Don't Let Your Systems Drive Your Customers Crazy! - Hospitality ...

FOOD & BEVERAGE
The Food Cost Percentage - Decomposed
Too much attention is placed on inventory accuracy. Most
people miss the finer points of determining their food
cost percentage. Clearly, the sales figure which dominates
the formula should take center stage. A very close second is the
purchases figure. The inventory obsessed need to take a different
view.
Many hotels and restaurants count monthly (or every four
weeks) and I see too much emphasis on inventory valuation. The
impact of inventory change depends on the time period. Monthly
values should be reasonable given the day of week and time of
year. The change in the inventory value (i.e. beginning minus ending)
hardly matters once a period of 90 days is considered.
Inventory is very important in a weekly analysis and all important
in a daily calculation. If you’re researching a problem and
perform daily calculations you need to be very exact.
The wonderful POS systems available today from the best
companies provide a bundle of sales analysis. My favorites are
check average and covers by meal period. I break down sales using
a simple matrix with a row for each meal period and columns
for covers, check average and sales.
On the purchases side, I break down the purchase data using
a larger matrix with rows for each key item and grouped data for
low impact items by category. The columns include units, average
cost and total cost.
For the inventory, I prefer a simple inventory change figure.
One number is fine. Simply subtract the current period’s value
from the previous period’s value. The net value should be a reasonable
and consistent estimate. Don’t count WIP inventory one
period and eliminate the figure the next period.
Some quick checks on inventory value by location and category
will provide enough information to locate the flour extended
by case price when the count team used pounds. Perform a
simple analytical review and correct major errors.
by Joe Dunbar
Many operators give no credit for highly perishable items like
bread, fresh fish and other items specific to the operation. This
helps to avoid over buying since the items are expensed immediately.
Inventory valuation should not be the reason for a good
or bad food cost percentage in any given period. Any operation
which runs a hi-low pattern or a low-low-hi pattern has a
far greater problem. These patterns typically point out cost control
weaknesses. Someone is trying to hide the truth. I have seen
plenty of inventory extensions with a spice valued at $1,000 plus.
The people presenting these reports may be both incompetent
and dishonest.
“ The net value should be a
reasonable…”
Look long and hard at sales trends by meal period. Some operations
run lunch menus with higher implicit costs. If the lunch/
dinner ratio changes, the food cost will be impacted. Extremely
high or low counts will have a major impact as well.
Most of the real action will be in purchases since the money
you spend with your suppliers is your cost. Highlight dramatic
price changes on any key item. Look for flaws in your ordering
strategy. Compare figures from one period to the next and over
the long term.
If you focus on sales and purchases, food cost percentage
surprises will be fewer and more positive.
Joe Dunbar Dunbar Associates 11350 Random Hills Road Suite 800 Fairfax,
VA 22030 800-949-3295 jdunbar401@aol.com http://foodcostcontrol.blogspot.
com
HOSPITALITY MALDIVES OCTOBER/NOVEMBER 2006 27