Food Cost Fallacies and their costs

26 Feb

My organization redid their menu 2 months ago without doing a menu costing. It is my understanding that it has been a year or more since a menu costing was done. I found one set of menu costing files on the computer that was either old or erroneous from the start. Two crabcakes with garnish for $2.56? When was that? 1986?

So I sat down surrounded by a month’s worth of invoices and calculated each ounce of protein, garnish, dressing, etc. What I found was a wide range; spinach dip was 9% while Seafood Platter was 40%. The award winner was the add Mahi to your salad cost, 62%! Luckily the salad cost is 10%, but that’s a blend of 36%, way too high. Our goal is a true overall blend of 25% food cost.
And that’s not gonna happen. You see, if everything were equal, being the same price, the menu came in at a blend of 23%. However, there is no way you’ll ever see 23% food cost. Reasons?
1. Spinach Dip is $8, Seafood Platter is $24. You would have to sell 3 times as many spinach dips as seafood platters to offset that 40% cost, bringing it down to 25%. But, no, the SP sells about the same as the SD. SO you’re true blend is:
Spinach Dip —$0.91 —-$8.00
Seafood Plttr–$9.71—–$24.00
Ok, so your combined cost is 33.2%.
2. It gets worse. We mis-stated the true price of the spinach dip. While appetizers are in the 10-20% food cost range, we have a Happy Hour from 3 to 7 Monday-Friday when they’re 30% off. Approximately one THIRD of all apps are sold during that time. Take $8 and $8 and add it to $5.60, then divide by three. Answer; 21.60 divided by 3 = $7.20 true price of a spinach dip. [Note that the POS system rings up the 30% off price rather than backing it out as a discount.]
Thus we now have:
$10.62 divided by $31.20, a new blend of 34.0%. OK, that didn’t kill us, but you can see how the sales mix affects our food cost.
3. Without going into too much detail, the register’s P-mix (sales mix) shows that a lot of these high food cost items are in the top sellers. That shouldn’t surprise menu planners as the highest cost items are the most expensive; it takes two burgers to equal a Seafood Platter sale.
Food cost tracking. It is imperative that you know the food cost of each item on your menu, update it regularly (every 3 months at least), and that you plug in those numbers to give you your planned food cost. The goal of the kitchen manager is to get as close to that figure as possible. Each month do a spreadsheet of what you sold, item by item, multiplying it by the food cost (cost of goods) to get your true food cost. Do this when you calculate your inventory at month’s end. For example, you find your food cost should be 28.6%, but due to waste and other factors your food cost runs 30.2%. The difference – 1.6% – is your waste percentage. A kitchen manager’s bonus or lack thereof should depend on it. [Note to owners and admin folks: Never let kitchen managers do inventory unsupervised! Have your accountant or your mother-in-law double check their counting.]

Summary of food cost fallacies:
Lazy assumptions or “ballparking”. Baseball managers don’t use that logic and neither should a kitchen manager.
My $8 10%COG appetizer is going to offset my $24 40%COG dinner. Nope. You’d have to sell 3-to-one to get to a 25% blend. Then you’d still see your bottom line shrink when, oops, the waitress meant to order a Seafood Salad.
Wishful thinking. I know you feel you’re going to find that breakthrough price reduction to “make everything work out” in your P+L but that’s wrong. Be realistic.
Consider every angle. Many good ideas, mine too, have been found wanting because I and other managers failed to take something into consideration, usually an overlooked cost. My article on saving money with ketchup was a good example. Before making a change that will affect your costs and your staff’s mental health, ask yourself, what might the unintended consequences be.

No problems. Only solutions.
It can be a hair-raising experience for a kitchen manager to realize after a menu costing has been entered into the P-mix to find his goal of 25% is an impossible dream. The first positive point is that he now knows what his true best target is. The first part of getting well is knowing how sick one is in the first place. You’d be surprised how many managers have lost their jobs because they couldn’t attain food costs that no one in the organization knew were impossible! Once the cat is out of the bag, you can get to work.

Clearly the goal is to be able to blend the higher cost items with the lower cost ones to attain a 25% food cost. In order to do that with our Spin Dip/Seafood Platter axis, we’ll have to bring down the cost of the platter/spin dip 9%. [Note: I’m using these two examples because together they show the cost dynamic of the whole menu.]

Spinach Dip —$0.91 —-$7.20–12.6%
Seafood Plttr–$9.71—–$24.00–40%
9% represents $3.06 that we need to cut from the cost of these two dishes. Since the dip costs 91 cents in all, I suggest cutting something on the Seafood Platter. The SP consists of a 7 ounce Mahi fillet ($4.33), a 3 ounce crab cake ($1.57), 4 shrimp ($1.94), 4 scallops ($0.88), rice and veggies ($0.75), sauce/lemon/parsley-paprika garnish ($0.24). Be careful about taking something off the plate. My first thought was to take off the Mahi or drastically reduce that while stealing a shrimp and a scallop away. Be careful. The customer may have a negative response, usually by taking 100% of their money elsewhere. I think the popularity of the dish is in its value and variety. Thus, I hesitate to take anything off of the plate. So here’s what I recommend and why…
The fresh Mahi is too expensive for our price range. Recently we went to fresh fish. The previous chef was buying frozen, pre-portioned Mahi, Tilapia, Salmon, and Grouper. The response to the Grouper and Tilapia were very negative while the Salmon and Mahi got almost no complaints. Grouper was the most returned item. But Mahi freezes well. The price for IQF frozen Mahi portions is currently $6.26 per lb. “Planks” or filleted Mahi frozen with the skin on is $4.99. With the yield on fresh Mahi, we are paying $9.90 per lb. I recommend we use the plank Mahi, cut them into 5 oz portions to reduce the Mahi cost to $1.56 on the Seafood Platter plate. That reduces our cost $2.76, which brings us only 30 cents away from our goal by only taking 2 ounces of fish off the plate. If the fillet is cut correctly, butterflying it to cook faster and cover more area, the change is nearly invisible to the customer. Reducing the shrimp and scallops by one each saves $0.70 or $0.48 for one shrimp and $0.22 for one scallop. You have 40 cents to work towards increasing the rice and vegetable portions to make the seafood stand out more on the plate [Note: By this I mean, using the fillers to raise the crabcake, Mahi, and shellfish higher on the plate. When the center plate items are closer to the customers eyes, even if it’s an inch or two, they look much bigger. We’ve been getting compliments for increasing portions while in many cases we’ve done the opposite. In the Fish and Chips, for example, we stack the fish on the fries, making it look like more. Think vertically…]

So I recommend going with a reduced price Mahi portion at 5 ounces, reducing by one shrimp and one scallop, and beefing up the accompaniments by 3 ounces to make up the weight differential. So our $9.71 albatross is now a manageable $6.25!

The new cost is a cool 26%. Can you do any better? Yes!
Mahi is a commodity fish harvested in November and December. You can sign a deal with your purveyor (for this I prefer Cheney Brothers if you’re in Florida) in November to purchase your yearly allotment from them. They will hold the winter commodity price all year long. That’s a range of $3 to $4 per lb. You can sell that all day long.
Update: One last point here. Using a “blend” of costs to reach your goal is really a last resort. Notice how we brought the cost of the Seafood Platter in line with our 25% goal for EACH item. That won’t be as easy with the Prime Ribs, the Babyback Ribs, and other high-cost dishes. In the event it’s just going to be a high-cost item, I recommend taking it off the menu if it isn’t helping drive sales. 

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