Tag Archives: Menu Costing

Rule #1 of Liquor Controls – Know thy optimum pour cost (plus 10 more)

26 Feb

A post on LinkedIn.Com asks for advice on controlling liquor costs at a Country Club. There were a lot of good suggestions. The one thing that stands out is knowing what your overall, zero-waste pour cost is based on your purchase prices and sell prices. Call this the “Perfect World” PC (pour cost). Here’s the 1-2-3 on this angle:
1. Menu Costing for liquors. Keep an accurate PC on each item (Absolut, Jose Cuervo, etc.). Absolut costs you  $30 per bottle or $0.89 an ounce. You sell one ounce in an Absolut and Soda for $6 so your PC on Abs/Soda is 14.83%. An Absolut Martini requires 2 ounces of Absolut and is sold for $8 thus $1.78 divided by 8 is 22.2%. Your menu costing spreadsheet will give you a % for each item you sell. Now if you plug those percentages into a P-Mix spreadsheet (a spreadsheet listing item by item sales), you will get a Perfect World PC. This takes a lot of work to set up but is easy after the first few cycles.
Here are a few examples of why this is important. Bar Manager X comes from a local bar where the owners were happy with a 25% PC or lower. When he turns a 23%PC he gets excited. However the Perfect World PC for his bar is 16% and Bartender Y finds that out and shows the GM who promptly demotes Bar Manager X and promotes Bar Manager Y. PC drops from 23% to 20%. The GM is happy for a time, then after a few months starts grumbling about the extra 4% that is being wasted.

2. Proper Discounts and Comps Management. Let’s assume Bar Manager Y’s first problem is that he didn’t account correctly for discounts in his costing. Even A-list locations are doing discounts (Happy Hour) and comps (Groupons, coupons, etc.) in this economy. Often discrepancies are caused by this necessary nuisance. What affects liquor costs most are free drinks and % discounts. First of all, the comped drink, whether it’s for the owner or a good regular customer or ladies’ night, has to be rung up. Wasted drinks are recorded on a waste tab. Employees will often try to blur this line but they must be trained that every measure of bar products is recorded.

Two-for-one Happy Hour. In tracking this is easy (take 2 measures out of inventory instead of 1) but it’s a little trickier in menu costing. In my opinion, the following is the easiest way to convert Happy Hour to a Menu Costing.
Month of July, 2011
Absolut Cocktails (shot and mix). 278 units. 278 times 6 [$1,668.00] times14.83% [$247.36]
HH Absolut Cocktails. 79 units. 158 units times 3 [$474.00] times 29.66% [$140.59]
Set this up on an Excel spreadsheet and see what your real PC is for the month. You might find that some of your specials are untenable. Imagine having a 2-for-1 on Absolut Martinis; 44.4% PC anyone?
3. Portion Tracking. This is what BevInCo and other inventory control companies do; track weekly by units each of your liquors. This doesn’t supplant a dollar amount inventory per se but I do have a spreadsheet that also serves as inventory. Time-challenged bar managers can pick their top sellers and focus just on them or they can go all the way and track their inventories weekly unit by unit. The spreadsheet will tell you how many units you USED versus how many you SOLD. Discrepancies can be for over-pouring, not ringing up wasted or comped drinks, or straight theft. I can’t run an operation without portion tracking. It’s vitally important because it points you right to where your problem is. People don’t steal 2% or 4%, they steal bottles, shots, beers, etc. Back in the 80s everything was by percentage; that is, managers saw percentages as the final frontier of bar metrics at the time. Now with Excel spreadsheets and even more fancy software, we can track each unit of liquor we sell.
To conclude our Bar Manager Y fiction, Y realizes his Perfect World PC was 18% and, due to effective tracking, has cut down the PC to 19%. He devises a whole new round of purchasing techniques (a.k.a. case deals) to get that even lower.

Now that you’re set up to make money, don’t forget that these points are just as important:
4. Limited access to liquor. While a slow bar might fit all the merchandise up front, most bars need a locked liquor closet or room. A requisition sheet should be on a clipboard and must be enforced. Anything coming out of the closet must be noted and logged with the date. This is extremely important that your kitchen managers follow it, too. Bottles of wine, beer for the beer batter, and, if you’re like me and cook with Tequila, that all has to be accounted for on the req sheet.

5. Look at Daily P-Mixes. POS systems can spit out a lot of useful business metrics. The bar manager needs to look at the daily P-mixes on a, well, daily basis. When the bottle of Frida Kahlo Reposado Tequila takes a hit it should jump out at the astute bar manager, who consults his P-Mix for the recent days. Long story short; know what it is that you are selling.
6. Measure each pour. Everything should be measured. There was a little dispute between jiggers and control pourers (that measure 1 ounce). The most important thing is that the bartenders constantly see a frame of reference. When I was pouring 1,000+ drinks a night I used a jigger but did “abbreviate” my measuring when the waves of orders came in. Often I would toss the jigger down while I grabbed another bottle or a glass and finish the second half of the measure with a free pour. But since I used the jigger for each drink I had the frame of reference of seeing the correct pour over and over. On the other hand, I’ve seen bartenders using the control pourer and simply adding more liquor; a floater or drag pour. Optimum portion integrity is almost impossible without some good, old-fashioned supervision. I recommend using a jigger or a control pourer and giving warnings to bartenders who don’t use them or misuse them.

7. Cameras! Nowadays the cost of installing a camera system is less than it used to be. They are a pivotal tool in holding everyone accountable.

8. Recipe Standards. I almost forgot this one. Don’t assume everyone knows how to make a Rum Runner or Martini. The Bar Manager must see that there is a House Recipe for all major cocktails. These should be reviewed during bartender meetings and a notebook copy should be kept at each bar. These days you can compile one quickly by copying and pasting recipes off the Internet and tweaking them based on the products you have and your profit goals.

9. Pars/Inventory Management. A successor of mine has an average $4,000 more in liquor inventory in the store room than I did. While I took advantage of bulk buys to lower bottle prices, I still managed a lower inventory and that is a good thing. Too much in the store room is an added risk. Keep in mind your business’s owner will appreciate a little more money in the bank over stuff sitting on the shelves. Also, avoid buying turkeys like Espresso-Cherry-Peanut Butter Flavored Schnapps. You don’t owe it to anybody to buy their bad ideas.

10. Light Night Promotions, etc. Donna had mentioned this as a goal. I was tempted in my own restaurant to do late night promotions but a study of the area around me showed there really wasn’t a market for it. Live music on Friday and Saturday has kept the crowd a little longer but it’s still over by 11:30 pm. And always do a menu costing of the discounted promo items.
11. Labor. Don’t forget labor costs. Most bar managers have to do the schedule also. For some pointers on that, I have a blog post titled Principles of Scheduling. The idea is measuring how much each bartender can produce, looking at your hourly sales figures, and making a mathematically inspired decision to determine how many people you need on hand per hour.

That’s my bar manager guidebook I guess. Good luck.

Checklist for Planning a Menu

26 Feb

Here’s a list of considerations to review for each dish as they come up for evaluation at that critical point when it’s time to evolve the menu. So often managers forget to do one or more of these diligences when they are redesigning their menu. The menu is the key tool in driving sales and profits.

1) Menu Costing.
Any item that is being evaluated for either continuing, removing, replacing, or – in the case of new items – adding, a costing needs to be performed. This will help clarify the recipe and whether the item is economically viable.
2) Price Points.
Considering what the customer is willing to pay is integral to any successful food service business. Ask how each item will serve the public and how feasible it is to meet THEIR price point.
3) Ingredient Consolidation.
One of the most common errors in menu planning is the one-ingredient one-dish dilemma. Your sales are great but you’re constantly in danger of serving up some slimy ingredients because several of your slow movers have the one-dish problem. Your sales goals might be getting met but you have to deal with an irate customer three times a month because they bit into something rancid. Make sure your ingredients are used enough and in enough dishes.
4) POS Report on item sales.
Discontinuing or keeping a dish should never be determined emotionally. It is a question of numbers. Items that are lagging way behind in sales are best discontinued in favor of items that have a reasonable chance to sell. The objective is to drive sales higher by eliminating frogs and replacing them with potential princes.
5) Logistics.
Dishes that involve multiple steps to prepare better be driving sales higher. Difficult-to-produce items have to sell better than easier items to prepare. If it’s a pain in the butt and doesn’t pay a salary, kill it. The inverse is that if a plate is easy to produce and guaranteed popular, throw it onto the menu already.
6) Is this item a good idea?
What is our purpose with this item? What customer profile type is going to order this item? In short, this is the consideration of the public awareness of your brand. Included in this consideration is how one is going to sell the dish on the menu. Does it have a marketing hook?

Last, I’ve always found limiting the printed menu as a good idea while saving dishes with uncertain sales futures as frequent guests on the Specials Board. Specials are a good way of letting the clientele base know what kind of creative energy you have behind your brand.

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
TOTAL——$10.62—-$32.00
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%
TOTAL——$10.62—-$31.20–34.0%
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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