Restaurant Management Tips:
Increasing Food Costs
One of the most misleading ratios used in restaurants today is the food cost percentage. Yet, it is often used as a measure of the operation's efficiency and productivity. At the end of the year, however, you don't take your luxury vacation
based on the food cost percentage. You take it based on the amount of satisfaction you gave your guests! That may have absolutely NOTHING to do with the food cost. In fact, controlling your food cost - to the exclusion of other considerations - can actually cost you
money. There are some great profits hidden in the food cost percentage. Let's go get them!
I am speaking from personal experience! I set a food cost percentage of 35% for my restaurant in New Jersey. Each menu item was priced to reflect that percentage. Unfortunately, life just doesn't work like that. At breakfast, for example, my
ham cost much more than my bacon did. In order to keep my food cost percentages in line, I had to cut the ham so thin you could read a newspaper through it! I created MASSIVE customer dissatisfaction.
Okay, so you are smarter than I am. You use an average food cost percentage that takes into account all the various menu items. Well, that makes more sense, but it is still the wrong concept. Even worse, it may cause you to overlook some
hidden money. Here is why.
Suppose you have a menu where steak sells for $15, and costs you $5 to make. This is a 33% food cost. You also have a chicken dish that sells for $10 and costs $3 to make. This is only a 30% food cost. But, which one would you rather sell?
The steak, which has a higher cost percentage, also has a higher contribution margin! Every time you sell a steak, you make $10. Every time you sell a chicken, you only make $7. Which would you rather make?
The average person only has one entrée, so you want to maximize the potential each time they dine with you. You do not want to MINIMIZE the potential by selling the items that meet your food cost percentage.
Consider this philosophy. You want to control costs, of course. But you want to control them in such a way that they make your guests happy! The question you should ask yourself is, "How much will it cost me to meet my guests'
expectations?" You are still controlling costs, but this subtle difference in philosophy can make a HUGE difference in the bottom line.
Now, consider the other end of the food cost percentage equation - the price. Could you change the prices, either directly or indirectly, and sell more of the big contributors? You know how to directly affect the price. You can lower the cost
of the steak, or raise the price of the chicken. Either way, the customer may be more tempted to buy the steak. They could think, "Well, it is only a dollar more for the steak. That is what I really want." If you accomplish this by raising the price of the chicken, you win either way!
Indirectly, you can change the price by offering a special that combines several menu items, such as appetizer, entrée, and dessert. Present them to your customers at a special package price. This will increase the food cost percentage, but
it may also increase the average contribution margin, because the customer actually spends more than he might have if everything was a la carte. It also has the potential to increase guest satisfaction by creating a mealtime "experience" for your guest.
Spend as much as you need to spend in order to create satisfied customers, great menus and big profits. Go ahead, that money is waiting for you. Uncover it!
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