Industry Median per Day Food Cost Assisted Living

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					      MDS Moore Diversified Services, Inc.
                     Serving Senior Living Clients For Over 37 Years
                          There Is No Substitute For Experience
              “You’ve Got Questions . . . We’ve Got Answers”
                                            August, 2008



            FACING REALITY WITH FOOD SERVICE COSTS

          Have you looked closely at your dietary costs lately? In assisted living and Alzheimer’s,

it’s your second highest cost center representing about 20% of your total basic operating

expenses. That’s before debt service, depreciation and increased direct care costs incurred by

your higher acuity residents.

          Objectively evaluating dietary financials is not simply a hard nosed cost reduction issue.

You must continually strike a delicate balance between operational efficiency, the quality of your

food service operation and resident satisfaction. Keep in mind that most residents will eat almost

every meal for the rest of their life in your dining room. So the food service operation is a major

resident satisfaction issue. In addition, your dietary operation probably has a significant impact

on your current and future sales and marketing success. That’s because resident and family

caregiver referrals are frequently a major source of new move-ins to assisted living communities.

          Here is what I consistently observe as I analyze food service operations across the United

States:

   1. Up to 70% of assisted living move-ins are heavily influenced by existing resident or
      family member referrals.
                                And . . .
   2. Resident referrals are enhanced and optimized by higher levels of resident satisfaction.
                                And . . .
   3. Resident satisfaction is very heavily influenced by the quality of the food service
      program and the overall dining experience which includes service delivery and ambience.
So when are food service costs excessive or are you trying to fix something that’s really not

broken?

       The most objective approach to evaluating your dietary operation is to reduce several

complex cost variables down to their lowest common denominators. This involves identifying

the total resident-days involved in your meal service operation along with the total number of

meals served. For example, an 80-unit assisted living community at 93% occupancy involves 74

occupied units. Let’s assume single person occupancy. The 74 residents x 365 days per year

results in 27,010 resident-days. At 3 meals per day, that’s a total of approximately 81,000 meals

served annually. Be sure to include everybody participating in your meal program. This

typically includes at least four areas; 1) your residents, 2) guest meals, 3) special events, and 4)

possibly employee meals. Frequently dietary costs per resident-day appear to be inflated until it

is recognized that these four areas – not just residents – contribute to overall costs. Some

operators have revised employee meal policies after realizing the real costs of delivering the

service. But include only resident meals when evaluating your costs per resident-day. You

might also consider a modest cost impact for any concentration of couples.

       In evaluating your costs, first look at the combination of raw food, labor and other dietary

department costs for residents and compute your total dietary cost per resident-day. In our

example, you would be dividing your annualized dollar costs by 27,010 resident-days per year.

Another helpful indicator is to look at your raw food costs per meal in isolation.

The major cost components of the food and beverage operation are:

   1. Raw Food

   2. Labor (possible positions):

           •   Food Service Director

           •   Supervisor/Food Service Director

           •   Cooks
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           •   Host/Servers

           •   Service Workers:

                  –   Dishwashers/Bus
                  –   Clean-up
                  –   Etc.

           •   Dietician/Consultant (not your typical full-time position)

   3. Other Supplies and Consumables



       Now, referring to Figure 1 let’s look at some actual industry benchmarks. For assisted

living with some concentration of Alzheimer’s/dementia, the median labor related costs

(including fringe benefits) in 2009 is projected to be approximately $8.85 per resident-day. The

median raw food cost is projected at approximately $6.64 per resident-day. The total dietary cost

of approximately $15.49 per resident-day is the target benchmark for 2009.

       These are median industry assisted living/Alzheimer’s benchmarks; meaning half of the

benchmark survey results are above and half are below these figures. As Figure 1 illustrates, the

upper quartile or highest 25% of projected benchmark costs for 2009 involve labor of

approximately $10.73 per resident-day and raw food of $7.17 for a total cost of $17.90 per

resident-day. Sponsors and owner/operators involved in strict Kosher food operations will

typically experience a 20% to 25% cost premium for their food service operation.




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                                              FIGURE 1

                    2009 PROJECTED OPERATING COST BENCHMARKS

                                         (Per Resident-Day)

                                                                                  Assisted
                   Independent Living            Assisted Living             Living/Alzheimer’s
                          Only                         Only                         Only
                               Upper                        Upper                        Upper
                   Median     Quartile          Median     Quartile          Median     Quartile
•   Raw
    Food              $5.08          $5.62         $5.24          $6.13         $6.64          $7.17
•   Direct
    Labor             $6.71          $8.17         $4.86          $6.74         $7.39          $8.96
•   Labor
    Taxes &
    Benefits          $1.32          $1.61         $0.96          $1.33         $1.46          $1.77
        Total       $13.11         $15.40        $11.07         $14.20        $15.49         $17.90

    Sources:      MDS Data Base
                  “The State of Seniors Housing – 2007” (Data escalated at 4% per year to
                  reflect 2009 dollars.)


           Where do these benchmarks come from?               Our company’s data base includes

    approximately 20 million resident-days of operational benchmarks (total number of units times

    365 days). In addition, the American Seniors Housing Association publishes an excellent annual

    benchmark resource entitled, “The State of Seniors Housing”. The latest published version is

    the 2007 report which reflects the results of the 2006 industry benchmark survey. I’ve escalated

    these expenses at 4% per year to reflect expected 2009 experience.

           I sometimes get calls and emails questioning these dietary benchmarks. The central

    theme of these calls are, “Jim, we’re different and so are our food and beverage costs.” Or,

    “Should these benchmarks really apply to us?”          A comprehensive internal or third-party

    operations analysis can provide the most objective response. Our firm recently conducted a

    detailed operations analysis on a portfolio of 35 assisted living and Alzheimer’s/dementia

    properties. The total dietary cost in 2009 dollars was approximately $16.00 per resident-day.
                                                    4
       So what if your dietary costs exceed these industry benchmarks? Should you immediately

implement cost reduction changes? Not necessarily. Certainly your dietary costs should be

within reasonable striking distance of these benchmarks but other variables such as the quality

and style of your food service operation, resident satisfaction and the value of current resident

referrals of future residents must be factored into this complex situation. But don’t mistakenly

rationalize away a serious dietary cost situation that’s clearly out of control. Be on the look-out

for dietary cost creep. Here is an investigation punch list:

   1. Raw Food:

               •   Excessive waste

               •   Theft

               •   Unused leftovers

   2. Labor:

               •   Less than optimum deployment of labor:

                       –   Inefficient shift schedules vs. meal schedules

               •   Excessive staff downtime; consider:

                       –   Multi-tasking
                       –   Universal worker concept

   3. “Mystery Meals” – Not Being Funded:

               •   Employees:

                       –   Dietary workers
                       –   General employees

               •   Guest meals

               •   Room service meals

               •   Events:

                       –   Sales and marketing
                       –   Etc.

                                                 5
       Ask yourself this defining question, “Could I possibly reduce dietary costs by $0.50 to

$1.00 per resident-day without impairing food service quality or resident satisfaction?” For

example, if you happen to operate both independent living and assisted living or have a CCRC

involving 180 occupied units, you are realizing 65,700 resident-days per year.      Reducing

expenses by $1.00 per resident-day results in a savings of over $65,000 per year. It’s time to

evaluate – in detail – your second highest cost center.


Jim Moore is president of Moore Diversified Services, Inc., a national Senior housing
and health care consulting firm based in Fort Worth, Texas. He has written several
books about assisted living and Senior housing, including Assisted Living Strategies for
Changing Markets. A new book titled Independent Living and CCRCS will be
available soon. Jim Moore can be reached at 817-731-4266 or jimmoore@m-d-s.com.




To visit Moore Diversified Services, Inc. – www.m-d-s.com

To visit WALA – www.ewala.org




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