My name is Kenny Arone. I am a consultant at-large in the hospitality industry and partner in a restaurant management software company.
Over the last fifteen years, I have accumulated a great many questions from consulting customers as well as customers from my menu costing software company. The questions are always the same, and the first question is usually, “What should my food cost be?”
I’m going to share the answers with you, because, consistently, they have not changed that much over the years.
You should know my qualifications so that you can feel secure that the information presented in this blog is based on my lifetime of professional experience and knowledge.
I have been in the food service industry for over thirty years. I graduated from Los Angeles Trade Technical College with an AA Degree in Restaurant Management as well as additional courses in Culinary Arts. My first job out of college was with ARAMARK (formerly ARA Food Service). If you wanted to learn the numbers of our business, this was the place to start as I took inventory every week, and was responsible for a weekly and monthly P&L (Profit & Loss) statement. Also, if you wanted a get a good restaurant manager’s foundation, you went to work for Howard Johnsons. There, they would start you off as a dishwasher and train you at every position up to manager. I was glad I chose ARAMARK. Along with other core concepts, “Food Cost” was drilled into me. When you are working on “Cost per Meal,” one penny can make a big difference, especially serving over a thousand meals or more a day. I then went on to managing restaurants and multiple restaurant units as Director of Operations.
Now, in my consulting, I mainly deal with the independent restaurant operator as they struggle with (usually) their first restaurant. Problems start to happen after the first few months when they realize that they are putting money in the restaurant each month to keep it open. That’s when the panic sets in, and it becomes a whole new ballgame. At this time, their food cost is the least of their problems. However, it is a factor that can add money to the bottom line right away.
In this blog, I’ll answer the questions so that those who may not have expert to ask, or even a “good grasp” of the concepts, can easily understand the direction they need to take.
“What should my food cost be?” asked Mike Nelson, Cowboy Steak House, Big Bear, CA
I tell him along with other customers that it is based on how you priced out your menu and the product mix you sold. (Restaurant Costing 101). This is the starting point for finding out what your food cost should be. In most cases, new restaurateurs are not ready for this answer and rightly so, it is not that clear cut. There are many factors that affect food cost and each restaurant has their own, and sometimes unique, set of problems. However, Menu Costing is the foundation of their Food Cost.
The first thing we have to do is to find out what your actual food cost is. This is not a difficult thing to do. Simply add up your food invoices for a month and divide the total by the Net Sales (After Sales Tax is deducted out of the total sales). It will become more accurate over a three-month period.
This is a start and gives a foundation to work with.
Based on the type of restaurant, I will be able to give them a benchmark for their food cost I usually start with 28% to 32%
We are now ready to troubleshoot. If, for example, they have a steakhouse and their food cost is over 40%, then the first place we look at is sales. What procedures are they using? In most cases, they do not have any systems and controls, so we start with basics.
We start with the following items :
a. Make sure that all refrigeration is locked at night
b. Require employees to leave by the front door or have the manager open the backdoor to let them out
c. Start periodically checking the trash containers or check the trash bags before they go out
d. Start looking at how you handle, cash control, voids, comps, promotions and employee meals
e. Check invoices and periodically check the weight of the meat and other items, especially the ones that have “Catch Weight” (is received by the pound)
f. Start checking the portions served
g. Do the cooks have recipes and are they following them?
h. Go back and check the total amount of the invoices you added up and make sure that it is just food.
What we are looking for is a big hole in and hopefully the food cost. If we find it, we can get down to a number that will give us some breathing room to work on the food cost. I would advise doing this daily after you have a food cost.
This is a handful to start with, but it will give you a foundation.
On my next blog I will finish up on the question, “What should my food cost be?”