Controlling Operating Costs – Help is Here!

//Controlling Operating Costs – Help is Here!

Controlling Operating Costs – Help is Here!

Controlling the costs of operating a restaurant is often a very tricky thing. One needs to balance the labor, food and liquor cost against sales in order to make any sort of realistic profit.

This is often a daunting task for any restaurateur, even those backed up with an excellent support staff. Quite often I find that restaurateurs get so deeply involved in their day-to-day business that they lose sight of the objectives they started out with and often fail. That stems not from working too little, but too much. It is necessary to have someone work as an objective observer, providing the restaurateur with an independent analysis of the operation and a review of the business’ operating expenses.

One reason that a newspaper review is often helpful to an owner/operator is that it affords an independent critical analysis of the food and service, the two most critical parts of any restaurant operation. But media critics are not professional restaurant analysts and they only write about dining experiences. They have no idea whether a property is profitable or taking a huge loss. Moreover, they are unable to really help the restaurateur fix any problems they may be experiencing. Even a positive review, though it may bring in more sales, may hurt because those are not profitable sales.

Restaurant consultants (see article) can help an operation much more than an accountant or a new chef. The reasons are too numerous to mention here, but suffice to say that the right consultant can look at both spending habits and food operations and help revise them both to more manageable numbers.

Epicurus has generally revised our clients’ food costs to an average of 23.8% for the last two years. Though some clients are more successful than others, the impact usually lasts a number of years. Speaking only for Epicurus, our rate of return for our clients is about 20 to 1. These are extraordinary in that every dollar spent will return itself in a year, twenty-fold. So consultants… the right consultants, can truly help recoup losses and salvage a business from financial doldrums at little or no long-term cost.

How do we do it, you ask? Simple: we review every single purchase you’ve made over a specified period. This data is analyzed against recipes and operational procedures. Each ingredients and the labor used to prepare, serve and sell it is then costed out to calculate the actual cost of each dish on the menu. The information is then totaled to give a clear picture of actual food and operations costs.

When I first learned to calculate food costs, it was on an inventory basis as most people in the industry do. Why do it that way? Good question. There are two methods of determining food cost. One uses the inventory method… total purchases are what percentage of total food sales. That’s a good method except that it only gives a picture of the current, immediate spending habits. It does not allow identification of specific dishes that may be made incorrectly, where waste is occurring, where the retail price of a dish is disproportionate to the cost and where recipes may need to be adjusted to compensate for high ingredient costs. Moreover, it does not allow identification of how the meals sold are packaged or presented. Does the restaurant give too much salad or more bread than necessary? Perhaps they give their customers soup, salad, bread, appetizer and dessert as part of a dinner but put out a huge main course portion too. These issues are properly identified along with solutions that will have a positive effect by the consultant who has an objective perspective.

The alternate, and best method of food cost calculation is to take each recipe and cost out each specific ingredient down to fractions of a cent. See an example of our reports here. This allows the consultant to identify each component of a dish and adjust prices or quantities of ingredients accordingly. This does not mean raising prices or cutting back on portion size, which is the usual answer to these problems. Rather, the consultant will be able to identify problems, address them with food purveyors and with kitchen staff. Suppose, for example, that a restaurant had an employee that once worked as a butcher but they buy all their meats vacuum-packed and pre-trimmed to save money. Are they really saving money? Actually, they are not. In fact, they’re doing a double disservice because their customers can’t order a custom sized cut. A consultant looks at the entire picture and objectively analyzes everything, helping to revamp the operation in such subtle ways that regular customers will never know there was outside help.

We at Epicurus hold the belief that if some chains can operate successfully at less than 20% food costs, so can any independent restaurateur. But it takes professionals to get a restaurant from an average 30-something percent down to the low twenties. Epicurus provides just that assistance in addition to our other restaurant and food consulting services.

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