Reducing Food and Beverage Costs

By Amy Bair, Productivity Improvement Specialist, Business Process Excellence

This new hopeful economy is giving hoteliers incentive to innovate. What are they experimenting with? How to reduce waste and overhead
without alienating customers. Also, how to affordably differentiate in a manner that makes the property appealing to prospective
customers/guests? In a presentation from the 2010 AHLA Fall conference, a VP of Food and Beverage stated Weve had a few years to
sharpen our pencils, now we have to sharpen our creative pencils, or well be behind the curve. (1)
In 2009, Cornell produced a downloadable teaching series titled The Eight-Step Approach to Controlling Food Costs. This series comes
with a self-assessment workbook, participant and trainer guide so you can educate your staff to better control costs in your food and
beverage department.
According to J. Bruce Tracey, the author, food costs can take up 40% of your operating budget. Best practices are emphasized in the series.
The first one discussed is ordering. Order only one what you need. Over-ordering will cause staff to find methods for using the excess food
thus increasing the cost of your recipes. This can also lead to increased employee theft. We know instinctively the repercussions of underordering. We have all experienced the frustration of visiting a restaurant only to find out our favorite meal is unavailable because they ran out
of an ingredient. Sending an employee to the store to buy said item holds its own additional expenses.
How to solve this? Keep diligent track of inventory. Create an inventory sheet with par amounts. Order your food according to par.
Additionally, track purchase orders to ensure your deliveries and invoices are accurate. Remember to include staple items such as coffee,
paper and condiments.

Another benefit to tracking inventory is you can forecast supply and demand. Why is this important? How about an example? Every
December, you hold a Sunday brunch where you offer $1 mimosas. Last year, you sold 2000 mimosas. You would have sold more but you
ran out of orange juice and had to make a store run. This also dipped into your profit as retail price for oj is more than you typically pay.
Additionally, a server was pulled off the floor to make the trip which caused a bottleneck in serving and created frustration for your guests.
Make the time to research multiple purveyors to ensure you are getting competitive pricing on non-standard items. Of course, confirm you
are comparing apples to apples (pun unintended) by obtaining necessary specs such as product name, grade, product size, etc. It is also
critical that you create relationships with these vendors. Loyalty and rapport will go far when you are in need. Mr Tracey also reminds us to
reach out to local growers. Doing this will create a competitive advantage for your restaurant. There is an enormous push toward
sustainability right now. You will create goodwill in your community by supporting the local growers. Additionally, you are bringing in produce
that is potentially higher quality and lower priced. It is a win every way you look at it! The Willard Intercontinental Hotel in Washington D.C.
approximates their extensive focus on sustainability has resulted in almost $800,000 of incremental group volume. (2) How is that for
motivation?
Create customized order sheets. Organize them by food categories such as meat, dairy, etc. This will make it easier for the chef or manager
to look at the items, identify the pars and determine what needs to be ordered. A sample inventory and order sheet is available in the training
manual.
Create a set of standardized recipes with the cost of ingredients added and the suggested selling price. Do not assume your staff
understands how to price a menu item. Take the time to train them. Do not forget to account for the hidden cost items such as paper, waste
and accompaniments. There will be occasions where using raw food (versus pre-cooked) will be more economical in terms of cost and labor.
Consider this when calculating your recipe cost and taste. Ensure these correct costs get transferred to the daily menu boards as well. To
communicate its importance, make that last task part of the daily pre-opening checklist. Additionally, create your menu around seasonal
foods. This allows you to take advantage of the seasonal rates, creates a unique menu and gives the chef opportunity for variety.
For consistency and accountability, assign receiving to one person. Train your new Receiver to manually check incoming items for correct
count, weight and brand. Decide in advance how you will handle substitutions. Will you refuse items that were substituted without your

knowledge? Do not forget quality. How do the bananas look today? Do you see ice crystals on the frozen food? If so, reject them. They have
been thawed and refrozen.
What does your storage room look like? Is it well organized? Is the receive date listed on everything? Do you practice the First In First Out
(FIFO) philosophy? The Cornell guide I am referencing is detailed enough to offer specific temperatures and even the shelf order of foods in
order to conform with US Food and Drug Administration requirements. Naturally, ensure all areas are clean, dry and sanitary. I read a fairly
amusing, yet horrifying account in a Hotel News Now article of how food was stocked at a New York hotel. Soup stored unwrapped in a
large container sitting on the floor directly under the coolers condenser unit that was dripping water condensation into the soup. One more.
Two different products were in the same tray: one was uncooked raw chicken breast stored at an angle so the blood was running into
unwrapped Canadian bacon. It was determined these errors were due to a lack of training. Do not let this happen to you.
Take inventory regularly-as much as daily if you are very busy. Why is this important? It allows you to track demand, possible theft, and cost
containment. Cornell offers a tip here to use two people to inventory. One for counting and one for writing. Additionally, remember to keep
your inventory secure. Lock all freezers, store rooms, etc. For those who operate with multiple shifts, consider issuing only what is needed
for that particular shift. It is advisable to hold chefs and shift managers responsible for issuing the food products. This is important as
somebody with authority is now held accountable. You can then reward and correct accordingly. This individual should be encouraged to
keep a daily stock list in order to track pars. As the manager, you should ensure the list is being filled out properly. This will help when
ordering food and tracking waste or theft. Be careful when stocking the front of the house too. If you put extra inventory out, it will get used.
Conversely, if you do not then you will save. Naturally, if something runs out you can simply replenish.
When it comes down to choosing menu items and consequently the ingredients be diligent in the planning of this phase. First, create the
daily and weekly menus. Make sure standardized recipes are created and followed. Ingredient choices are an excellent area for controlling
food costs. Many times, it is more economical to cook from scratch. Additionally, the food quality goes up when items are freshly prepared.
Be careful about overproducing. Diligent tracking of food production can save money in the long run. The intelligent data you are recording
today will help you next year. Have you noticed you have a slightly slower month in May but the big drop is in June (which is the month
everybody remembers when ordering)? How much money can you save by ordering slightly less in May to account for the drop in demand?
Conversely, can you run a promotion to increase interest during that month? For five days in the fall, Kimpton Hotels campaigned for groups
to book events during the month of December. Those who took advantage of this offer would receive 50% off the catering bill. This promotion
generated $80,000 for their properties. Another Kimpton property in Seattle promoted a new brown bag lunch menu by handing out 1600
free brown bag lunches over two days. The response was overwhelming and resulted in a long term 15-20% increase in lunch covers. 1
Instead of accepting the drop in demand, be creative and figure out how to reverse that trend! Hold a contest and ask your staff for ideas.
Offer the winner(s) 4 hours paid time off.
Another best practice offered by Cornell is to use the correct type and size of bowls, cups and plates. Although you might pay more for the
unusually sized dishes, you will save money in the long run with the reduced, properly measured food portions. The guide offers a
quantitative example on how this would work.
Correct
portion
$.28 for veggies + $.04 for bowl = $.32
Incorrect
portion,

$.315
for
Savings: $.035 per portion

if
veggies

=
only
+

$.04

4
1/2
for

oz:
ounce

bowl

larger:
$.355

It is also important to complement the new plate ware with appropriate serving utensils. For example, the 4-oz bowl will work very nicely with
the 4-oz spoon when scooping those vegetables.
Anticipate in advance what your guests will ask when ordering their meal and have prices already established. For example, how much does
it cost to add cheese to a sandwich?
I have not forgotten the most crucial part of this initiative! The people. It is critical to involve your staff. Not only will you get more cooperation
but they will help ensure your success. Begin by stating your goals for the department. i.e. reduce food costs by 5%. Then discuss your
expectations for how these goals can be reached. Offer your ideas and ask for theirs. Write these ideas down somewhere everybody can
see them. Do not forget to track progress and communicate it.
The big question is how to get everybody on board and enthusiastic. Incentives can run anywhere from publicly rewarding members for a job
well done to sharing in the change in net income. I recently watched a video titled Surprising Truths about What Motivates Us by Daniel
Pink. Grab a cup of coffee, sit down and watch the 10 minute video. Excellent information!
This Cornell study is an excellent training tool. Education is power and by honoring your staff and educating them you are increasing your
retention and reducing your costs in that area as well. Why? You cared enough to take the time to teach them new skills. When the rubber
hits the road, this study is recommending you track and record all activity in Food and Beverage. By doing this, you are creating your own
business intelligence that can be referred to for years to come. For example, last December you had an enormous group reservation and you
recorded and tracked all menus, purchases, sales, etc. In December 2014, another enormous group wants to have a similar activity at your
hotel. You can refer back to the intelligence you created from the prior event for pricing, menu items, what worked and what did not work. Did
you lose money in alcohol sales because you did not charge enough? This time, it can be different. Were there some glitches in the last
event? Now, your memory is refreshed on those glitches and you can plan for them in advance this time and really wow the group with your
incredible attention to detail. How will that reflect on a TripAdvisor score?
References:
(1) http://www.hotelfandb.com/extras/12-trends-for-2011.pdf
(2) http://www.hotelnewsnow.com/Articles.aspx/2235

Amy Bair is a Productivity Improvement Specialist focused on the hospitality and senior living industries. Her company Business Process
Excellence (BPe) partners with organizations to improve guest service, increase revenue and decrease expenses by examining their daily
operations and making recommendations for improvement that will increase efficiency, reduce waste and decrease staff turnover. Her
experience ranges from a computer programmer during Y2k to Director, IT/Administration for a Fortune 250 company. Her career path has
helped her develop the ability to look at daily tasks/operations from a process-centric viewpoint and see where gaps and bottlenecks occur.
Ms. Bair can be contacted at 623-238-3085 or amy@bpenow.com Extended Bio...

Managing prime food and beverage costs for maximum profitability

Food and beverage is an essential component of offering guests a good experience, one theyll want to repeat. A locationbased entertainment (LBE) facility with a well-executed food and beverage (F&B) offering will not only increase per capita
F&B sales (sales per guest per visit), but will also increase other sales by extending the guests length-of-stay. In fact, F&B
can actually be a driver of visits come for the food and stay for the fun.
As important as F&B is to the guest experience equation, it is just as important to profitability. When it comes to F&B
profitability, revenue is only one part of the equation. The other part of the F&B profit equation is prime cost. LBEs have
the potential to achieve per capita F&B sales of $5 or greater. With properly managed prime costs, F&B sales can add $2 in
profit for every guest.
Prime cost is the total cost of goods sold (COGS). That includes food, beverages and related paper products such as
disposable cups, napkins, etc., plus the gross labor cost for all F&B staff. Labor cost not only includes payroll, but payroll
taxes, workers comp, medical insurance and other employee benefits. For a foodservice facility, a good benchmark for
prime cost is 60% or less of F&B revenue. This means the total cost of food, beverage, associated paper goods and all
labor costs should not exceed 60% of revenues.

It is important to track prime cost on a regular basis, as it includes the two most controllable costs labor and cost of
goods sold. However, we often find that LBE operators:

Dont track labor costs separately for F&B, but rather lump all labor together for their entire facility, or

Track labor as a percentage of F&B sales only on a monthly or less frequent basis, or

Rarely track F&B COGS except on an annual basis.

The problem with such infrequent tracking of prime cost is that months can pass before the operator recognizes that costs
may have exceeded the target benchmark. Theres no way to go back and correct costs at that point, so it represents a

permanently lost profit opportunity. For example, maybe the costs of some raw products have increased and driven up
food costs. If you wait for months to find out, then youve lost the opportunity to either adjust menu prices or find less
expensive substitute products. Perhaps some new employees havent been properly trained and arent following proper
portion control. Maybe your F&B manager hasnt been efficiently scheduling employees. Waiting a month or longer to find
out that labor costs are 40% instead of 30% means your costs have been higher than necessary. Or perhaps an employee
has been stealing some food product out of your walk-in on a regular basis. Waiting months to calculate COGS to finally
learn things are out of kilter can mean you let thousands of dollars walk out the back door (literally).
When it comes to labor costs, we recommend that its percentage of revenue be calculated daily. Yes, thats right, daily! It
isnt that hard to set up your bookkeeping system to do this. Each morning, the F&B manager gets a report on what the
labor percentage was for the previous day. That gives the F&B manager the opportunity to learn how to improve through
immediate feedback. If you wait weeks or months to give her this information, she will have forgotten what happened on
particular days in terms of scheduling to cause the high labor cost. If she gets a report the next morning, however, she can
reflect on the previous day and perhaps learn what she can do differently to improve the labor percentage in the future.
The other advantage of daily reporting is it sends a loud and clear message to your F&B manager that controlling labor cost
is darned important. The old adage, That which gets measured gets attention, is very true. Labor is your most easily
controllable cost, so it only makes sense to set up a reporting system that helps your managers stay focused on controlling
it.
Calculating the COGS part of prime cost also needs to be done on a frequent basis. Most chain restaurants do it weekly. At
a minimum, it should be done bi-weekly. Weekly or bi-weekly cost reporting will change the attitudes and behavior of your
kitchen staff, as it creates awareness of the importance of controlling F&B costs. It also lets employees know they are
being held accountable. If there is a problem, you will know about it quickly and can respond accordingly. Regular food
costing will usually result in a 2% to 4% or more reduction to COGS. Again, that which gets measured gets attention.
Calculating COGS requires a physical inventory of all F&B supplies on hand and a calculation of their costs. This takes some
time, but with a well-organized stockroom and by setting up simple inventory worksheets, a physical inventory can easily
be done in an hour or so. Conducting regular physical inventories also requires the discipline of setting a fixed scheduled
time for it.
The following chart shows the formula and provides an example for calculating COGS for any time period:

When auditing the operations of many of our LBE clients, we often discover their menu prices have not been appropriately
calculated to produce desired profit margins. We frequently find COGS running 40%, 50% or greater of their F&B sales.
We often find that clients have priced their menu items under the market for similar type restaurant operations, sometimes
for even less than McDonalds sells those items. You should never price your menu items cheaper than comparable
restaurant prices. Menu prices that are too low can actually hurt sales, as guests will be suspicious that the food quality is
low, based on the price. Actually, with good quality products and display cooking, such as preparing foods right in front of

customers, you can command a premium price over comparable restaurant operations. The public looks at it as more of a
value equation than just an absolute price consideration when purchasing quality prepared foods.
Properly setting menu prices requires a detailed cost analysis of each menu item, making sure the cost includes every
ingredient and paper product used for that item. For example, for a hot dog, the cost analysis should include not only the
hot dog and roll, but also the cost of condiments, the paper plate and napkins. Then a factor needs to be added for waste
food that spoils, dropped food that is thrown away, and prepared left over food that cant be saved at the end of the
day. Then, you take the total cost of the menu item and divide it by your desired COGS. Lets say the total cost of the
gourmet hot dog works out to $0.76 and you want to maintain a COGS of 30%. You divide $0.76 by 30% to get the targetselling price of $2.54. But you dont stop there. If hot dogs of a comparable quality are selling for $2.89 in your market,
you set the price at $2.89, which gives you a 28% COGS. A worksheet for this example is shown below.

We have found that in addition to supplying labor costs and COGS to your F&B manager, taking an open-book approach of
sharing this information with all F&B staff greatly improves performance. We advise our clients to post two graphs where
the F&B staff will see them everyday. One can show the weekly labor percentage and the other the weekly or bi-weekly
COGS. The vertical axis should show ascending percentage and the horizontal axis should indicate the time periods. The
target range should also be shown. Then, each day or week, the new results are posted. This gives the staff immediate
feedback on performance. First, if the percentage is in the target range, that is good. Secondly, if the graph shows costs
going up, that tells employees things are moving in the wrong direction (increasing percentage). If the percentage on the
graph is going down, that means the staff is improving (decreasing percentage).

The open-book approach sends the message to all F&B staff members that controlling prime cost is important. It gives
them immediate feedback on how they are performing. Staff members have far more control of COGS than anyone else,
because they handle portion control. They create waste. They are doing (or not doing) the up-selling to more profitable
food items. The graphs will help them understand why proper portion control, minimizing waste and up-selling are so
important. It lets the F&B staffers know theyre regularly being evaluated in these performance areas. It also lets them
know that if they steal, their theft will quickly show up in the performance results. And if their hours need to be cut back,
they can better understand why -- that it is necessary from a business profitability standpoint and is not some arbitrary
management decision.
Controlling prime cost requires commitment, procedures and discipline. When executed properly, you will have a
continuous stream of profits from your food and beverage sales.