Tag Archives: food cost

Food Cost: The Secret to Profitability…. Not Quite

Today we welcome a special guest blogger, Central Product Consultant Michael Williams.  More information about Michael is included at the end of the blog.

As a successful chef, owner/operator and restaurant manager for over ten years, I’ve been fortunate enough to see the cost control methods of virtually every type of restaurant, inside and out.

One of the most pervasive industry-wide misconceptions I’ve seen, in large and small operations alike, is an obsessive focus on food cost, even at the cost of overall profitability.  And almost as soon as I’ve said this, I hear the objection, “But… if my food costs are in line, I’m MAXIMIZING every penny, right?” Well…. not quite.

The truth is, while food cost is an important measure of cost management, it is more of a tool for waste reduction, than the maximizing of profit.

Average overall food cost goals vary widely from concept to concept and restaurant to restaurant (if you’re unlucky, even month to month), but the average restaurant strives for a goal somewhere between 28 and 33 percent.

If you’re already comfortable with your food cost percentage (which is, of course, the percentage of each sales dollar that goes directly toward purchasing the food product used to make that sale possible), then you must get comfortable with contribution margin as an equally essential figure for your continued success.

Contribution margin (abbreviated as CM for the sake of this article and my fingertips) is the actual dollar amount left over from each menu item, after you account for food cost.

For example:

If I sell a burger and fries for $8, and the cost of all food items on that plate (plate cost) is $2.50, then my food cost is 31.25 percent and my CM is $5.50.

On the other hand, if I also feature a sirloin steak with all the trimmings on the menu for $17 and plate cost is $9, then by conventional wisdom my food cost is an outrageous 52.9 percent! On the other hand my CM is $8.

Here is where a lot of operators misstep:

They would rather promote the burger to maintain their food cost goal and you can see why, at first. If I’m already struggling to make my food cost for the month, I’d sell the 31 percent burger over the almost 53 percent steak, right? Not quite.

Which one would I rather sell? Well I’d rather make $8 on one plate of food than $5.50, wouldn’t you? After all, you don’t pay your bills with food cost percentage; you pay them with actual money. In short, CM is a far more useful tool for determining which menu items are going to bring in the most money at the end of the day.

So, how can we apply this information? In three easy steps!

First: Find the current food cost and CM of every menu item you offer.

This is easy enough if your menu is already costed out. Simply subtract your cost of food from the sale price of each item and voila: Contribution margin! Don’t forget to include garnishes, optional condiments and a waste factor into every dish.  After all, you may be selling them a hamburger and fries, but they’re taking ketchup, salt and pepper, too. Those pennies add up!  If you’re unsure of your waste, add at least 3 percent of the total plate cost back as a waste factor to account for over-portioning and other profit killers. At an absolute minimum, you should be re-costing your menu every six months, because in these tough times, you can’t afford not to know where you’re spending your hard-earned money.

Second: Rank your menu by CM in each menu category (Starter, Entrée, Salad, Dessert, etc).

Once you know the items with the top CM in all categories, it becomes a lot easier to make off-the-cuff recommendations if a guest is looking for something new. You might be surprised to find that a lot of traditional favorites are also pulling in great margin!

Third:  Feature and up-sell your guests on the category CM leaders you discovered above.

In addition to your standard wait staff competitions and guest recommendations, your new-found category CM leaders deserve prominent placement on table tents, nightly specials and most importantly, menu design and layout. By featuring a picture of these profitable items near the top of the page, or highlighting it with a special border or icon, you’ve taken a HUGE step in making your food service more money without any day to day effort.

Of course, as useful as contribution margin is for determining what to sell, it works best when used with your regular inventory and food costing procedures to make sure you’re actually achieving the amount of revenue you’ve planned on. So, just as you wouldn’t let your manager schedule a shift without servers, you shouldn’t rely on food cost without contribution margin to tell you if you’re actually making the most of your sales.

Michael Williams is an experienced foodservice manager who contributes to the Central Restaurant Products blog, while primarily serving as a one- on-one Product Consultant for our customers. For more menu engineering tips, general feedback or to seek an additional opinion on any foodservice plans, email him at michaelw@centralrestaurant.com or call directly at 800-222-5107 x8439.

New white paper: Running a restaurant

The response to our new white paper on running a restaurant has been tremendous!

We tried to cover the major aspects of the restaurant business from opening to advertising. For instance, the Small Business Administration provided information about loan programs, and even helps first-timers develop a business plan in order to apply for financing.

The (free) paper also includes information about choosing a location, buying equipment, designing the kitchen and dining room and some of the major current issues surrounding the restaurant.

Much of the information came from our product consultants. Many of them are Certified Foodservice Professionals (CFSP); the major accreditation for the foodservice industry.

I also used the CFSP study guide, published by NAFEM, and several other food-industry trade journals.

The white paper is available on our website, CentralRestaurant.com — we would love to hear your thoughts!

Free ways to save energy in the kitchen

People toss around the terms green and energy efficient a lot these days. They are the new buzz words for many industries. But are they the same?

To me, green means friendly, and energy efficient means it’s going to save me money.

The terms are closely related, but I think it’s important to understand the differences in order to implement them effectively in your establishment, and to determine which avenue is the most important to you.

According to the Business and Media Institute, businesses can spend thousands of dollars “going green,” often waiting years to see any payoff. And CNN said HSBC spent $900,000 installing energy efficient lighting.

For restaurants and institutions already struggling with rising food and fuel costs, saving the planet may not be their #1 priority.

So what are some resources that we can start using right now?

The easiest way to conserve energy in the kitchen is to control your appliances– don’t let them control you! Schedule startups and shutdowns, and use timers. If you only use the fryer during your lunch rush, turn it off between meals. If a piece of equipment takes only a few minutes to preheat, it probably doesn’t need to be on and consuming energy all day.

According to the Foodservice Technology Center, you can save an average of $75 a year if you turn off the door heaters on your reach-ins. Generally, door heaters only need to be on if you see condensation on the doors.

Another “free” way to save energy is to set the water heaters on your dish machines only to the temperature required for specific tasks. Your dish machine’s water only needs to be at either 110°F or 140°F. A heater set even 10°F too high can cost more than $600 a year!

When you are ready to start making a financial investment toward a more efficient kitchen, it’s okay to start slowly. Most of us don’t have the resources to go all-out on a futuristic, multimillion dollar, state-of-the-art kitchen. FE&S says the best pieces of equipment to start with are fryers and dishwashers.

Fryers that are Energy Star certified are generally much more efficient than conventional fryers because they allow the operator to recycle the oil they’re using instead of paying someone to come get it and haul it away.

Likewise, energy efficient dishwashers are a plus because they save on energy and water.

Last, start with the biggest pieces of equipment that consume the most energy, like refrigerators and freezers, and, if you’re cooking in bulk, broilers and steamers.

For more tips, and a cost-savings calculator, visit CentralRestaurant.com