Cost Control in Foodservice Operations Foodservice Operations: The Essentials Series

Control operating costs and move your foodservice business forward

The key to a foodservice business surviving and thriving is to properly understand the relationship between revenue, expenses, and profits. Controlling operating costs?that is, controlling expenses without reducing revenue?is a key tool in creating a profitable business. Owners, managers, and staff all play an essential role in controlling operating costs, and it?s critical for every member of a foodservice team to understand how to be successful.

Cost Control in Foodservice Operations outlines key mechanisms and tools in a clear, accessible presentation. Emphasizing the importance of the subject before moving to specific methods for managing and reducing costs, it?s an indispensable tool for anyone in the foodservice industry looking to gain a competitive edge.

The book also includes:

• A thorough introduction to controlling food and beverage product costs
• Detailed coverage of effective cost management methods including creating a sales forecast, controlling labor costs, pricing menu items, and more
• Advice based on the authors? decades of combined experience in both foodservice business and education/research

Cost Control in Foodservice Operations is ideal for students in foodservice-related courses, as well as professionals and owners looking to take their business to the next level.

Preface ix

Book Features xi

Instructional Resources xiii

Acknowledgments xv

Dedication xvii

1 Cost Control in Foodservice Operations 1

The Importance of Cost Control 2

The Foodservice Profit Formula 3

The Uniform System of Accounts for Restaurants (USAR) 4

The Process of Effective Cost Control 6

Responsibility for Cost Control 8

Owner’s Responsibilities 9

Manager’s Responsibilities 9

Production Staff Responsibilities 10

Service Staff Responsibilities 10

Essential Cost Control Tools 11

The Operating Budget 12

Standardized Recipes 16

The Income Statement 18

Sales (Revenue) 19

Total Cost of Sales 21

Labor 22

Prime Cost 23

Other Controllable Expenses 24

Non-Controllable Expenses 25

Income Before Income Taxes (Profit) 26

2 Sales Forecasts 31

The Importance of Accurate Sales Forecasts 32

Sales Histories 34

Fixed Averages 37

Rolling Averages 38

Average Sale Per Guest 40

Sales Variance 44

Sales Forecasts 47

Forecasting Future Sales 47

Forecasting Future Guest Counts 49

Forecasting Future Average Sale Per Guest 51

3 Cost Control in Purchasing 56

The Importance of Controlling Costs in Purchasing 57

Objectives of Professional Purchasing 57

Steps in the Professional Purchasing Process 57

Determining Needed Products 60

Determining Needed Product Quantities 64

Forecasting Menu Item Sales 65

Establishing Inventory Levels 67

Placing the Purchase Order 71

Choosing Suppliers 72

Understanding Suppliers 73

Recording Purchases 75

4 Cost Control in Receiving 80

The Importance of Controlling Receiving Costs 81

Receiving Essentials 83

Proper Location 83

Proper Tools and Equipment 84

Proper Delivery Schedules 85

Key Areas of Product Verification 86

Weight 86

Quantity 87

Quality 90

Price 93

Receiving Records 95

Supplier-Produced Delivery Records 96

5 Cost Control in Storage and Issuing 103

The Importance of Cost Control in Storage and Issuing 104

Storage Essentials 105

Quality Concerns 105

Security Concerns 111

Valuing Product Inventories 112

Issuing and Restocking Product Inventories 116

Issuing 117

ABC Inventory Control 120

Restocking Product Inventories 122

6 Cost Control in Food and Beverage Production 128

The Importance of Cost Control During Production 129

Managing Costs in Food Production 129

Managing Costs in Beverage Production 134

Controlling Cost Through Standardized Recipes 135

Adjusting Standardized Recipe Yields 136

Costing Standardized Recipes 140

Calculating Actual Cost of Sales 145

Calculating Actual Cost of Food Sold 145

Calculating Actual Cost of Beverage Sold 149

Calculating Actual Cost of Sales with Transfers 150

7 Cost Control in Food and Beverage Service 156

The Importance of Cost Control in Food and Beverage Service 157

Challenges in Professional Service Delivery 159

The Guest’s View of Quality Service 162

The Operator’s View of Quality Service 167

Controlling Service Costs 169

Controlling Indoor Dining Service Costs 170

Controlling Outdoor Dining Service Costs 170

Controlling Drive-thru Delivery Service Costs 171

Controlling Guest Pick-up Service Costs 172

Controlling Operator Direct Delivery Service Costs 173

Controlling Third-party Delivery Service Costs 174

Managing Service Recovery and Recovery Costs 178

On-Premises Service Recovery 179

Off-Premises Service Recovery 180

8 Labor Cost Control 185

The Importance of Labor Cost Controls 186

Total Labor Costs 186

Factors Affecting Total Labor Costs 188

Managing and Controlling Total Labor Costs 194

Types of Labor Costs 194

Controlling Total Labor Costs 195

Assessment of Total Labor Costs 199

Sales per Labor Hour 200

Labor Dollars per Guest Served 202

Labor Cost Percentage 203

9 Control of Other Operating Expenses 211

The Importance of Controlling Other Operating Expenses 212

Controllable and Non-controllable Other Expenses 213

Fixed, Variable, and Mixed Other Expenses 216

Monitoring and Controlling Other Expenses 217

Food and Beverage Operations 217

Equipment Maintenance and Repair 219

Technology-related Costs 222

Occupancy Costs 227

Calculating Other Expense Costs 227

Other Expense Cost Percentage 228

Other Expense Cost Per-guest 228

10 Profitable Pricing 233

Pricing for Profits 234

The Importance of Price 235

The Operator’s View of Price 235

The Guest’s View of Price 236

Factors Affecting Menu Pricing 238

Economic Conditions 239

Local Competition 239

Level of Service 240

Type of Guest 240

Product Quality 241

Unique Alternatives 242

Portion Size 242

Delivery Method 243

Meal Period 244

Location 244

Bundling 245

Methods of Food and Beverage Pricing 246

Cost-based Pricing 247

Contribution Margin-based Pricing 250

Evaluation of Pricing Efforts 252

Menu Engineering 252

Menu Modifications 256

11 Cash and Revenue Control 260

The Importance of Revenue Control 261

External Threats to Revenue Security 262

Internal Threats to Revenue Security 263

Developing a Revenue Security Program 268

Objectives of Internal Revenue Control Systems 268

Elements of Internal Revenue Control Systems 270

Implementing and Monitoring a Revenue Security Program 272

Verification of Receivable Revenue 273

Verification of Guest Charges 275

Verification of Sales Receipts 275

Verification of Sales Deposits 276

Verification of Accounts Payable (AP) 278

12 Budgeting and Analyzing Operating Results 282

The Importance of Operating Budgets 283

Types of Operating Budgets 283

Advantages of Operating Budgets 284

Creating an Operating Budget 285

Revenue Forecasts 288

Expense Forecasts 290

Monitoring the Operating Budget 295

Comparing Planned Results to Actual Results 297

Modifying the Operating Budget 307

Glossary G-1

Index I-1

David K. Hayes, PhD, has taught hospitality courses at Purdue University, Texas Tech University, The University of Houston, and Lansing Community College. He has served as the Vice President of Broadcast and Video Training for the American Hotel & Lodging Educational Institute.

Jack D. Ninemeier, PhD, is an Emeritus Professor in the School of Hospitality Business at Michigan State University. He has many years’ experience developing and providing training and resource materials for commercial and non-commercial foodservice operations. He has also written several hundred articles for trade journals and created training monographs.

Part of Wiley’s Foodservice Operations: The Essentials series.