NEXT GENERATION by st5Xl5E1

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									HOW DO OUR CUSTOMERS
MAKE MONEY?
  What do our customers know that
  we need to know?
            Presented by: Alan Rosenblatt
We need to be good consultants

  The better we understand how they
   make money, the better we can help
   them make money
  The more money they make the longer
   we can continue to sell them
  Create a Win/Win situation!
What is profit?

    For our customers it is the following
     simplified
        Profit = Sales - COG - Labor (including
         taxes and benefits) - rent and utilities
    Simple right?
Control the Controllable

   From the previous equation, what are the
    things that they can control?
     Food Cost
     Labor Cost
                RESTAURANT BREAK-EVEN ANALYSIS
                                          NAME
                                 WEEKLY BREAK-DOWN
                           ACTUAL           %       PROJECTED      %       PROJECTED           %
SALES


FOOD SALES             $    800,000.00    80.00%    $      -     #DIV/0!   $             -   #DIV/0!
BEV SALES              $    200,000.00    20.00%    $      -     #DIV/0!   $             -   #DIV/0!


TOTAL SALES            $   1,000,000.00   100.00%   $      -     #DIV/0!   $             -   #DIV/0!


VARIABLE COST


FOOD COST              $    212,000.00    26.50%         $0.00   #DIV/0!       #DIV/0!       #DIV/0!
BEV. COST              $     57,000.00    28.50%         $0.00   #DIV/0!       #DIV/0!       #DIV/0!
NON. INGRED. COST      $     12,000.00     1.20%         $0.00   #DIV/0!       #DIV/0!       #DIV/0!
LABOR COST             $    360,000.00    36.00%         $0.00   #DIV/0!       #DIV/0!       #DIV/0!


TTL VARIABLE COST      $    641,000.00    64.10%         $0.00   #DIV/0!       #DIV/0!       #DIV/0!




FIXED COST


DIRECT OPERATING       $            -      0.00%    $      -     #DIV/0!   $             -   #DIV/0!
MARKETING              $            -      0.00%    $      -     #DIV/0!   $             -   #DIV/0!
UTILITIES              $            -      0.00%    $      -     #DIV/0!   $             -   #DIV/0!
GENERAL ADMIN.         $            -      0.00%    $      -     #DIV/0!   $             -   #DIV/0!
REPAIR & MAINT.        $            -      0.00%    $      -     #DIV/0!   $             -   #DIV/0!
OCCUPANCY              $            -      0.00%    $      -     #DIV/0!   $             -   #DIV/0!
OTHER EXPENSE          $            -      0.00%    $      -     #DIV/0!   $             -   #DIV/0!
DEPREC. AMORTIZATION   $            -      0.00%    $      -     #DIV/0!   $             -   #DIV/0!


TOTAL FIXED COST       $            -      0.00%    $      -     #DIV/0!   $             -   #DIV/0!


PROFIT OR LOSS         $    359,000.00    35.90%    $      -     #DIV/0!       #DIV/0!       #DIV/0!
What is Food Cost?

  When a customer talks about Food
  Cost what is it and how is it
  calculated?
WHAT IS FOOD COST?

    Food cost is a mathematical calculation
     showing the cost of the menu item to the
     sell price of said item (cost/sell).
        For example:
          Menu item costs $3.33 to put onto the plate and
           it sells for $10.00 on the menu.
          Calculation of food cost is $3.33/$10.00 or 33%.
WHAT DOES A 33% FOOD COST
MEAN TO US?

 It basically means that if we are selling
  all of the components of the item to the
  customer, the customer is marking up
  the item 3X’s ($10.00/$3.33).
 So if we raise our price to the customer
  say 1%, does their food cost go up 1%?
WHAT WOULD IT GO UP TO?

   It would go up 1/3rd of 1%.
     $3.33 X 1.01(1% increase) = $3.36
     If the sell price stays at $10.00, the new
      calculated food cost is 33.6%.
FOOD COST QUESTION

    Assuming the infamous 33% food cost
     that so many chefs or owners claim that
     they are achieving and we sell them
     everything:
        How much would you have to raise their
         prices across the board to increase their
         food cost 1%?
THE ANSWER


 In order to increase the food cost 1% in
  this example we would have to raise
  our prices a full 3%.
 Calculation is as follows:
     $3.33 X 1.03 (3%)=$3.43
     $3.43/$10.00= 34.3% Food Cost
FOOD COST WRAP-UP

   So if a customer tells you that their food
    cost skyrocketed 9%, how much would
    you have had to raise their pricing?
           YES,
YOU WOULD NEED TO RAISE IT :


         27%
SOME THINGS THAT AFFECT
FOOD COST:
  Portioning
  Waste
  Date of doing inventory
  Quality of inventory done
  Lost or misplaced invoices
  Theft
  Theft
  Theft!!!!
When Owners Focus on Food Cost
alone what can happen?
  Many Chefs/ Purchasers are compensated
   only on their food cost.
  Some restaurants will feel that they cannot sell
   certain items because they can’t sell it to their
   customer at 3 or 4 X’s their cost.
  Customers put so much effort into holding
   down their Food Cost, that they end up
   spending more labor to put the product out on
   the plate or putting out a poor quality product
   because they sacrificed quality for price.
EXAMPLES OF LOWERING FOOD COST
PROBLEMS
    Customer feels cost of French fries are too
     high:
        So they buy a less expensive fry but use more
         because there are less portions in the case so they
         saved $4 on the case but lost 16 portions selling at
         $1.50 a portion. They actually lost $20 ($24-$4
         increased cost).
        Or they decide to cut their own fries because the
         cost of the potatoes is even cheaper.
            But now their costs increase due to labor and
             yield, and they spend more on shortening.
Labor Cost- Components

  Hourly Workers Wages
  Salaried Employees Wages
  Social Security costs
  Federal, State and Local Taxes
  Benefits- healthcare, retirement etc.
How to control labor

    Allocate resources (staff) to the amount
     of business that they are doing
      Look at the peak times of business and
       schedule accordingly
      Each week review the sales verses the
       controllable labor (hourly individuals)
            This is very important
    Make certain that the costs are on target
     and adjust as needed.
Problems associated with just
controlling labor?
  Bad Service
  Inconsistent experiences of the guests
  Poor quality due to being hurried
  Save yourself out of business
LABOR PROJECTION
Better way to evaluate
business

   PRIME COST
WHAT IS PRIME COST?




    Prime Cost takes into account the Food Cost
     as well as the Gross Labor Cost, including all
     of the salaried and hourly employees wages
     plus payroll taxes, worker’s compensation and
     any employee benefits.
PRIME COST CALCULATION


 Cost of Goods + Labor Cost/ Sell Price
WHAT IS A “GOOD” PRIME COST?

  65% and less is good for a Full Service
   type restaurant.
  60% and less is good for a Quick Service
   type restaurant.
THERE ARE OTHER FACTORS


  In high rent areas, like malls and
   airports, where there is heavy volume, it
   probably needs to be substantially lower.
  Other high Occupancy Costs areas like
   high insurance costs or equipment rental
   need to be evaluated.
CALCULATION EXAMPLE:
  Sales                  $100,000
  F&B Costs              $30,000  30%
  Payroll
        Salaried         $10,000
        Hourly           $18,000
        Taxes/ Benefit   $ 5,000
    Total Payroll        $33,000   33%

    Prime Cost           $63,000   63%
WHY IS THIS SO IMPORTANT?

  Prime Cost allows the Customer to better
   analyze their entire cost to produce an item
  Now they can decide what trade offs that they
   need to do.
  Everything gets more realistically reviewed
   and better decision making can happen.
  An owner now doesn’t pay the chef to get their
   Food Cost lowered, they create incentives
   based on Prime Cost.
    MENU CALCULATION
    EXAMPLE
   Menu item costs $3.33 (Cost of Goods)
    + $2.67 to prepare the item (Labor Cost)/
    $10.00 price on the menu.
        ($3.33+$2.67)/ $10.00 or $6 / $10 .
        Prime Cost in the above example is 60%
HOW CAN WE HELP?

  We need to train our customers to pay
   incentives to their staff based on Prime
   Cost.
  Value added products can cut labor
   costs, we need to show alternatives.
  Higher quality items do not necessarily
   mean that they cannot afford to menu it.
WHAT DOES THIS MEAN?
    Some lower labor cost operations like a Buffet can
     actually sell higher costing quality items because
     their labor cost is low and the Prime cost will still
     be in line.
    Casual Theme Restaurants that won’t consider
     higher quality steaks that take the same amount of
     time and handling to prepare, because of food
     cost, might be able to offer these and offset it with
     other lower costing items that have a higher
     perceived value.
       Loaded baked potato, for example.
HOW DOES IT HELP THE CUSTOMER?

   By increasing some quality they will be
    perceived as better value than
    competition.
   Can utilize further processed products
    and possibly use less staffing.
   Customer can make better decisions as
    to what they can offer.
   Different perspective to running their
    business more profitably.
DARE TO DREAM

  Do you think that you could make money
   with Food Cost at 42%, Labor Cost at
   23% and Occupancy Cost at 25% while
   you are doing $12,000,000 sales
   annually?
  That is $1.2 million bottom line profit!
   Cheesecake Factory runs even better
   numbers than this on average!
Customer Realities
    They are in a very difficult and demanding
     profession
    Many were good chefs or good idea people
     but have little management skills
    Many do not understand how they make
     money
    Managing cash flow and the business is very
     challenging
    Good help is very difficult to find and keep
    Restaurants fail at an alarming rate.
How Can We Help?

    The Business Resource Department has
     many tools to assist our customers
      Training Materials- front and back of house
      Menu Analysis

      Menu Engineering

      Marketing Tools

      Menu Consultation

      Overall consulting
THANK YOU!

								
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