Posts Tagged ‘ F&B Accounting

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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Are You Tracking That?

Tracking what, exactly? Well, everything, apparently.

Just what are the trends in F&B number analysis? We have so many tools today – it’s great. At the risk of dating myself, I remember the day our regional F&B Director rushed into my office and announced that he had this new “miracle” tool, VisiCalc, and “wait until you see what can be done with it”. That was 25 years ago. Here’s how things have evolved, for some hotel and restaurant chains:

  • We have more information then ever before. It’s a digital world. We have Business Intelligence Systems. We have Dashboards. We have Enterprise Programs to look at POS in real time. We have labor systems and can view labor in real time. Purchasing systems – need to know how many bottles of tobacco you bought last week? Yesterday? No problem. And of course, we have spreadsheets.
  • What is the job today? Reports. To corporate. Now. “More information than ever before” has led to “more reporting than ever before”. And, thanks to Excel, Adobe, Power Point and others, we can make some pretty spiffy reports.
  • Since we have all of this incredible information there are some silly practices from “long ago” that are really not needed any more – and for many, basic practices such as taking inventories and forecasting covers by meal period are among the data casualties.
  • And how helpful are the reports? Maybe this is a hint: I have yet to meet a unit manager, hotel or restaurant, who didn’t keep his or her own spreadsheet with their own collection of goals and trends, and use that spreadsheet to manage.

“To manage”? That’s right. They find they can’t manage with 100 data points to look at, but they can do a hell of a job looking at the ten most critical data points, especially if they look at them every day.

Let’s digress: how many restaurant companies have won the coveted Malcolm Baldridge National Quality Award (www.baldrige.nist.gov)? The answer is one: Pal’s Sudden Service (www.palsweb.com), a small drive-through hot dog chain with no indoor seating, but with business practices and results beyond what most of us have imagined possible. And Pal’s shares its methodologies through its Pal’s Business Excellence Institute (www.palsbei.com) – I’ve taken 3 courses there, and recommend it to anyone pursuing excellence in business practice.

Why I mention this – Pal’s tracks 10 pieces of information. Not 11. Not 100. Just 10. Pal’s managers and corporate track the same thing.

In fact, the fourth (of seven) category of criteria for Baldridge is: Measurement, Analysis, and Knowledge Management. A paper about the Award and about Pal’s published for the International Journal of Quality and Productivity Management (Vol.5, No.1, December 15, 2005) explains:

It is difficult, if not impossible, to manage an activity that cannot be measured in some way. Often, managers want to obtain as much data and information as possible regardless of its usefulness. Many incorrectly believe that more data lead to a more informed decision. This is usually not the case. Only relevant data should be kept and measured, and key performance measures should be acted upon.

The successful managers I’ve observed, at the unit level, get this.

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