similar to the ones used in grocery stores, to scan bar codes. The software can also be linked to your distributors and you can place your orders electronically based on the inventory.

Inventory, Storage and Accounts Payable

Ordering effectively is impossible unless you are completely familiar with the inventory items. Prior to orders being placed with vendors, counts of stock need to be established. Software programs are able to determine order quantities based upon par balances and sales figures.

Perpetual Inventory

Perpetual Inventory is a check on the daily usage of your main entrée items from freezers and walk-ins. This is for tracking expensive items, such as meat, seafood, chicken, cans of caviar, etc. When completed, the perpetual inventory will ensure that no bulk products have been pilfered from the freezer or walk-ins.

Purchasing Kickbacks and Gifts

Unfortunately, the food service industry is notorious for kickbacks. It is even more unfortunate that these kickbacks or gifts are essentially paid for by you in the form of higher prices. You need to ensure different employees receive and purchase stock as well as check prices regularly.

Here are some ideas to help keep kickbacks out of your store by ensuring different employees receive and purchase stock as well as check prices regularly.

Receiving Tips:

 

Plan ahead

Plan ahead for deliveries to ensure sufficient refrigerator and freezer space.

Mark all items for storage

Mark all items for storage with the date of arrival or the ‘use by’ date.

Delivery Truck

When Delivery truck arrives, make sure it looks and smells clean and is equipped with the proper food storage equipment. Then inspect foods immediately.

Reject food that has been thawed and refrozen

Look for signs of thawing and refreezing, such as large crystals, solid areas of ice or excessive ice in containers.

Content damage

Look for content damage and insect infestations.

Invoice accuracy

Check the accuracy of the invoice with regard to the purchase order, specifically price, damage, quality, quantity, brands, grades and variety. Items that are not correct need to be noted and returned before the driver leaves and the driver must sign the form. The vendor’s invoice also should be checked against the actual purchase order.

Check temperature

Check temperature of refrigerated and frozen foods, especially eggs and dairy products, fresh meat and fish and poultry products.

Keep all flooring clean

Keep all flooring clean of food particles and debris.

Calibration

Calibration makes sure all scales and thermometers are in place and calibrated.

Remove empty containers

Remove empty containers and packing materials immediately to separate trash area.

For information on Ideal Software’s Stock Control system for monitoring Food Cost IdealStockControl

To view Part 1 “101 Ways to deal with Food Cost” 33 Possible Food Cost Problem Areas

To view Part 2 “101 Ways to deal with Food Cost” Back to Basics

To view Part 3 “101 Ways to deal with Food Cost” The Menu, Pricing and Standardized Recipes

Ideal Software Guest Appearance on It’s My Biz

An excerpt from the final episode of It’s My Biz, Nedbank’s Small Business Seminars, with guest appearance by Ideal Software featuring their flagship product Ideal Stock Control.

Screened on ETV, DSTV channel 134, Thursday 17th November 2011.

It’sMyBizIdealStockControl

November Issue of Ideal Software's Niche Notes, our newsletter that keeps you coming back for more!

IdealSoftwareNicheNotesNovember

101 Ways to Deal with Food Cost - Part 3 - Menu, Pricing and Standardized Recipes

Part 3 in our series “101 Ways to Deal with Food Cost” deals specifically with the menu, pricing and standardized recipes.

The food is great, the service fabulous and the restaurant is busier than ever but are you wondering why the bottom line isn’t all it should be? Check your FOOD COST! Here are possible Food Cost problem areas:

Pricing

Pricing is an important aspect of your revenues and customer counts. Prices that are too high will drive customers away and prices that are too low will kill your profits. Pricing is not the simple matter of appropriate markup over cost; it combines other factors as well. Prices can be either market driven or demand.

Food-Cost Tracking

Cost is the basic building block of menu pricing, so you need to understand how to track food cost in order to price your menu for maximum profits. Before you price your menu, you need to cost out each menu item. This information can come from your standardized recipe, or you can create a separate cost sheet that lists all the items on the menu.

Recipe Information

Although you recipe file will change over time, it should always contain certain basic pieces of information. Make sure that you keep track of these changes and keep you file up to date.

Yield costs

Once you have standardized recipes in place, you can determine the per plate cost of every dish. In order to do this, you need to know the basics ingredients cost and the edible yield of those ingredients for each dish.

Menu Pricing

Menu pricing is a major component of your food cost equation. The more you can charge your customers, the lower your food-cost percentage. Pricing may seem like a mathematical exercise or a lucky guess, but it is neither of these. Pricing is based on a markup of cost, which is figured by the determining food cost, sales history and profit margin.

How indirect factors can increase Profits

Certain factors can give you a competitive edge, allowing you to charge more than the competition for your products. For instance, if you operate a steak house that serves prime beef and all the other steak houses in town serve choice and select, you are able to charge more for your product because of the higher quality. Other factors may allow you to charge more (or less) as well e.g. If you have off street or valet parking, you offer amenities that allow you to charge higher prices than some of your competition may be able to.

Calculating Entrée and Meal Food Cost

Armed with cost information, you are now in a position to establish your menu prices. Remember, however, that prices will also have to take indirect factors into consideration.

Food Cost Percentage Pricing

This is probably the most widely used method of menu pricing and more than likely it will be the way you price the majority of your menu items. To calculate cost percentages, use target food cost percentage and actual item food cost.

Menu Sales Analysis

Menu sales analysis, or menu scores, track how many of each menu item is sold. Looking at this information, together with food cost and menu prices, can give the food service manager a great deal of information.

Analyze and Classify Your Menu Sales Mix

Once you have an effective menu design, analyzing your scales mix to determine the impact each item has on sales, costs and profits is an important practice. If you have costs and waste under control, looking at your menu sales mix can help you further reduce costs and boost profits. You will find that some items need to be dropped altogether.

For more info on Ideal Software’s Stock Control system for monitoring your Food Cost IdealStockControl

To view Part 1 in our series “101 Ways to deal with Food Cost” 33 Possible Food Cost Problem Areas

To view Part 2 in our series “101 Ways to deal with Food Cost” Back to Basics

October Issue of Ideal Software's Niche Notes, our newsletter that keeps you coming back for more!

IdealSoftwareNicheNotesOctober

101 Ways to Deal with Food Cost - Part 2 - Back to Basics

In Part 1 of Ideal Software’s popular “101 Ways to deal with Food Cost” series, we dealt with "33 Possible Food Cost Problem Areas". Here is Part 2 of our series “101 Ways to deal with Food Cost” – “BACK TO BASICS”.

The food is great, the service fabulous and the restaurant is busier than ever but are you wondering why the bottom line isn’t all it should be? Check your FOOD COST! Here are possible Food Cost problem areas:

Organizational and Structure Component Charts:
Use organizational charts to know and understand who does what in your restaurants on a daily, weekly and monthly basis. How can this structure improve? Are jobs allocated in the most productive manner possible? Written job descriptions are good tools to use for this. You can find example of job descriptions and a questionnaire for writing job descriptions at www.hrnext.com.

Use a Checklist for Yourself:
Create a checklist of items you perform every day and organize your time Of course, variations from this checklist will always occur, but you will cover the basics a lot faster with a guide in hand. This will save you and your staff time and confusion.

Controlling Large Operations:
The larger the distance between an owner or manager and the actual restaurant, the greater the need for effective cost-control records. This is how franchisers of restaurant chains keep their eyes on thousands of units across the world.

Give Managers Information:
Many managers of individuals operation assume that since they’re on the premises during operating hours, a detailed system of cost control is unnecessary. Tiny family operations often see controls the same way and view any device for theft prevention as a sign of distrust towards their staff. This is shortsighted because the main purpose of cost is to provide information to management about daily operations. 

Theft Prevention:
Prevention of theft is a secondary function. Cost controls are about knowing where you are going. Furthermore, most waste and inefficient cannot be seen; they need to be understood through the numbers.

Utilize Same Chart of Accounts to Compare Your Operation With Others:
Ratios enable you to compare the operating data of a specific hotel or restaurant to average for a group of similar establishments. You may, for example, compare the food cost and food sales of a particular restaurant with average sales and costs of restaurants of a similar size.

Teach Employees:
Management must be involved in the training and supervision of all employees. For any cost control system to work, employees must be trained and know what actions are expected of them. It is management responsibility to supervise employees and see that they receive this training.

Communicate:
Daily involvement and communication is needed in order to succeed. Employees must follow all procedures precisely. If they do not, they must be informed of the specific deviations from these procedures and correct them. This is a daily task that involves hands on management style.

Enforce:
Any control initiated is only as good as the manager who follows up and enforces it. There is no excuse for not completing each control procedure every day. A deviation in your controls or involvement can only lead to a loss over the control of the restaurants costs.

Tracking:
Many of your cost-control procedures can be tracked through a computerized accounting system.

For more info on Ideal Software’s Stock Control system for monitoring your Food Cost Ideal-Stock-Control

To view Part 1 in our series “101 Ways to deal with Food Cost” 33 Possible Food Cost Problem Areas

Importance of Inventory Management for Restaurant Profitability

The importance of inventory management for restaurant profitability cannot be stressed enough. Without being able to effectively manage the flow of foods and supplies in an effective manner, the chances of making any sort of significant profit from your food service shrink significantly.  But how does one effectively take control of their inventory?

What Constitutes an Inventory?

It may seem like a rather inane question, but the question of what constitutes an inventory can play a significant part in helping a restaurant to achieve profitability.
When it comes to a restaurant’s inventory, it is important to realize that you are not only talking about the food itself, but about the food items used to cook or process the food (shortening for deep frying, seasonings, drinks, garnishes etc.) but also about the items used to prepare and present the food and to set the atmosphere (paper placemats, plastic flatware, straws, napkins, disposable cups etc.).
Being aware of what products you use in your day-to-day services as well as how many you use and the cost of each product (as well as how that cost translates into the cost of sale passed on to the customer) all come together to create the ‘big picture’ of your inventory and what you need to have on hand in order to maintain the integrity of your service.
But the most important thing that any restaurant owner can do, however, is to find a way to not only organize their inventory, but to maximize their tracking of foods and supplies as well as streamline their re-ordering of needed items.

The Need for Organization

There are four main points that you need to address when considering the organization of your inventory;
1)  An accurate list of what you have available to use.
2)  An accurate assessment of how much you will use on a daily or weekly basis.
3)  A means to be able to track this usage for accuracy
4)  A quick and effective method of re-ordering or restocking your inventory.
While it is quite possible to list and track all of this information manually, it is far more efficient and effective if an electronic inventory management system is put into use.

The Importance of I.T. in Inventory Management

Information Technology has come a long way in a very short length of time.  Some of the programs available today to help restaurant owners in assessing, organizing, prioritizing, tracking and reordering their inventory make the old ways of inventory management look torturous by comparison.  Modern IT inventory management software systems can ensure that a restaurant’s inventory is managed as effectively as possible, resulting in significant financial savings.

What Streamlined Inventory Management Means to You

The more efficient your overall inventory system is the smoother your food production process will be; the more customers you will be able to serve in the same period of time, and the quicker you will be able to replace the supplies used so that more food can be prepared and more customers served.  The end result, of course, is that by the most effective use of your restaurant’s inventory management, the higher your restaurant profitability will be, and in this economy, that is definitely something to cheer about.

For more info on Ideal Software’s Inventory Control system visit Ideal-Stock-Control

33 Possible Food Cost Problem Areas

In case you missed our recent series on “Food Cost problem areas” which we ran on Facebook and Twitter we’ve grouped them all together and listed them here. Here is Part 1 of Ideal Software’s 101 ways to deal with FOOD COST.

The food is great, the service fabulous and the restaurant is busier than ever – but are you wondering why the bottom line isn’t all it should be? Check your FOOD COST! Here are 33 possible Food Cost problem areas:

1. No balance of high and low cost items on the menu
2. Theft in any form
3. Purchasing of more than what’s needed
4. No Daily checks of invoices, quality and prices
5. No controls on issuing items from storage areas
6. Over preparing
7. Approving invoices without checking the deliveries and following procedures
8. Not following exact portion sizes
9. No reconciliation of food sold vs food consumed
10. Frozen Food not rotated
11. Negative relationships with suppliers
12. Not implementing a HACCP program
13. Chemicals stored next to food causing possible poisoning
14. Perishable left out of the refrigerated area
15. Food used in the bar and recorded as bar sales
16. Food purchased at cost for personal use
17. Supply doors not locked
18. Poor paperwork and use of control rooms
19. Burned or overcooked food due to poor training
20. Scales not regularly calibrated or replaced
21. Poor training
22. Not using standardized recipe
23. Dull knives
24. Fake company invoices being sent for payment
25. NO control of after dinner mints
26. Credit not received from vendor for returned merchandise
27. Dry foods areas are not well organized causing over ordering
28. Credit not received from a vendor for returned merchandise
29. Low yields on products
30. Failure to raise prices when food costs increase
31. No reconciling of Kitchen checks and Guest checks
32. No guest checks rung up for house, complimentary or manager food
33. Invoice Accuracy

For more info on Ideal Software’s Stock Control system for monitoring your Food Cost http://idealsoftware.co.za/ideal-stock-control

Restauraunt Food Cost

True restaurant food cost is not what the customer pays for the meal on their plate.  The true food cost is the percentage generated by a restaurant’s food inventory management. It may sound complicated, but at its most fundamental, it is actually quite simple.  Unfortunately many restaurant managers do not calculate food cost the way it is supposed to be done.  Even if they do calculate it correctly, many are not aware of everything that goes into it.

What is Food Cost?

Food cost can be determined as the percentage of the total of your restaurant sales that are spent on food product.  This percentage should stay somewhere around 28-30% in order for the restaurant to show profitability.  When food cost is combined with labor costs, it usually consumes between 50-75% of a restaurant’s total sales.  If your food costs are higher than 35%, it may be time to take a serious look at the way you do business.

These figures are greatly affected by the cost of your other overheads. The figure of 28-30% is used in the United States of America, where labour costs are relatively high. In a country such as South Africa with much lower labour costs, a food cost between 35-37% is acceptable whereas a food cost of around 31% is exceptional.

There are some quick service restaurants with very low labour and rental costs, that can run profitably with a food cost in the 45-50% range.

 

How to Calculate Food Cost:

The ratio for theoretical is actually quite simple:  Theoretical Food Cost = Cost of Food Sales / Food Sales. E.g. if you sell $100.00 worth of food, and the food costs you $29.00 your food cost is 29%.

To obtain an accurate food cost, you will have to include the change in your inventory (stock) levels. If the value of the stock grew over the month, the value it grew by must be subtracted from the Cost of Food Sales. If it shrunk, that value must be added to cost of food Sales.

To get an accurate assessment, you will first need to look at a specific time period in your restaurant’s operating life.  The typical Food Cost assessment is done Monthly.

You can follow the steps below to determine your restaurant’s Food Cost.

 

Steps for Calculating Food Cost:

Step #1:  Establish your time frame for evaluation.  This is not just a one-time deal; your time frame needs to be set up for regular food cost assessment.  You will need to work with your accountant as well as your managers in order to have all the information you need regarding sales, purchases and inventories available to you when the calculation is done.

Step #2:  Total all of your customer checks (or reports received from point-of-sale cash registers).  You only need to include the sales that are generated specifically from food sources and should fit within the time frame that you are looking at.

Step #3:  Determine your Cost of Food Sales.  These are the costs that are related to your food sales and include purchases as well as well as adjustments for inventory level. It is very important not to just include purchase in this part, but also to include the difference in your inventory (from the last time you calculated your inventory, until this time).

Step #4:  Once you have your cost of food sales (including inventory adjustments) you can determine your Food Cost Percentage.  This is determined by taking the total that you came up with in determining your Cost of Food Sales (Step 3) and dividing it by your actual food sales (step 2), the number that you come up with is your FOOD COST.

So:  Food Cost = Cost of Food Sales / Food Sales

Once you have determined your food cost percentage, you need to take a good hard look at the numbers themselves.  While most restaurants that operate successfully consistently generate Food Costs between 28% -30%, the kind of restaurant you are running will have an impact on your overall percentage. For example, whereas Italian restaurants run fairly low (about 28%) a steak house can have Food Cost of up to 40% and still be successful.

By determining your Food Cost on a regular basis, you can develop a powerful analytical tool for comparing months as well as identifying trends in customer purchasing or in product fluctuations that you can counter by being prepared to deal with.  All in all, it is a valuable tool that you will come to appreciate.

 

Additional Considerations:

In general, beverage cost of sale will be lower than food cost of sale, depending on your target market normally 5-10% better.
It is very important to know what each product you sell costs you, so that you can determine that you are selling it at the correct price. Once you have that knowledge, you can set the selling price based on your targeted food cost, what your competition are charging and what the market can bear.

For more info on Ideal Software’s stock control system for monitoring your Food cost http://idealsoftware.co.za/ideal-stock-control