Manage Food Costs to Increase Margins and Maximize Profits

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Managing food costs is a key way to improve restaurant margins, and even small changes can result in big savings over the course of a year. Truckstop and travel plaza operators said they take a multifaceted approach to address supply costs as well as food waste and theft.

Michael Ouimet, president of Oiumet Resources, which operates travel center restaurants in 11 states and provides consulting work, said increasing food costs coupled with tight margins have added to the importance of managing food costs. “It has become really, really important in our restaurants to get the food cost right,” Ouimet said while addressing attendees at The NATSO Show 2017 in Savannah, Georgia.

Ouimet and other NATSO members said they tackle food costs from a variety of angles and shared their insight with Stop Watch.

Calculate Food Costs
During The NATSO Show, Ouimet said one of the best ways to get a handle on food costs is to calculate theoretical food costs, the amount an operator should achieve with no waste or theft, and compare them to the actual food costs. Ouimet also shared his food cost guidelines (see page 10). “Once you get a handle on your theoretical cost, you will get a better handle on waste and theft. Your actual costs should be within 2 to 4 percent of your theoretical cost,” he said.

Examine Costs Regularly
Several operators said food costs today are increasing faster than they have in the past. “You’re either on food costs every single day or you’re in trouble,” said Dan Alsaker, chief executive officer of Broadway Truck Stops.

Broadway analyzes the food served and the locations’ inventory daily. “Then we true it up on a weekly basis,” Alsaker said. “We have two guys who watch it incredibly close. We look at the budget, the sales and the forecast.”

Alsaker said Broadway obtains bids on various segments of its food service costs, such as dry goods and coffee. “We know what we consumed last year, so we look at this year’s forecast and the price,” he said.

“Because the price of food goes up and down dramatically, you should be looking at it on a regular basis to see if you can get reduced costs from suppliers,” said Darren Schulte, vice president of membership for NATSO.

Some operators have found lower prices and fresher produce from local suppliers. “That isn’t always the case, but it is worth looking into,” Schulte said.

Tristen Griffith, president and general manager of Sacrameto 49er, said the location moved to a local vendor. “That was a good move and we are constantly looking at prices,” she said.

Even seemingly small savings can make a difference. “If you’re going through 300–400 breakfast sandwiches a day and you can save 10 cents on every single croissant and it is just as good, those dimes are going to add up,” Schulte said, adding that some operators may not realize just how much they are buying of certain items.

As part of calculating costs, Schulte said operators need to factor in the cost of every item that will go along with the meal, such as the cost of the napkins, condiments and disposable containers. “All of those are costs to the business and they all impact food costs,” Schulte said. “Understand by the menu item the true cost of the merchandise. Don’t just assume you know it.”

It takes about three hours a week for a manager to manage food costs at this level, Ouimet said, but operators will see a return on their investment. “If you haven’t been doing that and start, I would guess you’ll get 2 percent back in sales and food cost reduction from a combination of increased sales, less waste, better portion controls and knowledge of your business,” he said.

Conduct a Menu Analysis
Ouimet suggested operators conduct a menu analysis and cost out their menu items. “The biggest thing your point-of-sale system will do is give you the menu mix. That report is very important,” he said. “You should be looking at your menu mix regularly to remove the non- sellers.”

Griffith said Sacramento 49er used to change menu prices very rarely. “Now we do it much more frequently because prices are changing so quickly, especially with meat, and our labor costs are going up,” Griffith said.

Griffith also keeps an eye on what is selling and will take items off the menu if they aren’t performing.

“You should use your POS system to help identify quickly what is selling and what is not,” added Schulte.

Focus on Margins
Roger Cole, editor of the NATSO Foundation’s Biz Brief and a former chairman of NATSO, said the margin per customer is a key metric. As an operator, Cole said it was irrelevant to him if he had a 20 percent food cost or a 50 percent food cost as long as he could drive margin dollars. “Would you rather have a 50 percent food cost on a $12 item or a 30 percent food cost on a $6 item? Clearly I would rather have a 50 percent food cost,” he said. “If you just try to drive the food cost percentage number, you aren’t serving yourself. Try to move that customer to a higher yielding menu item.”

Manage Inventory
Many operators base their costs on their purchases, Ouimet said, but that doesn’t provide a true picture of actual costs. Instead, they should look at inventory, which is one area where Ouimet sees a vast amount of opportunity. “The most common mistake I see among all of the operators is a failure to take an actual inventory and do a food cost calculation on a weekly basis,” he said.

“If you don’t take an inventory, you don’t know what your food cost is.”

During the show, Ouimet encouraged operators to track their inventory closely and conduct regular inventory counts. “Do them and do them accurately or don’t do them,” he said. Schulte concurred adding, “It’s like doing cigarette shift counts and taking no action on daily shortages. Why count the cigarettes if you are not going to do anything with the information?”

Ouimet said operators should start with the beginning inventory, plus purchases, minus the ending inventory to get the cost of goods. “You divide that by your sales and you come up with your food cost percentage,” he said. “People will say my purchases went up, but if you still have it on your shelf, it is inventory and it doesn’t impact your food cost percentage.”

Ouimet said he has worked with locations that have seen their food costs come down once they begin taking a weekly inventory because they manage their waste and theft better. “Their inventories will come down as well because you know exactly what you are using each week,” he said. “If you do one thing, do the inventory weekly.”

Keeping track of inventory can start with getting organized, Ouimet said. “Get all of your product together. Get the shelves lined up for the right products and have everything lined up and front faced,” he said, adding that because no one likes to take inventory, it is important to make the process easy on staff.

Ouimet also encouraged operators to get rid of obsolete inventory.

Know Your Customers
Having a good understanding of who is stopping in the location and when will help operators grows sales and profitability because they will better understand what they should sell and when to sell it. “McDonalds has realized they can sell breakfast all day long. It goes back to knowing your customer,” Schulte said.

Alsaker said he knows different customer types buy different items. “You have the truckers and the commercial drivers, then you have the traveling public and kids in longdistance sports and you have the people pulling in driving RVs,” he said. “We’ve seen that there are major differences, so we’re starting to re-think the old theory that people will eat what you serve them.”

Understanding customers’ stopping habits also helps locations time their preparation. “If you know your store and your customers, you might realize that you’ll sell more breakfast sandwiches if you put them out from 8:00 a.m. to 12:00 p.m. instead of 5:00 a.m. to 9:00 a.m.,” Schulte said.

Schulte recommends operators create build-to guidelines. He said, “Do you know how many sandwiches, breakfast items or other items to build to and what it is based on? Is it based on someone’s opinion or factual data that shows how many customers come to our location for breakfast or dinner on specific days?”

Alsaker said Broadway dissects what it’s selling and examines what is moving and what is not moving. Finding the right menu items is a work-in-progress, Alsaker said. “We are constantly going to food shows and visiting our suppliers’ test kitchens. We’ll sample things and then come back with a handful we want to try,” he said. “We try new things to see if they work or fall flat on their face.”

When introducing a new menu item, Broadway first runs it as specials to test its success. If the items sell well, they will make their way onto the full menu, Alsaker said.

Order Right
As part of its effort to reign in costs, Cash Magic Truck Plazas and Casinos refined its grill offering based on the shift-end data and limited the products each of its locations can order.

“At one time each grill was able to order whatever they wanted to order from the Cisco order guide. We realized we had 10 different types of bacon going to our properties,” said

Herb Hargraves, director of fuel and retail sales at the location. “We went through and locked it down to the items we allowed them to order.”

Broadway has also cut down on the number of things it offers, which helps alleviate the strain on the kitchen. Alsaker said it also makes it easier to train staff.

Minimize Waste
Jim Goetz, president of Goetz Companies, said roughly 40 percent of his food costs are related to the buffet. “We have to determine the right mix so the customer gets good value but you keep the cost down,” he said.

One way Goetz Companies has done that is to find creative ways to use food leftover from the buffet. “We make breakfast pizza for the next day that can use items that were on the buffet the day before. We use gravy as the sauce and add sausage or bacon, eggs and cheese on top of a thin crust pizza,” Goetz said, adding that customers enjoy the pizzas and it helps the location keep costs down.

Schulte said it is normal for operators to have some waste. “If you don’t have waste, you can’t grow your sales. Many people are petrified of waste, so they don’t make enough food,” he said.

Maximize Labor
Labor is a big variable that can change drastically, Griffith said. “Labor can make a big impact from the expense category,” she said.

When it came to looking at restaurant labor, Cole said he calculated how many margin dollars per labor hour he was generating.

In the restaurant, Broadway’s employees look at sales dollars per hour to analyze the number of employees needed. “We talk to our manager every single day about where we budgeted labor and sales and where our labor and sales came in,” Alsaker said. “If we slip up today or tomorrow, we have seven days to balance that back out.”

The Advantage of Food Buying Programs
Griffith said she is always working with vendors to take advantage of promotions and better pricing. “We are always checking out our competition. If they have better pricing on something, they must be buying better,” she said.

To help obtain better pricing, Griffith has joined with a group of local restaurants as part of a buying group that helps cut costs. “We’re also able to use local vendors for quick items that we may need to grab,” she said.

Ouimet suggested that operators calculate the average spending per guest in the restaurant. “On a weekly basis, that number should be fairly consistent. If the number is it is all over the board, the servers probably aren’t putting in the right number of guests,” he said.

Once operators begin looking at the average spending per customer on a weekly basis, they will be able to spot anomalies, which may help them uncover theft. Two common areas where theft can occur are within buffet and beverage sales, Ouimet said. “With buffets, it can be a server re-using a ticket for the next guest. Instead of cashing it out, she uses it again and pockets the money,” he explained.

Ouimet suggests operators examine their percentage of beverage sales, which normally average about 12 percent for a full-service sit-down restaurant, he explained. “The easiest thing to give away or not get rung up is beverages. If you’re not at 12 percent, you need to look at it and see if your servers are ringing it up. If that number is a problem you start delving into your individual waitress reports,” he said.

Examine Discounts
Some operators give discounts at the point of sale, and Ouimet said it is important they understand how much they’re giving away. The number should be fairly consistent. “If it isn’t, that is a red flag and you need to look into it,” he said.

Track Waste
One final way to minimize costs is to track waste. “Don’t let employees take home the food at night that is leftover because they will make more than is needed,” Ouimet said, adding that locations should use clear garbage bags so they can see exactly what is leaving the location.

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Food Cost Guidelines

Full-service restaurant, no buffet: 28–32%

Full-service restaurant, buffet: 33–36%

Dunkin Donuts New England: 23%

Dunkin Donuts Midwest: 28%

Grab-and-go, in house: 30–35%

Sandwich shop: 25–29%

Moe’s Southwest Grill: 25–31%

Source: Michael Ouimet

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Photo credit: Brittany Palmer/NATSO 



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