Chapter 18 - Control of Food Costs

Development of food cost control systems | Advantages and disadvantages of various food cost control systems | Seventy-five basic causes of high costs | Reasons for restaurant failures | Problems of food cost

Food accounting systems represent methods of accounting for food costs and not control of food costs. Accounting systems aid in scien­tifically fixing prices and in pointing out areas of high costs. These functions ought not to be confused with detailed procedures to control costs.

Not so long ago operators were taking their total purchases for the month and dividing by sales to find food cost percentage. Drawbacks to this were:

(1) The operator never knew until the end of the month whether his costs were too high—then it was too late.

(2) The food cost thus obtained was a blanket percentage. It indi­cated whether costs had risen or fallen in terms of relative sales, but did not tell what action could be taken to reduce costs. All foods—meats, fish, fruits, vegetables, poultry, etc.—were lumped together. If food costs were high the operator did not know what to do; if food costs were low he did not know why.

The next development was to get cost information daily. To sepa­rate food purchases in terms of time used a daily purchase journal was devised. This classified food into food direct and store issues. The daily food cost, therefore, was the cost of the food that went directly to the kitchen from the purveyor plus the cost of food issued to the kitchen from the storeroom.

Under this system the owner or manager knew food cost the next day. He was thus warned when yesterday's food cost was high, but the system still did not tell him where or why it was high.

The next and logical step was to set up a daily cost system in terms of commodity groupings. Purchases were separated into meats, fish, poultry, fruits, vegetables, dairy products and groceries. At the end of any one day, therefore, the owner knew his total food cost, the blanket percentage, and also the detailed cost of each commodity grouping. This was obviously much better than the blanket percentage methods, but brought on new problems.

First, in any one commodity group the cost rose or fell, depending on current prices and seasons. Second, the price of any one item within the commodity group could change while other items stayed fixed. Third, as relative sales of the group or any items increased or de­creased, the costs rose or fell proportionately.

Portion Costing Complete Dishes

What was needed, then, was a method for relating costs of items to sales of items. The first development along this line was costing and pricing complete dishes in terms of portion cost.

The cost of roast beef per portion is determined by dividing the total cost by the number of portions prepared after cooking, trimming, shrinkage, and bone losses have been deducted. The total cost of potatoes is divided by the number of prepared portions in the same manner. If the costs of a portion of roast beef and potatoes are 30 and 5 cents respectively, the total cost is multiplied by 2Vi, or whatever figure will give the desired food cost percentage, to obtain the selling price.

Unfortunately, if this is as far as the operator goes with his analysis, the resulting figures are meaningless. True, at least some semblance of order has been achieved in terms of daily costs and portion pricing, but there is no record of individual item sales—without which the cost figures are not accurate.

To illustrate, if a 20 lb. round of beef is purchased at 60^ per pound, the total cost of the beef is $12. If shrinkage and trimming loss is 25 per cent, 15 lb. of roast beef remain. Cost then becomes 80 cents per pound. If portion size is 8 oz., the prepared cost per portion ac­cording to this system is 40 cents, and the selling price for a 40 per cent food cost would be $1.

Note, however, that a $1 selling price assumes sale of the entire 15 lb. of beef, or 30 portions. If instead only 22 portions are sold and no use is made of leftovers, the food cost percentage of the beef is 54 per cent instead of 40 per cent.

Some operators say that this type of problem can be avoided by adjusting the multiplier. That is if a 40 percent food cost is desired, multiply the food cost by 2.7 or 3 to fix selling price, instead of multi­plying by 2.5.

Avoid Pricing out of the Market

The two chief arguments against this line of thinking are (1) the operator will price himself out of the market, and (2) by adjusting the multiplier, the cost of poor management is being passed on to the customer. If competitors are selling the same roast beef item for $1 and another operator is attempting to get $1.20, sooner or later the latter won't be selling any roast beef. The customer is interested in ob­taining good quality food at low prices. He is not interested in paying for the operation's leftovers. It is up to management to adjust the de­mand for a product with the production by an adequate system of sales analysis. This analysis can be and is made by analyzing waiter or waitress checks, food checker sheets, etc.

This brings us to the second major development of totaling costs and sales of menu items, the Horwath and Horwath system of food cost control. The system is based on relating the sales and cost of each ingredient on the menu.

The authors state that in its practical application the primary pur­pose of food control is not to reveal the exact cost of a ham and egg sandwich or a Virginia ham dish, but to apply that portion of the selling price represented by an ingredient with the cost of the ingre­dient to determine the return on each.

To illustrate, if an operator wishes to find out the cost of ham and egg sandwiches sold, he would have to determine the quantity of the ham, eggs, and bread used for the sandwich each day, then calculate the cost of each ingredient. After individual costs of all ingredients and beverages have been computed, total costs are determined.

Following the same procedure for all menu items, the total returns for ham, eggs, vegetables, potatoes, etc., can be determined and the cost of each ingredient easily calculated by consumption figures. The system is fairly complicated but readily understood with study. The Horwath and Horwath book of Hotel Accounting goes into consider­able detail on the system. The following summary offers a brief ac­quaintance with their method of control:

1.  All ingredients are first divided according to the departments where they are prepared.

2. The ingredients are then placed in logical groups within each department.

3. Departments included in the Horwath and Horwath system are kitchen, pantry, pastry shop, bakery shop, ice cream shop, and dining room butler.

4. The total costs and sales are then subdivided into these six divisions in the cost and sales records.

5.  Costs are summarized on a distribution sheet for daily food costs. The details of the costs are taken from department requisition forms which show cost of each item and total cost of all items. These totals are checked and totaled for all departments, and the direct food cost to the departments is verified from receiving records. Costs are then summarized on the cost distribution sheet.

6.  Sales are summarized on the sales distribution sheet. Sales are first analyzed on the basis of waiters' checks, with the number of portions of each dish sold, counted and inserted on the sales distribution sheet. Total sales of dishes (number of dishes multiplied by selling price) is then calculated and entered. Sales are next distributed to proper ingredient items, and the net sales transferred to the next col­umn, totaled by groups, then departments. Finally, total is compared with cashier's sales report.

The figures for costs and sales for the day are transferrred to the daily report and summary where they are compared with costs and sales for the month to date and trends noted.

Control Costs in Advance

The last food control system to be described here is that of Harris, Kerr, Forster & Company. Up to this point we have been discussing control food costs after the costs have been incurred. That is, we have set up a series of cost control measures that are based on an analysis of costs in the past. We study our costs in the past, find out why these costs have gone up or down, then install correct procedures, tech­niques, and methods to reduce costs.

Harris, Kerr, Forster & Company noted that all operations must prepare menus at least two or three days ahead. Since the menu is known in advance, why not figure out how many portions of each item are probably going to be sold, and how much it is going to cost? This method gives estimated costs and profits two or three days ahead of time to permit control of costs and therefore of profits before and not after the food is sold.

This system, therefore, is divided into two major categories: a forecast of estimated sales and a forecast of estimated costs.

To forecast estimated sales, forms are set up to permanently record:

1.  The volume of business at breakfast, lunch and dinner.

2.  Number of portions sold of table d'hote, specials, and a la carte items.

3.  The date, day, weather, house count, special events, and num­ber of patrons.

4.  The ratio of each entree sale to total sales.

From these records and others, days and periods of good volume, customer likes and dislikes, and the popularity index of each food item are computed. The usual procedure after this information is gathered is to begin eliminating less popular items, then forecasting estimated sales of menu items two or three days ahead.

To precontrol food costs:

1.  Standard purchase specifications are set up, giving definite grades, sizes, weights, quality, numbers, etc., of each item on the menu.

2.  Standard recipes are set up for each menu item.

3.  Standard cookery and processing procedures are set up.

4.  Standard portion sizes are fixed.

5. Standard portion-cost factors are determined by dividing the original purchase price per pound (or other appropriate measure) into the cost per saleable pound.

The cost factor is used to precost the menu. Current market prices are multiplied by the cost factor per pound per portion to precost the menu.

Daily Comparison

A menu precost and the forecast of sales is made up the day before and this is compared with the actual costs and sales the next day. If all of management's decisions regarding purchasing, processing and serv­ing are carried out, there should be very little discrepancy between the forecast and actual costs, and the discrepancy can be measured.

A more detailed account of this system can be found in Profitable Food and Beverage Operation, edited by Joseph Brodner, Howard M. Carlson and Harry T. Maschal of Harris, Kerr, Forster & Co.

Seventy-five Basic Causes of High Food Cost

In the first section of this text are four basic causes of failure in the restaurant industry. At the head of this list is lack of knowledge re­garding food. Evidently the food service industry is the only field that the general public believes can be entered with little or no training. A study by the United States Department of Commerce of new stores established since 1942 showed that relatively few operators had even attempted to analyze whether an opportunity to succeed was present.

Walk up and down any business street of any city in the United States. You will find one restaurant for about every 750 persons. People seem to think that because they can cook at home they can cook for the public, that because they like to meet people or under­stand bookkeeping they can succeed in the difficult job of restaurant management. As long as the public believes that a person can open a restaurant without a thorough knowledge of menu preparation, food purchasing, receiving, storing, issuing, preparing, serving, and selling, without understanding people and business, and unaware of the com­plex changing environment, that long will the restaurant industry have this high a percentage of failures.

The restaurant business is very hazardous, not only because of its extraordinary complexity, but also because of the differences that exist between it and other retail operations. The chief difference be­tween the goods sold in other industries and goods sold in the restau­rant industry is that the product sold is food, and food is perishable. This difference accounts for the majority of failures.

A dress manufacturer, for example, may have problems regarding changing styles—hemlines go down an inch one year and up 3 inches next year; public tastes and opinions change and the product that was in style a season ago is not in style now.

However, tastes and fashions in other fields change with compara­tive slowness. The food industry, on the other hand, must change menu items daily. The public demands fresh, high quality food every day of the year.

Notice also that whereas in other industries the main problem is inventory control—relating size of inventory with demand for goods— the food service operator not only must worry about the size of his food inventory and the fact that potatoes will rot, lettuce will wilt, milk will sour, and cheese and butter turn rancid; he also must worry about the fact that once he processes the raw material he must sell it imme­diately or try to use it as leftovers tomorrow. Once prospective food service operators realize that the product they serve is perishable in its raw state and perishable in its processed state, they can begin to under­stand why so many operators fail.

The problem of food and food cost has many dimensions. The successful operator must consider in detail every aspect of food from the time it leaves the purveyor until it reaches the customer. No detail can be omitted.

Listed below are seventy-five basic causes of high food costs. The list is an organized digest of replies given by the successful operators who were questioned during management study interviews. Although some of the reasons enumerated will not apply to all restaurants because of the operating differences that exist among the various type food service operations in the industry, the condensed summary will provide a valuable checklist for individual management use.

Major Area                             Causes of High Food Cost

Menu Planning	1.  No consideration of the time of day, day of week, holidays, weather, temperature 2. Poor format—the menu is not clean, understandable, or dramatic 3.  Too many or too few items on the menu 4.  Monotonous menu 5.  No balance between high and low cost items for higher average check 6.  Poor promotion of low cost items 7.  No consideration of food supplies available on the market 8.  No thought to the appearance and conjunction of the food on the plate 9.  Poor pricing of menu items 10. No consideration of type and amount of labor re­quired for various menu items 11. No consideration of type and amount of equipment needed to process the menu items
Purchasing	12. Purchasing too much 13. Purchasing for too high a cost 14. No detailed set of specifications governing quality, weights, types, etc. 15. No competitive purchasing policy 16. No centralization of purchasing power and responsi­bility 17. Poor relationship with purveyors 18. No cost budget for purchasing 19. No audit of invoices and payments 20. Use of fixed instead of flexible standing orders 21. Speculative purchasing 22. Graft between purchasing agent and purveyors 23. Theft by receiving man

Receiving	24. No check on prices, quality, or quantity 25. No system of obtaining credit for damaged goods or goods not received 26. No checks on receiving methods and procedures 27. Lack of facilities such as scales 28. Poor receiving equipment 29. No record and subsequent check on goods received 30. Perishable foods left out too long before storing
Storing	31. Food placed improperly in storage areas (e.g., fats, eggs, and milk near strong cheese and fish) 32. Stored at wrong temperatures and humidity 33. No daily inspection of foods stored 34. Poor sanitation in dry and refrigerated storage areas 35. Theft in storeroom 36. No periodic report of dead stock or record of inven­tory turnover 37. No physical or perpetual inventory 38. No policy of one man's responsibility for food stor­age and issues
Issuing	39. No control or record of foods issued from storeroom 40. No authority or responsibility for requisitions and issues 41. Careless pricing of issues 42. No forced issues
Preparing	43. Poor or no mechanical equipment for boning, slicing, cutting, carving, trimming, and peeling 44. Excessive trim of vegetables and meats 45. No check on raw yields 46. No use of end products for production of low cost meals
Processing	47. Over production 48. Using wrong methods of cooking 49. Cooking at wrong temperature 50. Cooking too long

	51. Faulty scheduling of food to be processed (too early—too late) 52. No use of standard recipes 53. Faulty and/or dirty equipment 54. Not cooking in small batches when possible
Service	55. No standard portion sizes 56. No standard size utensils for serving 57. No care of leftovers 58. No record of food served or leaving the kitchen 59. Delay in bringing food to the customer 60. Carelessness (spillage, waste, etc.)
Sales	61. Waitress theft 62. Cashier theft 63. Carelessness with "walk-outs" 64. No food popularity index or comparison of sales and inventory consumption 65. No sales records to detect trends 66. Unattractive food, poorly served in a dirty atmos­phere 67. Poor promotion and advertising (internal and ex­ternal)
Controls	68. No audit of daily sales (register readings, waiters checks, food checker reports) 69. No forecast of sales or cost budget 70. No record of price trends (best times to buy) 71. No checks on authority and responsibility of per­sonnel 72. No control through the use of forms 73. No use of systematic procedures and policies for control purposes 74. No accounting for employee and officer meals 75. No control of facts

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