The Elements of Food Cost & Profit: Actual Food Cost
In this blog post, I discuss why it is important to have a process in place for determining your Actual Food Cost on a regular basis, its impact for creating positive change in your operation and some actions you can take to improve your bottom line.
In previous posts, we discussed steps that allow us to get to actual food cost. In many operations that I have visited over the years, there was often disagreement between the chef and the owner or manager, over “what the problem is”. The chef may think prices are too low. The owner/manager thinks food cost is way out of line. The chef says he knows what he is doing, and his or her food cost management is not the problem. Any or all of these items could be true but In every case like this that I witnessed, there was no reliable process in place for getting an accurate food cost. The negative feelings and poor results were not going to go away on their own. One of the most important results we get when we implement a reliable system of determining actual food cost is that we now have a platform for trust between all members of the team. With trust, the team can and will work better together towards a goal of achieving the best results for the operation.
Once you are aware of your food cost on a regular up to date basis, let's review something from a past blog post.
In the first blog relating to profit design, we created a plan – part of which was a projected overall target food cost relying on several factors. After being in operation for a period of time, implementing actual food cost calculation, and reviewing our original plan, we may notice one or more of the following:
Sometimes the plan doesn’t entirely work- Some examples - If all items are designed with certain portions of ingredients, sometimes the end result needs to be tweaked (on the fly) to satisfy customers thus changing the cost (usually up). Sometimes after establishing a price on a menu, the cost/price of one or more of the ingredients changes significantly (usually up). If one or more best sellers on your menu fall under this scenario, you will notice a change on the bottom line.
Sometimes the plan is not followed- It is not unusual for employees to alter formulas, portion sizes, be wasteful, and overfeed the compost system to the point of having a terrible impact on food cost results.
Sometimes the customers have other plans - Sales volume levels in general, as well as product mix results do not always end up as projected. The projections on item popularity might be way off even though customer counts are very close to that projection. Sometimes covers are down due to weather or local/national events. Overall, volume should be your friend. It can sometimes cover mistakes made in other areas. When it is lower than projection things get tighter on operations. Drastic changes in product mix results – what the customers buy as opposed to what we thought they would- can also throw food cost and profit off plan.
In many cases, two or more of the above, to some level may be combined to bring disappointing results.
You can experience ups and downs in food cost results all year round. The good news, however, is that if you have a routine, solid method of reporting actual food cost, you have the most important information for starting any necessary solution processes immediately. I recommend weekly inventory and actual food cost calculation.
The plan can be reviewed and changed if necessary. Supervision in specific areas can be increased to get production, or handling, back in line. You will have excellent information for menu price updates and item reconfigurations.
With solid information, your team will have a higher level of trust and better awareness to move forward, take action, achieve better results, and put more money to your bottom line.