HOW DO OUR CUSTOMERS
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
Profit = Sales - COG - Labor (including
taxes and benefits) - rent and utilities
Control the Controllable
From the previous equation, what are the
things that they can control?
RESTAURANT BREAK-EVEN ANALYSIS
ACTUAL % PROJECTED % PROJECTED %
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!
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!
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
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).
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
How much would you have to raise their
prices across the board to increase their
food cost 1%?
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?
YOU WOULD NEED TO RAISE IT :
SOME THINGS THAT AFFECT
Date of doing inventory
Quality of inventory done
Lost or misplaced invoices
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
Customer feels cost of French fries are too
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
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
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
Inconsistent experiences of the guests
Poor quality due to being hurried
Save yourself out of business
Better way to evaluate
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
60% and less is good for a Quick Service
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.
F&B Costs $30,000 30%
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 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
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
Loaded baked potato, for example.
HOW DOES IT HELP THE CUSTOMER?
By increasing some quality they will be
perceived as better value than
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
That is $1.2 million bottom line profit!
Cheesecake Factory runs even better
numbers than this on average!
They are in a very difficult and demanding
Many were good chefs or good idea people
but have little management skills
Many do not understand how they make
Managing cash flow and the business is very
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