Posts Tagged ‘ COGS

RFID Beverage Controls: a New Paradigm?

Heads up: you may think this blog is about RFID technology (it is not). Or, you may think it’s about beverage controls (it is not). It is about using technology to unleash practices that change behavior and enhance the guest experience.

RFID – Radio Frequency IDentification – is among the latest and most sophisticated technologies to be applied to beverage cost control.

Are you familiar with the technology? Does an image of Mel Gibson with a tin foil skullcap pop into your head when you hear “information through radio frequency”? If this is news to you, take a quick peak at the sites of some of the companies that offer these systems (Capton, www.captoninc.com, Beverage Metrics, www.beveragemetrics.com, and Liquor Monitor, www.liquormonitor.com are three that come to mind).

"Signs" 2002

In short, a bottle’s pour spout (or collar) contains an RFID chip and battery, and by measuring the tilt of the bottle along with other information such as the bottle’s contents, size and initial volume, the system measures amounts poured with remarkable accuracy, and reports data via radio frequency to a pre-specified program which may be accessed later or even in real time by a computer. They provide best results when interfaced with the POS, which enables management to learn, for example, if a specific recipe was executed properly.

Cool. But how do you “control” beverage costs? Historically we control costs by restricting access to the raw materials, or restricting output. Locks & keys are a timeworn technology for restricting access.

Mechanical and electronic devices have been in place for decades: mechanical portion-pourers like Posi-Pour (http://www.posi-pour.com) and electronic pour restriction systems like Berg Company’s (http://www.berg-controls.com) have been industry standards for years and continue to have relevance today.

But this is an age-old paradigm: control through constraint. Now let’s look at the RFID model again: there is no restriction of pouring or access, there is only information. THIS is the “paradigm shift”: controlling through information rather than restriction. How do you “control through information”? The answer: by changing employee behavior.

That’s right. Results are achieved when these time-honored practices are employed:

  • Measurement & analysis
  • Training & teaching
  • Feedback (two-way!) & recognition
  • Re-training as needed, more teaching
  • Recognition & reward

Restrictions, though sometimes necessary (I’m not advocating open storerooms, for example) don’t “stick” without help. The locked liquor storeroom requires a second lock, perpetual inventory, broken-empty requisition procedure, marked bottles and cameras in the hallway. This might be OK – but all of it adds little value to the customer experience.

On the other hand, behaviors changed through training, teaching, measurement, recognition and reward will “stick”. And they will impact the customer experience in a positive way.

And THAT is why this blog is not about RFID or beverage control. It’s about combining the measurement systems you have (RFID, POS, Guest Survey System, P&L) with training, teaching, analysis, feedback, recognition and reward to achieve the results you are after.

Those are my thoughts, let me hear yours.

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The Purpose of Beverage-Cost Control Is Not Lower Cost

The purpose of controlling beverage cost is to increase your sales. I’ll explain.

First, let’s digress. You are an F&B Director, or perhaps Beverage Manager or Bar Manager. You work hard to keep your beverage costs in line. If your cost margin is over budget you are “challenged” by your boss. If the cost is better than budget you are praised in the short term (but sometimes “punished” by future budgets that will now set this lower number as the new expectation).

Here is the typical scenario: 

But if the current economic environment teaches us anything it’s this: the model above isn’t sustainable. And here’s why – eventually the never-ending demand for lower cost will create pressure to raise prices, and this could threaten your business. 

 

So, what should your bar cost be – what is a “good” bar cost? I’ve seen everything from 14% to 35%. BTW both numbers might be “good”, because a “good” cost is any cost within acceptable variance to the theoretical (or “potential”) cost. That’s right: 14% might be good, and 35% might be good.

Then what should your theoretical cost be? That’s a strategic decision, and the tactics that will fulfill your cost strategy begin with your target market and include pricing, purchasing, promoting, merchandising, inventory and accounting practices, recipes, menu engineering, equipment selection and more. Controlling costs is about meeting your cost strategy targets – 14%, or 35%, or somewhere in between – and is success measured by the variance between your theoretical and actual costs. Ideally your budget is based upon this “cost strategy”.

Your cost strategy should allow for “targeted pricing”, i.e. pricing (supported by promotions and merchandising) that will promote sales. I’m not saying lower prices across the board, rather consider the category of products favored by the primary customer target, and then find ways to add value to select offerings in that category. Incorporate this into your cost strategy, factor it into your theoretical cost analysis, support it with a special program or promotion with merchandising and marketing: and now you have a sustainable process. You are controlling your costs strategically so that you can increase sales.

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Inventory: the First Six Letters

F&B Directors, you love to “invent”, don’t you? Invent as I use it here is synonymous with create or originate. Like promotions, menus, specials, events, even service. Of course you do. The great F&B Directors I know and have known love to invent. They are passionate about it. They (these are synonyms) conceive. Devise. Discover. And create and originate, as previously mentioned.

In fact, you may very well consider this trait to be your finest or most dominant trait. Great. Really.

But, if you love to invent, I’m betting that you hate to inventory. Oh, you do inventories – or instruct your team to do them – as required by accounting. For some companies its monthly, and for others quarterly or even annually. After all, you’re a team player and by the way, who wants to get yelled at. I know I don’t. But it’s too late for me. If you read my last blog, about managing weekly, you’re already yelling at me. Who has time to create and manage a weekly P&L, anyway? (For the answer to that, and more reasons to yell at me, see the blog, OK?)

So now I’m going to tell you to disregard accounting’s requirements and conduct weekly inventories. This is a management practice, not an accounting practice. Oops. Less time to invent. On the other hand, won’t you have more license to invent if your P&L is solid? I think “yes”.

If you don’t insist on weekly inventories for food and beverage now, beginning this practice will deliver unanticipated success stories in just a few weeks. My promise to you.

Your job, as F&B Director, is to ensure that the inventories are reasonably accurate. This means that you must review the preliminary extended count (“Sam, are you sure it’s 10 cases of sardines – maybe it’s 10 cans?”) – this will take you ten minutes. And you must conduct a random spot-count of a few items with whoever actually recorded the count. Make sure they’re looking behind things, beneath things, etc. Good opportunity to spot-check receiving’s data procedures and execution of FIFO, at the same time.

OK. Simple, huh? It should be. Here are a few tips:

  1. Count on the same day each week. If you’re on a calendar year instead of 4-4-5 or 13 months, ignore it. Count every Friday. Or every Sunday. Doesn’t matter so long as it’s the same day. Now you can compare one inventory to the next in – I’m not making this up – less than 60 seconds, and get a meaningful result. (“Sam, we had $4,326 in seafood last week, this week it’s $14,112 – check it again.”) BTW, Sam thinks you’re pretty smart.
  2. Don’t count food-in-process every week. Count it a couple of times a year. Or quarterly. I’m talking about everything from sugar packets in open containers (or on tables) to opened partial containers of…(you name it).
  3. Use common sense. If you prepped a large event, and they’re eating filet mignon, and it’s pre-cooked and plated – you may have to count the steaks, at least.
  4. Remember that this is a management information control, not an accounting practice.

Combine this practice with a sophisticated software purchasing-receiving-costing software program like Adaco (www.Adaco.com) or Compeat (www.Compeat.com) for optimum COGS management. Those are my thoughts, what are yours?

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F&B Directors: the End of the Month is Too Late

You’re not going to like this. Not at all.

Why should you? After all, you’re executing every required procedure, submitting every required report, even meeting deadlines most of the time. A week or two after the month ends, you get a P&L and find out how you did. Sure, you already have an idea. Certainly you know the revenues for the month. Maybe even your purchases.

Then when you get your P&L you analyze the results, and plan how to make improvements. Good. Except – it’s too late.

The January P&L arrives February 10, you spend a week reviewing it, attending meetings, making plans, writing explanations, submitting reports. By March 1 you implement appropriate tweaks, changes.

But the time to react to January trends isn’t March. And it isn’t February.

It’s January.

Your controller shouldn’t have to tell you your results – you should tell your controller. Your GM should hear your results for the first time from you, not your controller.

 THE PATH TO F&B STARDOM

While I can’t describe the path exactly, I can assure you that the it has weekly milestones. That’s right: the path to success is guided by the dreaded weekly P&L.

In an earlier blog, “Are You Tracking That?” I talked about the plethora of data managers are bombarded with today, about how it’s overwhelming, how the best managers keep their own spreadsheet “on the side”, and how the best companies track a specific but limited number of items. So, here’s what your “spreadsheet on the side” should look like: weekly revenue, COGS, labor cost, other expenses, compared to budget. If your week ended Sunday, you should know the results by noon on Monday.

WALKING THE PATH TO STARDOM

Make no mistake about this. Initially you (or someone in your department) will have more work to do. Soon, however, the process will become systemic. You will not want to give it up.

There will be multiple data sources in a larger hotel, fewer in a smaller hotel. You may wish to split up the accountability.

Here’s how to track:

  • Start a spreadsheet – you may wish to have one tab for each week
  • Enter the budget once a month by first calculating a pro-rata weekly budget
  • Track by week with the week ending the same day the payroll week ends
  • If you’re on a calendar month (an unfortunate burden) you will have weeks that span two accounting periods – always use the new month’s budget figures, as most of the results will end up in the “next” P&L
  • Track the numbers DAILY for sales, covers, purchases, labor cost, labor hours, etc.
  • Conduct a weekly inventory of both food and beverage (a blog dedicated to this procedure – and how to make it easy – coming soon)

Here’s what to track

  • Sales – by outlet, by meal period; also for each, covers
  • COGS – food cost, beverage cost, A/V & Other costs
  • Labor costs – hourly wages, salaried wages, benefits costs
  • “Bonus” labor tracking: if possible, track labor hours. This results will allow two simple and revealing calculations: labor minutes per cover and sales per labor hour
  • Purchases of food and beverage
  • Ending inventory (yes, again, you should take weekly inventories – pay no attention to whether accounting wants or needs these figures)
  • Other expenses, supplies, etc.
  • You can – and should – enhance the weekly report with auto-calculated percentages, and a running total for the week (and for the month, if you wish)

Finally, remember above all else: this is not an accounting document, but a management information tool. Do this – your management effectiveness will increase exponentially.

Those are my thoughts, let me know yours.

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