Within many food and beverage operations the cost of labor now exceeds the cost of food and beverage. Maintaining all of these costs is a constant challenge to operators.
In the world of casinos gaming has strict odds and probabilities built into each game and monitored by the gaming authorities. There are periodic temporary spikes to these probabilities in the form of large wins and jackpots but given sufficient time and volume of play the numbers will achieve the designed odds. This is not the case with food and beverage operations. Operators build menus and create pricing with the goal of perfect execution to arrive at an ideal level of profit. Rarely does this occur. There are a multitude of operational steps that occur when operating food and beverage outlets, each one with the potential for error and loss of profit.
The means for reducing the chances of error in achieving the lowest food and beverage costs once menu items and pricing have been established involve the following required processes: systems, controls, measurement, optimum purchasing of ingredients, automation, inspections, correction, adjustment, training and coaching.
Food and Beverage Cost Basics
| Prime Cost
Food and Beverage Sales Revenue
– less Cost of Goods (COG)
– less Cost of Labor (COL)
= Prime Cost
example: $100,000 sales – $30,000 COG – $20,000 COL = $50,000 prime cost
By percentage: 100% sales – 30% COG – 20% COL = 50% Prime Cost
The targeted prime cost goal should be: 50% or lower with a maximum of 60% to be able to generate any significant level of profit
Food and Beverage costs for each menu item
The costs for each menu item must be documented in written recipes with accurate actual portions of ingredients used and the associated costs to create each item. The same process is used for cocktails in the bar as is used for menu items in the kitchen. Many larger grocery/broadline suppliers have free automated recipe costing systems available for their customers that are connected to the supplier’s current pricing. Every time the purchasing pricing changes the cost of each recipe is automatically adjusted in real time. Dedicated food and beverage staff must be assigned the responsibility of keeping all costing and sales figures accurate, adding new recipes, adjusting yields and verifying that new items are added and pricing is adjusted in the POS system. If this is not performed completely and accurately every day the resulting financial reports will not be correct, following the saying, “garbage in….garbage out”, resulting in inaccurate figures that do not provide a true representation of actual costs.
| Food Cost Percentage %
Cost to produce item
/(divided by) menu selling price
= food cost percentage
example: $2.50 cost/$10.00 selling price = 25% food cost
| Contribution (remaining profit after food/beverage costs to produce)
– (minus/less) recipe cost of item
= remaining contribution to apply towards other expenses and profit.
example: $10.00 selling price – less $2.50 cost = $7.50 contribution (towards labor and other overhead costs)
Required Processes to Result in Successful Control of Food and Beverage Costs
Collect every dollar projected for sales of each product produced
- Use the exact amount of ingredients called for in each recipe for production.
- No waste in producing and delivering products to guests
- No waste due to over production, errors in production or theft
I. Standard Systems and Controls (Minimum in use):
Documented Accurate Recipes: There must be accurate costed recipes for each food and beverage menu item that are strictly followed every time an item is produced. This includes daily specials. Each item must have its own recipe cost and accurate accounting of the respective sales. Accurate tracking of daily specials, rotating promotion specials, and items not carried on the regular menu can be problematic. A “Tuesday dinner/drink special” is not an item that can be tracked accurately. Specials sold must accurately account for the exact recipe used, the cost to produce each item and corresponding sales.
Ideal/Theoretical Perfect Food and Beverage Cost Analysis: – This is an operator’s greatest tool: This process compares the ideal (theoretically perfect) cost for each menu item sold over a certain period of time, multiplied by how many of each item are sold, to arrive at the projected cost of what all of the ingredients should have costed to produce all of the items. This total (the ideal/theoretical perfect cost) is then compared to the actual amount of how much was actually spent on the cost of ingredients. The goal is to come as close as possible to achieving the ideal perfect cost of ingredients.
Variance from Ideal Cost:
| In dollars:
Ideal (theoretical perfect) food and beverage cost of goods (COG)
– (less) actual cost of goods used
= $ of food cost variance (a negative result indicates excess cost expenditure above what should have been used and the dollar amount of overused product)
example: ideal COG $20,000 – (less) actual COG $22,000 = $2,000 COG was overspent
| As a percentage:
$ of product overspent
/(divided by) sales
= overspent percentage of food and beverage products
$2,000 COG/(divided by) $100,000 sales = 2% COG overspent
Once the overspent amount has been established the detective work begins to determine where the losses are occurring.
II. Measurement Tracking Tools (Minimum in use)
Recipes – inspect that proper portioning and procedure is followed
Wastage logs – staff writes down the amount of each item that is thrown away and reason for the loss. This is costed out at the end of the month to determine how much food and beverage product was lost that is documented. Subtracting this amount from the F&B COG variance amount leaves a balance of loss to still be discovered.
Strategy – you are looking for patterns of loss indicating production problems, over portioning, excess purchasing levels of perishable ingredients, holding/storage process errors that result in loss that need to be adjusted or products that are problematic and are commonly lost items
Steak/Seafood/ High Ticket Item Count (Issue Control) – Count expensive items by shift:
| how many items you start with (beginning inventory)
– (less/minus) how many items remaining (ending inventory)
= the amount you actually used
example 25 T-bones (beginning inventory) – (less) 18 T-bones (ending inventory) = 7 T-bones used
Compare these figures to the amount sold according to the POS (point of sales). In this case the POS sales should also be 7 T-bones sold. If the number is less, the kitchen staff used product that was not sold. Suspect counting errors first and next suspect theft. If the operator can identify where/when the product was lost, for example an overcooked T-Bone that was returned and replaced with another T-bone, then the item can be costed and added to the waste log amounts as an identified loss verses theft or undetermined cause of loss.
Perpetual Inventory: in addition to the High Ticket Item Count tracking of each of item used compared to the amount sold, all expensive and large bulk items should be tracked using a perpetual inventory. Typically the items counted are protein items and liquor. These items are continuously inventoried in each storage area (storeroom, walk-in cooler, walk-in freezer, liquor cage). They are counted at least twice daily at opening and at closing. Product movement is logged every time it is received (increase to inventory on hand) or issued, transferred or used (decrease to inventory on hand). Ending counts and beginning counts should be performed by different staff members without being able to see the previous count figures. The count sheets are then compared by a supervisor and checked for accuracy. Any variances are researched to determine the cause of missing items.
Cutting Yield, Roasting Yield, Carving Yield: tracking by shift for consistent yields. Looking for unusual variances that may indicate problems.
- Cutting Yield reflects standard yield for final product portions when cutting protein items. (commonly steaks or fish portions)
- Roasting Yield reflects standard loss of product (shrinkage) that occurs during cooking.
- Carving Yield reflects the accuracy of the chef carving meat items such as prime rib.
The actual amount of product used is compared verses projected ideal product usage based upon items sold and recipe. The goal is to achieve consistency between each shift/staff member and accuracy in achieving the ideal yield for each item without waste.
Cooking Most Items to Order – This process removes the losses associated with cooking, cooling, reheating and the losses from transferring products between pans and containers. This practice eliminates most production of products in large batches as well as many opportunities for possible contamination, spoilage or loss.
Production Control Lists (prep lists/pars) – the amount of each product to be produced must be documented and controlled by supervisors with par levels set per day and shift (and adjusted for business volumes) to avoid wastage and over/underproduction. The goal of controlling production is for products to be made “just in time for use”. Nothing produced extra for the next day and nothing lost to the trashcan from product too old to sell due to overproduction.
Trim bins – all peeling, chopping and production waste goes into a dedicated bin that is inspected by a supervisor each shift to verify proper trim procedure and minimum trim loss
Returned Items/Unconsumed Items from the Dining Room Audit– track, inspect and document unpopular items, incorrectly cooked, and misportioned items. Some examples of commonly consistent losses are vegetables that many guests don’t eat, garnishes that go uneaten and unused condiments. This inspection is performed at the dish station by dish staff and kitchen supervisors as well as by servers communicating with supervisors when certain items remain consistently unconsumed by many guests. The goal is to look for items that are frequently not eaten by customers indicating – unappealing items, improper recipe procedure or over-portioning.
Desserts, Soups, Salads, Bread, Cocktails and Beverages Production Control – these items must be prepared and controlled by parties other than food and beverage servers, with sales verified by tickets from the POS: liquor prepared by bartenders, salad, soup, and desserts prepared by the cold kitchen pantry or pastry staff.
Charging for all items produced
- All items produced by the kitchen or bar must have a ticket rung in: The firm rule must be: No ticket….no order
- Ala carte price lists must exist for special requests and these items charged for or at least rung in with a zero price to track additional product usage
Quality Control/Temperature Checks – This inspection checklist not only insures product quality but also proper production and utilization by following each recipe.
III. Optimum Purchasing of Ingredients
- Practice “just in time” purchasing. Scarce supplies lead to greater care of product by staff.
- Reduce the amount of vendors and delivery days: This will result in time savings from less times that product is counted, touched, rotated, moved, and shorter periods of time perishable products are left in the temperature danger zone during deliveries.
- Eliminate multiple storage locations and multiple times that products are handled. Best practices are for product to go directly to the outlet from the delivery truck. Warehousing and bulk purchasing of products only serve to add costs of storage space, utilities and more staffing for issuing and transporting to the costs for the outlet.
- Use automated processes including scanners for inventory, receiving and transfers for purchasing processes. Some systems include predictive ordering options.
- Bulk Purchasing: this should only be considered when the savings on items are of a level significant enough to outweigh the costs of storage, handling and capital tied up in inventory. Often the suppliers are better equipped to store bulk purchases and issue product gradually with each delivery.
- Product Turns: The goal of purchasing is to avoid exceeding inventory levels of over 3-4 days of product turn. (example: if the average COG for daily sales is $2,000 then the total inventory on hand should not exceed $6,000-$8,000. This is a considerable challenge and requires operators to become masters of their product usage (pars) and avoid purchasing “insurance or “safety net” amounts” of extra inventory of products to avoid running out.)
- Rebates: many rebates go unclaimed. The best process for maximum redemption and reduced costs are through: prime vendor agreements, GPO (group purchasing organization) opportunities, and third party rebate companies.
Automation exists for many of these areas including: scanner based inventory with automated pars for production and automated purchasing, with built in par levels and suggested purchasing amounts as well as history reports of past purchasing, automated production controls, product temperature tracking, liquor dispensing systems, product dispensing systems, paperless recipe and training systems, automated food costing calculation systems. The benefits for supervisors are time savings, accuracy, cost control, reduction of paper control forms and less time in the office.
V, Inspection, Correction and Adjustment
Without inspection, correction and adjustment the use of these controls is meaningless. Measuring to manage has great value if operators are continually reacting and adjusting procedures and processes based upon these measurements to constantly reduce costs of food and beverage production. Ongoing quality control inspection is necessary to insure perfect quality, no loss of products due to waste, avoiding excessive holding time/shelf time, and by customer rejection.
VI. Training and Coaching
Once systems are in place the success of tools and measurements depends on consistency and compliance of usage and the staff being trained on proper procedures and the actions they take based upon measurement.
Training is a constant process and must be achieved through staff coaching by supervision. Engaging the staff emotionally in the cost control challenges and goals instills ownership once they understand what the measurements mean and how these affect the desired results.
Food and Beverage outlets and operations can provide a defining difference between your casino and the competition, provide an attraction for trial visits by potential new players, additional player visitation by existing players, reward redemption, and deliver a positive experience for the players. Ultimately the business of cost control and profit by what is behind the scenes determines the financial success of food and beverage outlets. The most effective path to achieve optimum results it through strict adherence to systems, controls, measurement and continuous adjustment by operators.
Craig Pendleton is the President of National Foodservice Consulting, Inc. He has consulted with restaurant operators for the past 35 years and with Tribal Casinos for the past 25 years. He can be reached via email at email@example.com or visit www.nationalfoodserviceconsulting.com
The original article was published in the March 2018 edition of Indian Gaming Magazine: