The key to a successful restaurant, as anyone could probably tell you is good food, excellent service, and a great location. These factors contribute to high sales numbers. However, restaurants operate on tight margins. The sale of your restaurants must be enough to cover all your other expenses, plus generate a decent profit. Thus arises a need for Food and Beverage Control in restaurants. Learn how to control your overall restaurant costs here.
Even a slight imbalance in food serving could lead to a severe dip in your margins. Thus it is necessary that you keep your costs in check to gain a reasonable profit.
Sales = Cost of Sales + Cost of Labor + Cost of Overhead Expenses+ Profit
which essentially means,
Profit= Sales – Cost of Sales – Cost of Labor – Cost of Overhead Expenses
According to this formula increasing sales is not the only way to increase profits. You can increase your profit margin by decreasing your costs as well, especially your food and beverage costs. That is where Food and Beverage Control comes into play. To understand how to control your restaurant expenses, you must first know what control in food and beverage costs is.
Food and beverage control essentially means controlling the behavior of the people and the processes responsible for the expenses. Control is a process by which a manager attempts to direct, regulate and restrain the action of people to achieve the desired goal.
Food and Beverage Control in Restaurants
There are primarily four Food Service categories that need to be controlled in a restaurant.
- Food Cost- Food cost is the cost incurred in preparing a dish. The food cost includes the plate as well as the period cost. It includes the cost of the raw materials utilized, such as meat, dairy, vegetables, grain, spices, etc. Non-alcoholic beverages are also included in the Food Cost.
- Beverage Cost- Beverage cost is the cost related to alcoholic beverages served in restaurants and bars.
- Labor Cost- Labour Cost includes the expenses incurred in maintaining the restaurant staff. It also consists of the taxes incurred on the payrolls of the employees.
- Other Expenses– Other expenses include all the other costs that are incurred while running a restaurant. These can be utilities, rent, kitchen equipment, etc.
1. Food Cost Control in Restaurants
The first step of food and beverage control is Food Cost Control. But before you go ahead and take steps to control your Food Costs, you must analyze your actual food expenses and your Food Cost Percentage. This can be deduced by using predefined food and beverage cost control formulas.
Food Cost Percentage is the portion of sales that was spent on food expenses. The cost of food sold divided by total sales gives you the Food Cost Percentage.
Use this ready-made Food Cost Calculator to calculate and monitor your restaurant Food Costs –
Once you know your exact food cost percentage, you can control your restaurant’s Food Cost by following certain practices. These are:-
(i) Menu Item Forecasting
Menu item forecasting is an integral part of the Food and Beverage Control. Food Cost Control begins with forecasting the menu. Forecasting the menu is ascertaining the demand for different menu items. It is required to make decisions regarding raw materials to be ordered, the workforce to be supplied, time to be given, etc. Menu item forecasting will decrease your food waste and save you the cost of labor and raw materials. Depending on your customer psychology you must forecast your menu to ensure that your menu bolsters your sales.
Only after understanding the requirements of a particular item should you decide how much of a specific item should be prepared in your restaurant. You can forecast the sales of a dish by calculating its Popularity Index.
Popularity Index= Total number of a specific menu item sold/ Total number of all items sold
Predicted Number of Item Sold= Number of guests to visit your restaurant X Popularity Index
Save some unexpected surprises, it is usually quite easy to predict the number of guests to visit your restaurant. The footfall depends on several factors that must be taken into consideration, such as quality of your service, competition in your area, season, etc.
Over a period, you can predict the trend of footfall. Refer to the reports generated by your POS software that would give you a detailed insight into the amount of footfall in your restaurant, the busiest time of the day, the most popular dish, etc. Also, try these 7 Pro Tips to Manage Restaurant Food Costs.
(ii) Standardized Recipes
Simply put, a standardized recipe consists of the detailed procedures to be used in preparing and serving each of your menu items and is integral to Food and Beverage Control. They give a set measure of the exact amount of ingredients to be used, declare the number of servings, set portions for each meal, and of course the preparation method. They are critical for controlling food and beverage costs as even a slight imbalance in the servings, cascaded over a period could lead to a severe dip in your margins.
Apart from controlling Food Costs, Standard Recipes also help in maintaining consistency across multiple outlets. You can achieve recipe standardization across numerous outlets and efficiently manage each by investing in POS software with a recipe management feature.
(iii) Inventory Management
Stocking up the inventory is the first thing that restaurant owners do to get the operations going. However, managing the inventory is arguably the most important part of Food and Beverage Control. Before you go and start stocking up your inventory, you first need to define what inventory levels are needed in your restaurant. That is, you need to have a clear understanding of how much stock of which items would be needed in your restaurant kitchen, and for how long would those items last.
This comes from menu forecasting and yield management. When you forecast your menu, you determine how much of a dish will be required. When you manage yield per dish, you estimate how much raw material will be necessary to avoid wastage. Both of them together will work towards your food and beverage cost control by determining exactly how much inventory would be needed.
You need to consider the storage capacity of your inventory and shelf life and perishability of each item in mind before purchasing. This article will tell you more about inventory management in your restaurant.
Much care needs to be given while purchasing inventory items or your food costs might escalate. You need to have a list of all the items that need to be purchased and how many to be purchased. You should also order enough to maintain a steady supply so that you don’t run out of an item.
Inventory Management Software comes extremely handy in such cases. You can mark levels for each item in the inventory, and set reminders in the POS software that would alert you when the items run low, thus giving you ample time to order more. It is also advised to order items in a ‘Purchase Group.’ Purchase Groups because of the increased number of buyers gives you an edge over the supplier and so you can bargain for the price better.
You must also adhere to the Product Specifications while purchasing Stock Items. Product specifications primarily consist of the Product Name, Pricing Unit, Standard Grade, Weight/Size, Desired Packaging, Container Size, etc.
Another factor that is crucial to Purchasing while keeping food and beverage cost control in mind is the Product Yield. Product yield essentially gives the amount of the item ordered that can be used for preparing the dish, that is, the Edible Portion. You must also consider the Waste Percentage of the item. Few items can be utilized whole while cooking; a significant portion is often lost while chopping, trimming, and cooking. Fortunately, you can calculate this loss, and thus order accordingly.
Waste Percentage is given by,
Waste Percentage= Product Loss/ Total Weight of the item when purchased.
(v) Vendor Management
Before you choose a vendor to supply the raw ingredients to your kitchen, you need to have the Purchase Order. It is essential to have a Purchase Order (PO) for all orders, no matter how trivial they are, and their records should be maintained.
Once you have the Purchase Order prepared, you need to decide on a vendor for supplying the stock to your restaurant kitchen. It is better to purchase from the same vendor to maintain the quality and taste of your food. Buying from the same vendor at the same price also helps in keeping the Fixed Cost of your menu. Also, to lower your purchasing costs order on credit instead of cash. That way you can order more for a considerably lower price. You can easily manage all your vendors through your restaurant POS.
Receiving is one aspect of Food and Beverage control that is often overlooked, but it is just as important. The maximum discrepancy in stock happens while receiving the order. A not so honest employee may be tempted to steal from the inventory while receiving the order. Dishonest employees are also known to often strike an agreement with the Vendor and receive only half the amount of the ordered items while pocketing the money of the entire order.
To reduce the possibility of thefts, you should ensure that the purchasing agent and receiving clerk are two different individuals and that the entire purchasing and receiving procedure is carefully monitored.
Receiving clerks should be adequately trained to verify the weight, quantity, quality, and price of the products while collecting the stock items. They should be adequately equipped with the necessary tools for weighing and measurement of the stock.
All Food Costing and Control methods can go in vain if the stock items purchased are not stored properly, as food items are highly perishable. You must follow proper stocking practices to ensure longevity of the stocked goods. There should be separate areas for storing dry, refrigerated, and frozen products. Storage can be done in the following ways-
First In First Out: In this method, the items are purchased first and consumed first. The items that are purchased first are more likely to spoil than the items purchased later. This method is preferred in cases of grocery, dairy, etc., and is the most popular method of storage utilization.
Last In First Out: In this method, the items that are purchased last are consumed first. The idea behind this storage is that certain items such as baked goods are best consumed when fresh. Last in First Out method helps to maintain quality and deliver high customer service.
The best way to store your inventory items is to ensure that the items are kept in a cool, dry, and sterile place. The items should also be appropriately rotated.
2. Beverage Cost Control in Restaurants
The second part of the Food and Beverage Control is Beverage Cost Control. The process of controlling Beverage costs is pretty much similar to Food Cost control. Keeping a check on the Beverage Costs can be more tedious as overpouring, and spilling is quite common and leads to inflated costs. You can track and control your beverage cost using this formula:-
Cost of beverage sold/ Beverage sold= Beverage Cost percentage
(i) Forecasting Beverage Sales
When you predict the number of guests you will serve and the revenues they will generate in a given future period, you have created a Beverage Sales forecast. Doing so will provide you a clear picture of the costs that you are looking at so that you can take definite steps to ensure there is no wastage or theft, and the beverage cost is controlled.
(ii) Standardized Drinks and Recipe Portions
The most important aspect of controlling Beverage Costs is setting up a Standardized drink recipe. You should also have a pouring policy through which you can regulate the drink size. Standardized portions are essential, and tools must be ensured to maintain the quality and quantity of the drink. Train your staff to use measuring cups or jiggers to avoid overpouring.
Also, decide how you wish to serve different types of liquor. For example, do you want to sell wine by the glass or by the bottle?
3. Labor Cost Control in Restaurants
The Restaurant Industry witnesses one of the highest attrition rates among all sectors, especially at the junior level, leading to high overall restaurant costs. You must be able to control your overall restaurant costs, to sustain your restaurant. Several factors contribute to a high Labor Cost, making it a significant part of the entire Restaurant Cost. Labor expense includes salaries and wages, but it consists of other labor-related costs as well such as employee meals, training, uniform, etc.
Calculate the Labor Cost Percentage of your restaurant using this formula-
Labor Cost Percentage: Cost of labor/ total sales
(i) Assessing and Managing Labor Productivity
While hiring employees for your restaurant, it is important first to determine the number of staff you’ll be needing. However, it is not just sufficient to employ the staff and expect everything to fall miraculously into place. You need to assess the Productivity Ratio of each staff member to maintain a Productive Workforce.
Productivity standards represent what you should reasonably expect in the way of output per unit of labor input. A productivity standard merely is management’s expectation of the productivity ratio of each employee. Establishing productivity standards for every employee is an essential management task and the first step in controlling payroll costs.
Schedule employees using productivity standards and forecasted sales volume.
Output/Input= Productivity Ratio
Eg: 60 guests/4 servers= 15 guests per server
This article will tell you how to control the labor costs in your restaurant.
(ii) Ensuring Employee Productivity
Follow these tips to enhance employee productivity in your restaurant.
1. Employee selection- Selecting the right employees plays a vital part in controlling costs. Create a clear Job Description and hiring criteria for each role and sort the applications on their basis. Conduct detailed interviews and background checks before getting anyone on board.
2. Training and Supervision- A trained employee is a productive employee. Before a new employee joins the team, ensure that he/she has been thoroughly trained. Do not hesitate from on-the-job training and even re-training if the need arises. Supervise the tasks wherever possible, or assign your manager to oversee the process.
3. Scheduling- Proper scheduling ensures that the correct number of employees is available to do the necessary amount of work. If too many employees are scheduled for a particular time, the productivity ratios will decline. If too few employees are scheduled, customer service levels may suffer or necessary tasks may not be completed on time or as well as they should be.
Scheduling efficiency can often be improved through the use of the split-shift, a technique used to match individual employee work shifts with peaks and valleys of customer demand.
4. Other Expenses Control
Apart from the Food, Beverage, and Labor, certain other expenses add up to the overall Restaurant Costs. A lot of you may ask the question of how to control restaurant costs with the least possible resources. These may seem trivial, but you need to give just as much attention to these for Food and Beverage Control. These can be categorized as Controllable and Non-Controllable, and Fixed and Variable Costs. For example, rent is a Non-Controllable, fixed cost, while repairs and maintenance are variable costs.
Food and Beverage Control is an integral part of restaurant operations, and the points mentioned above of Food and Beverage Cost Control, Labor Cost Control, and Other Costs.
You need to consistently track and analyze the performance of your restaurant to identify the areas where you’re bleeding money. Smart restaurant management software gives you the details of all the operations and helps you reduce your restaurant costs.
Read this detailed guide that talks about how you can leverage the restaurant management software for better decision-making and cost control.