Controlling Food Costs

It All Begins with the Menu

Controlling your costs is crucial to your success. Costs are expressed as either a dollar figure or as a percentage of revenue. Fixed cost expenses do not go up and down with business volume (think rent, phone, Internet) and should be negotiated hard for the lowest rate possible when initially contracted. Since these expenses don’t change, you can pretty much forget about them and ideally try to review them at least annually or at some other regular interval like budget time. Focussing on variable costs such as the cost of goods sold and labour is especially important.

Quality of ingredients, yield, and portion size will have lasting effects on your performance.

Managing Variable Costs

Variable costs can get away from you and create surprises at month end when finalizing your numbers to analyze performance. Ongoing monitoring of these costs can be difficult, especially when you are busy and staff is at maximum productivity and capacity. For this reason, most operators discover that their costs are running at too high of a percentage after the end of the month when their statements are prepared. As this is historic information, it comes too late to allow an opportunity to take corrective action to improve performance. This makes it ever more important to control costs as you go along.

Menu Planning

It all begins with the menu. Quality of ingredients, yield, and portion size will have lasting effects on your performance. The decisions you make need to be well thought out like ensuring ingredients are appropriate for the application. In other words, don’t use a Lamborghini when a Fiat will do. Cross-utilize ingredients where possible to reduce the number of items in inventory. Use trim that might otherwise be wasted and incorporate it into another menu item to lower food cost. Following is an example using tenderloin. You price a ready-to-eat filet using your standard food cost percentage. Then take the trim, use your imagination and add some value to it and use it in another dish (maybe in a different meal period—grind it up to make burgers for lunch service). Calculate the item’s cost including the tenderloin scraps at the original cost per unit for tenderloin (this way you can set a meaningful selling price) and it will be free to that item as it was already in the filet steak dish. It pays to use everything from the snout to the tail.

Costing Out Recipes

Once you have decided what you will offer, someone needs to create, write, test, and cost out recipes. I know it’s not sexy, but you have to do it. You will never be able to really know what is going on in your business unless you know exactly what everything costs to produce and serve. Make sure it deserves its place on your menu by contributing positively to overall organizational objectives. The documents you produce will come in handy when ordering food and training staff. Once you have ascertained item costs, you can apply your selling price formula. Adjust the resulting selling prices to be appropriate to your market and customer expectations (i.e. you can enjoy increased contribution on some items and hope for high volumes on others). Ongoing use of management techniques like menu engineering, cost of goods sold reports, and sales mix reports will need constant comparison to physical performance in order to ensure the theoretical contribution matches the actual.

Plating, accompaniments, and garnishes should also be identified, explained, and demonstrated.

Developing Standards

Put some thought into how food is prepared, portioned, stored for service, and presented. Build controls into every step to help employees keep portion size consistent. It can be as easy as making sure they use the right size ladle or side dish. The easier you make it for staff to offer more consistent portion sizes and the correct quality of ingredients, the better chance you will have of keeping your costs in line. It sounds simple, but you would be amazed how many operators let cooks choose their own adventure when setting up their lines and buffets. They will mix and match ladles, service vessels, portion cups, and use scales that may or may not be accurate. You name it. You might even hear:  “We may not even weigh these New York steaks at all. Just eye ball those suckers. I cut ‘em all the time after all.” This results in guests getting variable portion sizes, and they are upset when they get the small one—which is probably the correct portion size for what they are paying for anyway—so no one really wins. Guests want consistency. Consistency is king! Recipes and standards are the only way to ensure consistency, unless you want to be there all the time.

Stocking the Kitchen

Make sure your kitchen is outfitted with a suitable quantity of functioning equipment enabling the cooks to do their jobs and keep your costs in line. They should have access to scales, ladles, spatulas, portion cups and bags as well as the order guide, complete with product specifications. Recipes for all menu items including base ingredients—such as mother sauces— available where staff work and not locked in the office of a person who goes home at 4:30 and never comes in on the weekends. Check that there are adequate plates, necessary utensils, and glassware. You can’t ask people to do their jobs if you don’t provide them with the necessary tools.

Training Staff

Item specifications should be identified and communicated during staff training. Preparation procedures including the uses of scales and other measuring tools should be demonstrated to ensure consistent yields. Teach your staff how to keep equipment set at the correct temperatures and operating efficiently. Plating, accompaniments, and garnishes should also be identified, explained, and demonstrated. You will need to spend a bit of time making sure everyone knows what is expected, if you, as a team, are going to achieve your food cost performance targets.

Buying Programs

You are not in this alone. There is help from outside too. The Alliance of Beverage Licensees (ABLE BC) has partnered with Foodbuy to help you enjoy economies of scale and save you big bucks. Foodbuy supports pubs, restaurants, and catering companies, by connecting a diverse group of stakeholders and customers.  Through the supplier relationships they have negotiated, Foodbuy provides innovative products and menu ideas to help you achieve a competitive advantage. They will work with you to understand your specific business needs and ensure you’re maximizing any program opportunities. The programs extend far beyond simply food and beverage, Foodbuy is continuously expanding its offering to provide its partners with new suppliers, equipment, and other services. ​

On the liquor side of the business, consider using buyABLE: ABLE BC’s online purchasing portal for private retailers. buyABLE allows the private retail channel to purchase as a collective group in order to guarantee better deals and offers.

Evaluating your Progress

This is a continuous process, so you will need to keep on top of your suppliers as prices fluctuate.  Work with your reps to lock in pricing when it’s advantageous and get them to identify alternatives when items rise in price because of short supply due to hurricanes and other incidents. Revisit standards and procedures with your cooks and make sure that what you thought was going to happen is actually what is going on. Evaluate and streamline presentations and service to make them as consistent and efficient as possible. Re-evaluate presentation using staff’s and customers’ comments, and keep tweaking and improving dishes. Ensure you update your recipes and costs, and adjust menu prices (up and down) as required. Ongoing monitoring of financial performance using inventories, your income statement and balance sheet is crucial. Accurately interpreting sales mix, item’s costs, and weighted contribution margins are also critical to intelligently manage menu item selection, menu design, and pricing and sales strategy.

You do all this work to control costs so there is something left on the bottom line for all the hard-working staff and managers who make it happen every day!

Tim Ellison is a Certified Chef de Cuisine and Sommelier with approaching half a century of experience in the hospitality industry. He currently serves as Director of Food and Beverage Service at the Vancouver Club.