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F&B Cost Control
Terms & Definitions from the course
| Term | Definition |
|---|---|
| Food Costs | All costs associated with the production of menu items. Includes generally juices and hot beverages too. |
| Beverage Costs | All costs related to alcoholic and non-alcoholic drinks: Wine, Spirits, Beer, Soft Drinks. Includes costs of ingredients necessary to produce the drinks: fruits, garnishes. |
| Labor Costs | Includes all costs for salaries and wages, including taxes and benefits |
| Prime Costs | All costs related to the production of menu items, alcoholic and non-alcoholic drinks, salaries and wages together. |
| Operating expenses | Includes all expenses incurred other than food, beverages or labor. |
| Revenue | Amount of dollars you take in |
| Expenses | Costs of the items required to operate the business |
| Profit | Amount of dollars that remain after all costs have been paid |
| Controllable expenses | Expenses which can be restrained by management to some extent. E.g. direct operating expenses, music & entertainment, marketing, utilities, general & administrative, repair & maintenance. |
| Non-Controllable Expenses | Expenses that cannot be unilaterally changed by an individual, department or business. |
| Contract foodservice | Commercial, legally binding contract, getting into spaces, for private managed properties |
| Contact food service | Subsidized or welfare, cost sector, institutional |
| Airport hotels | Practical hotels, without fine-dining |
| City center hotels | Hotels with high expectations, high quality |
| Convention centers | Very functional hotels, with space, catering, events service, banquets vs. restaurant services. Little waste because the number of seats is known in advance |
| Limited service hotels | Budget hotels selling beds and saving money on F&B |
| Residential hotels | Hotels for long stays, more focus on rooms than F&B |
| Spa hotels | Hotels with health as a priority over F&B |
| External analysis | Analysis of the socio-economics trends & demographic changes continuing to affect the food service industry. |
| Consumers’ behavior | Defined by “everything now”, the value for money, uniqueness, the needs to be pampered, efficiency, simplicity, butterflying |
| Macro environment | Major external & uncontrollable factors that influence an organization’s decision making – political, economic, social, technological, legal, and environmental |
| Basic Business Model | Plan that explains the relationship between its parts. 1. Input, 2. Transformation, 3. Output |
| Input | First step of the basic business model. Includes energy, manpower, money, equipment, raw products & materials. |
| Transformation | Second step of the basic business model. It is relationship between consumed inputs and produced outputs through an organization’s capabilities in applying management and technology. |
| Output | Third step of the basic business model. Includes products, services, revenues & profits, productivity & covers. |
| Expanded system model | Plan that allows management to see the organization as one entity and as a part of the larger external environment. |
| Control process | Direction that compares standards to the actual performance. Acceptable variance = +/- 5% |
| 4 management functions | Planning, directing, controlling, organizing |
| Fine-dining restaurants | F&B category where labor costs > food costs |
| Restaurant chains | F&B category where food costs > labor costs |
| Family cafeteria | F&B category where food costs = ~ labor costs |
| Income Statement (P&L) | Document with the following outlines: revenues earned from sales, costs incurred from expenses, department’s financial gain |
| Uniform System of Accounts | Key tool of comparison with standardized formats |
| Forecasting | Predictions and estimations for investors, finance department. Need to know how much money we are expecting and understand where the cash is coming from and how to use it. |
| Average forecast | On a fixed period, e.g. 14 days. Estimations that are just averages. Quick method. |
| Rolling Forecast | Add/drop process to predict future over a set period of time. It gives a better idea of where the trend is going. |
| Future period forecast | Result past period * (1.00 + % increase estimate) |
| Payroll | Management of salaries’ costs, wages (hourly) and employee benefit (vacation, sickness) |
| Omnes Principles | Five straightforward tools designed to build a menu. |
| Price Range (Omnes Principle) | Variance between highest and lowest price within a category not to exceed 2.5 times the pricing of the lowest priced item. It does not apply to wine. Starters should be ~35% of the main courses prices. Desserts should be ~25% of the main courses prices. |
| Price Spread (Omnes Principle) | Price variation within menu. # of dishes priced in the middle range = or slightly > total amount of dishes in the lower and in the upper ranges together. |
| Supply / Demand Ratio (Omnes Principle) | Balancing sales prices by orientating against average food sales check.x = Average check / Average Menu Price. If x < 0.9, reduce pricing as too expensive. If 0.9 < x < 1, maintain pricing. If x > 1 : slightly increase pricing. |
| Promotion of the Set Menu (Omnes Principle) | Not a cheap item, but an item at an attractive price. Selection of items in mid-price range per category: avg. 1st course price + avg. main course price + avg. dessert price |
| Consistency of the Menu (Omnes Principle) | Maintain stability between different product categories (appetizers, mains, desserts) by avoiding steep price differences between the categories. Important to maintain brand perception of your restaurant all across your menu. |
| Purchasing | Link between internal departments and suppliers. Detached from production and contributes to the quality strategy of a company (supplier evaluations and negotiation). Buying at the right price, right time, right quantity, right quality, right vendor. |
| Procurement | Involves the process of selecting vendors, establishing payment terms, strategic checking, selection, the negotiation of contracts & actual purchasing of goods. Essentially, the overarching or umbrella term within which purchasing can be found. |
| Intern Suppliers | Farms & Ranches, Primary Processing plants & Production Plants |
| Direct Suppliers | Final Processing Facilities, Distribution Centers. |
| Direct Distribution (Source of purchase) | Retail sale between producers and restaurateurs |
| Wholesales (Source of purchase) | Intermediate between manufacturer/producer and retailer. Bulk Purchase & Bulk Sales. |
| Retailer (Source of purchase) | Buy in bulk but sell in small quantities. |
| Cash and Carry (Source of purchase) | No product delivery offered. |
| Referral Centers (Source of purchase) | Purchases from a single supplier with a product catalog covering all requirements. Contractual agreement with somebody to guarantee lower price. |
| Food Receiving Control | Verification of quantities, quality, and price conform to orders placed (clerk) |
| Establishing standards for receiving | Quantity delivered = quantity ordered. Quantity listed on invoice/delivery bill. Conformity to standard specification sheet. Pricing on incoice to be conform to those stated on order form. |
| Invoice Stamp | Used by receiver to record the data on which goods were received with signatures of individuals verifying the data. |
| As Purchased (A.P.) | Gross weight of an item as received upon delivery. |
| Edible Portion (E.P.) | Net weight defined as the weight of an item subject to processing and preparation methods in preparation sales. |
| Yield percentage (Yield tests) | (Servable weight / original weight) * 100 |
| Yield Cost (Yield tests) | (Purchase Price / Yield percentage) * 100 |
| Number of portions (Yield tests) | (Original Quantity * Yield Percentage) / Portion Size |
| Butcher Test (wholesale cuts) | Evaluates cost of operations cutting own portions rather than purchasing product pre-portioned. To measure loss from deboning, trimming, and portioning meats, fish, and poultry. Re-evaluate each time pricing changes. |
| Pareto’s Law | About 80% of a firm’s sales are generated by about 20% of the items in its inventory. |
| ‘A’ class items (Pareto’s Law) | Proteins. 10-20% of the items account for 70-80% of inventory value. Perpetual inventory control system. |
| ‘B’ class items (Pareto’s Law) | Fruits & Vegetables. 15-25% of the items account for 10-20% of inventory value. Periodic/routine control system. |
| ‘C’ class items (Pareto’s Law) | 65-75% of the items account for 5-10% of inventory value. Simple control. Many businesses carry large levels of safety stock of these items where carrying costs are low. |
| BIN Cards | Traditional tool for the control of bulk stock on the cellars and storerooms. One for every item. |
| Food available for sale | Sum of beginning inventory and purchase made during a specific accounting period |
| Food cost consumed (daily and monthly) | Value of all food used or consumed by an operation: sales, staff meals, spoilage, theft |
| Food cost sold (daily and monthly) | Value of all food expenses incurred that have generated a food revenue. |
| Potential food cost | Theoretical cost if all recipes were perfectly respected. |
| Beginning inventory | Value of all food on hand at beginning of the accounting period – determined by a physical inventory. |
| Purchases | Sum of all food bought (direct + stores) during the accounting period. The amount is determined by adding and properly summing up the value of all delivery invoices and other bills for products purchased in the accounting period. |
| Ending inventory | Refers to the dollar value of all food on hand at the end of the accounting period – determined by completing an accurate physical inventory. |
| Menu engineering | Analysis of the food sales to achieve optimum profit. |
| Dogs (Menu engineering) | Items with contribution margin lower than the average and popularity lower than the average. |
| Plough horses (Menu engineering) | Items with contribution margin lower than the average and popularity higher than the average. |
| Stars (Menu engineering) | Items with contribution margin higher than the average and popularity higher than the average. |
| Puzzles (Menu engineering) | Items with contribution margin higher than the average and popularity lower than the average. |
Created by:
IsabCamp
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