Fundamentals of Food Cost Control in Hospitality

The previous article examined the relationship between revenue, costs, and pricing, along with the main pricing methods used in food and beverage service operations. This article addresses the essentials of a food cost control system in hospitality.

Food cost control involves analyzing income and expenditure, establishing and maintaining standards, pricing and quoting menus, preventing waste and fraud, and supplying information for management reports.

Key Elements of a Food Cost Control System

When evaluating an existing control system or designing one for a new operation, the following points are critical:

1. The system must be comprehensive, covering all outlets of an establishment and all stages of the food control cycle.
2. The cost of maintaining the system should align with the savings achieved, with sophistication increasing alongside sales volume and menu complexity.
3. The system should be easy to operate and understandable to all staff levels.
4. Staff should perceive the system as effective, with management actively responding to adverse trading results and monitoring future outcomes to verify corrective actions.
5. Information produced must be accurate and up-to-date to ensure effectiveness.

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Food and Beverage Management and Control

An effective control system is visible to staff, demonstrating management’s proactive response to trading issues and follow-up to confirm corrective actions are successful.

Calculating Food Costs in Hospitality

Key terms related to food cost calculations include:

1. Food Cost: The cost incurred in preparing meals served.

2. Food Cost Percentage: The percentage of revenue from sales spent on preparing meals, expressed as food cost divided by food sales.

3. Gross Profit or Kitchen Gross Profit: The excess of sales over food cost, expressed as a percentage or in financial terms.

4. Potential Food Cost (or Sales): The food cost (or sales) under ideal conditions, expressed as a percentage or in financial terms.

Methods of Food Cost Control in Hospitality

1. Weekly/Monthly Food Cost Report

This method suits operations where detailed information is unnecessary or for small, owner-managed establishments where daily control is part of the manager’s routine. The weekly/monthly food cost report reconciles activity tightly controlled daily by management.

Weekly/Monthly Food Cost Report

1. Advantages:
i. Simple and quick to produce.

ii. Provides an indication of general performance.

2. Disadvantages:
i. Information is only available after 7 or 28 days.

ii. Lacks intermediate data to correct undesirable trends (e.g., high food costs) early.

iii. Does not provide daily or cumulative data on purchases, requisitions, and sales for operations with significant turnover (e.g., N1,000/day).

Daily Food Cost Report

This method suits small to medium-sized operations or those requiring a less complex system where costs do not justify a more detailed approach.

Proof of Inventory:

1. Opening stock: 2,220.00
2. Plus Purchases: 10,934.00
3. Sub total: 13,154.00
4. Minus Requisitions: 11,038.00
5. Closing stock: 2,116.00
6. Total: 29,251.00 | 10,934.00 | 11,038.00 | 29,251.00 | 37.77%

Explanation of Columns:

1. Date.
2. Day of the week.
3. Stock level at the beginning of each day (first day uses closing stock from the previous period; subsequent days calculated as column 5 minus column 6 of the previous day).
4. Total food purchased and delivered that day.
5. Sum of columns 3 and 4.
6. Total food requisitioned that day.
7. Total daily food sales from till readings.
8. Column 6 divided by column 7, expressed as a percentage.
9. Running total of column 4.
10. Running total of column 6.
11. Running total of column 7.
12. Column 10 divided by column 11, expressed as a percentage.

Procedure for Compiling the Report:

1. Prepare a chart as in Table 3, completing entries daily.
2. Column 3: Enter opening stock value (closing stock from the previous period). For subsequent days, calculate as column 5 minus column 6 of the previous day (e.g., May 3rd: N2,635.50 – N370.00 = N2,265.00).
3. Column 4: Enter total goods purchased and received (no entry on Sundays when no purchasing occurs).
4. Column 5: Sum of columns 3 and 4 for that day.
5. Column 6: Total goods requisitioned by the chef (some items may be for preparation on the same day but sold later).
6. Column 7: Total food sales (cash plus credit accounts, excluding government taxes).
7. Column 8: Divide column 6 by column 7, multiply by 100 (e.g., May 2nd: N370 ÷ N980 = 0.3775 × 100 = 37.75%).
8. Column 9: Cumulative total of food purchases for the period.
9. Column 10: Cumulative total of food requisitions for the period.
10. Column 11: Cumulative total of food sales for the period.
11. Column 12: Divide column 10 by column 11, multiply by 100 for the percentage.

A. Advantages:

1. Simple and easy to follow.
2. Provides detailed daily performance, including stock levels, purchases, requisitions, sales, and food cost percentage.
3. Enables cumulative totals and highlights corrective actions early.
4. Smooths uneven daily food cost percentages caused by requisitions for future sales.

B. Disadvantages:

1. Relies on accurate data collection (e.g., purchases, requisitions).
2. Not fully accurate, as it excludes staff meals, food transferred to bars (e.g., crisps, nuts, canapés), and beverages used in cooking (e.g., wine, spirits).

Detailed Daily Food Cost Report

This report refines the basic daily report by including beverages transferred to kitchens (e.g., cooking wine), food transferred to bars (e.g., lemons, olives, nuts), and employee meal costs. It separates purchases into those for storerooms and those charged directly to the kitchen, improving the accuracy of the true food cost sold to customers.

A. Advantages:

• More accurate by accounting for all daily transactions.
• Provides reliable data for corrective actions.

B. Disadvantages:

• More detailed, requiring precise data collection (e.g., requisition notes, pricing, goods received sheets, delivery notes, invoices).
• Relies heavily on the accuracy of collected information.

Calculating Potential Food Cost in Hospitality

Potential food cost represents the cost under ideal conditions and is the most effective method for evaluating actual food costs. A variance exceeding one percent between potential and actual food costs warrants investigation.

Potential food costs are typically calculated per menu for each selling outlet twice yearly or when menus change, varying between breakfast, lunch, dinner, and outlets due to price differences.

A. Calculation Steps:

1. Multiply the number of portions sold during a sample week (from restaurant sales analysis) by the potential food cost per portion to obtain the total potential food cost for the week.
2. Multiply the same portions sold by menu selling prices to calculate potential total sales.
3. Divide the potential total food cost by potential total sales, expressing the result as a percentage.

B. Required Information:

1. Detailed sales analysis of items sold and their prices.
2. Standard recipe cards with costed menu items.
3. Summary of potential food costs from recipe cards.
4. Average market prices for main ingredients from invoices, food marketing reports, or cost indices.

Differences between actual and potential food costs often arise due to food perishability, forecasting inaccuracies, or unavoidable waste. Significant variances indicate non-adherence to standards, pilfering, or excessive waste, requiring investigation if exceeding one percent.

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Food Control Checklist for Hospitality Operations

Corrective actions vary by establishment, but a control checklist serves as an aide-memoire to identify variance causes, summarizing essential control procedures. Missing procedures indicate weak links in control.

A. Menu:

1. Suitable for the current market segment.
2. Reflects customer eating trends.
3. Interesting, imaginative, seasonally adjusted, and aids sales.
4. Accurately priced, competitive, and accounts for labor in production and service.

B. Purchasing, Receiving, Storing, and Issuing:

1. Use purchase specifications for main items.
2. Issue purchase orders for all purchases (except possibly daily fresh produce).
3. Source from nominated or approved suppliers.
4. Timetable deliveries for efficient quantity and quality checks.
5. Record deliveries in the Goods Received Book, obtaining credit notes for discrepancies.
6. Enter food deliveries into bin cards/ledgers daily.
7. Restrict store access to authorized personnel, issuing items against signed requisitions.

C. Food Production:

1. Practice yield and product testing to maintain standards.
2. Align production with volume forecasts.
3. Use standard recipes to ensure consistency.
4. Schedule production efficiently to maintain dish quality.
5. Maintain equipment regularly to ensure standard yields and quality.

D. Food Service:

• Establish and practice food service standards.
• Adhere to standard portion sizes with appropriate equipment.
• Control food sent to restaurants (e.g., sweet or carving trolleys).
• Account for and return unsold food to the kitchen.

E. Food Control Procedures:

1. Verify delivery notes, credit notes, invoices, and goods received reports.
2. Check arithmetic on all paperwork.
3. Ensure correct discounts are applied.
4. Compare delivery notes to bin cards/ledgers.
5. Maintain charges and credits for periodic inventory.
6. Conduct full inventory of chargeable containers and food stocks periodically, comparing to ledgers.
7. Keep food reports up-to-date.

Causes of Food Cost Variances

Major reasons for variances in food cost and gross profit include:

1. Inaccurate paperwork arithmetic, including supplier documents.
2. Inefficient stocktaking.
3. Poor revenue control due to lack of systematic procedures.
4. Poor menu design unrelated to market needs or outdated sales analysis.
5. Inefficient purchasing leading to higher costs, overstocking, or wastage.
6. Poor receiving, accepting inferior or short-weighted goods.
7. Poor storing, inadequate stock rotation, or lax security.
8. Failure to maintain standards for forecasting, recipes, yields, or portion sizes.
9. Inaccurate accounting for staff and management meals.
10. Ineffective food control, reducing staff adherence to standards.
11. Delayed or outdated food control data, hindering timely management decisions.

An effective food cost control system ensures profitability by comprehensively covering all outlets and stages of the food control cycle. It must be easy to operate and visibly effective. Methods include weekly/monthly and daily food cost reports.

While the weekly/monthly report is simple, it lacks immediate data for early corrections. The daily report, though simple, relies on accurate data and overlooks certain costs.

A detailed daily report improves accuracy but demands precise data collection. Implementing robust control systems and checklists minimizes variances, ensuring operational efficiency and profitability in hospitality food and beverage operations.

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