Convenience Store Food Service Consultant- Dean Dirks: News, Articles, Events

May 28, 2008

I just finished a project for GIANNA INCORPORATED in Alaska

Filed under: Projects — Tags: , , — deandirks @ 2:35 pm

The project included opening a convenience store that had been closed for 1yr. We  designed the store, organized the construction, and ordered the equipment. We set up vendor contracts, merchandised the store and set up all the accounting systems.

“Without Dirks and Associates, this project would have been impossible to complete” Dean lead us through the whole process from the start to finish” We had a significant need to be open by May 1 due to Alaska’s seasonality and opened on May 2nd.”

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May 21, 2008

Managing Foodservice Labor

Filed under: Articles — Tags: , , , , — deandirks @ 5:23 pm

Foodservice labor is the second highest cost in an operation, which makes labor management the cornerstone to profits.

Convenience store retailers should keep a separate Profit and Loss statement to manage their foodservice business and labor has to be managed hour by hour, not at the end of the week when it is too late to make adjustments.

Since labor control has to become part of your culture, there should be a “no excuse” mentality when it comes to managing it. For example, never allow overtime and have lower paid employees working holidays that required employees to be paid time and a half.

Some other concepts c-store retailers should follow include:

— Focus on labor dollars, not hours, you don’t take hours to the bank.
— Labor should be scheduled in 15 minute increments.
— Training hours should be minimized; employees should be trained by the managers.

Customer count labor management is the only way to control costs and maximize speed of service.

I’ve found three tools to be extremely valuable for managing labor costs. They are a labor schedule module, a labor report that lists actual vs. budgeted costs, and a labor distribution report. Here’s a brief explanation of how each of these help.

Labor Schedule Module
1. Labor is budgeted on a three-week rolling sales average, so that day with higher volume gets more labor.
2. Each day has to balance before moving on to the next when scheduling.
3. After the schedule is completed, the total dollars are compared to budget number. If the manager has used too much labor he or she can readjust it before the week starts.
4. The module is populated with customers in 15 minute increments, forcing managers to allocate labor correctly to maximize both labor and speed of service.
5. Sales per labor hour should be monitored hourly, to make adjustments at that point in time.

Actual vs. Budgeted Labor Report
1. This report is generated the day payroll is calculated and shows the actual labor dollars used vs. what the store’s budget was.
2. Managers are called the day this report comes out for an action plan to reduce labor the following week.
3. Labor variance is kept year-to-date, so that if a manager has a bad week, he or she can catch up the next week.

Labor Distribution Report
1. This is calculated the day payroll comes out.
2. Calculates overtime used and wage rates.
3. Should a manager commit the mortal sin of overtime, it allows you to see if he or she used the cheapest employee.
4. Calculates average wage rates and shift differentials.
5. Calculates sales per labor hour and how it was distributed.
6. Managers can make labor budgets but if labor is not allocated correctly, customers will stand in line.

Successful restaurateurs manage labor, not write schedules. To manage labor the culture has to focus just as intensely as portion control or any other basic concept.

This is May’s article I wrote for csnews.com; it can also be found here: http://www.csnews.com/csn/news/article_display.jsp?vnu_content_id=1003805575

May 19, 2008

FOOD SERVICE- NUTS & BOLTS

Filed under: Speeches — Tags: , , , , , , — deandirks @ 9:19 pm

Outline of the “Food Service- Nuts & Bolts” speech I recently gave at the Minnesota conference.

By Dean Dirks

  1. PERFECT STORM
    Highest food price increases in 27 yrs
    Corn price is $5.56 vs. $3.34 last year
    Wheat price is $10.38 vs. $5.80 last year
    Fed. Min.-$5.15 hr to $7.25 (next 2 yrs)
    Current US average minimum wage is $6.27
    Washington-7.93 minimum wage
    Weak economy
    Elastic retail prices- McDonalds, Wendy’s Burger King- dollar menu to grow sales
  2. KEEP SCORE
    Critical Elements of the P&L
    Sales
    Food cost ( Direct and Indirect)
    Labor (  Taxes & Benefits)
    Operating Expenses ( Electricity, repairs, credit card)
    Occupancy Costs ( Allocated rent, taxes)
    Depreciation
    Bottom Line – Net Profit or Contribution
  3. SALES- HOW YOU MEASURE UP
    Inside customer counts- no pay at the pump
    Best in class capture rate (customers who will purchase food) = 25%
    Best in class average transaction (it will be different for various concepts
    Multiply 25% of inside customer counts by the average transaction.
    Example, 600 inside counts x .25% capture rate x $6.50 (average transaction) =  $975 a day
  4. SALES GROWTH- PRICE CHANGES
    Competitor price checks- monthly
    Price increases- focus on high volume items
    Raising all prices will draw attention with not as much impact on the bottom line
    Bean burritos- 200 a day x .20 = $40 a day
    Price increase=  $14,080 in annual sales
    Raise to .99 price point-psychological
    Raise combo meal prices 10 cents.
  5. SALES GROWTH STRATEGIES
    Charge premium prices for freeway locations
    Rural locations, captive market- premium pricing.
    Eliminate 12 oz coffee, offer 16, 20, 24 raise each 10 cents.
    Eliminate 16 oz cold drink, 24, 32, 44 raise each 10 cents
    12 oz 12%-  16 oz 24%- 20oz  40% oz 24%
    Modify your menu to add supersizes
    Up sell combo meals, large drinks, dble meat.
  6. BUILD RECIPES
    Every item on your menu needs a recipe
    Direct materials: bun, hamburger, cheese lettuce, pickles
    Indirect materials: burger wrap, condiment packs, napkins, bag
    Set pricing based on direct and indirect costs. Need 60%-65% margins.
    Analyze price points to maximize profit, if 60% is .95, round up to .99.
  7. IDEAL COST OF SALES MODEL
    Number of items sold / week multiplied by  price
    Recipes are built, linked to raw goods
    Increase in raw costs change the recipe cost
    Items sold per wk multiplied by the recipe cost
     The total item costs then divided by total retail income.
    The model tells you ideal food costs based on sales mix.
    Food costs -reviewed on variance to the ideal cost of sales.
  8. FOOD COST CONTROL
    Employees portioning correctly
    Pre portioned items weighed correctly
    Empty squeeze bottles, mayonnaise, mustard
    Ketchup, mustard pks,  in carry out bags
    Ring  extras, upsize and combo meals correctly
    Employees giving away food  to friends
    Make sure prices are correct on invoices.
    No specials in captive markets ( a freeway location)
    Specials, use low food cost items.
  9. FOOD COST CONTROL
    Paper costs can represent 10-15% of costs
    Napkins in bags
    Alter recipe’s ham for bacon
    Entice customers to purchase low fc items
    Smaller price points- less food per item
    Only sell high volume hot beverage flavors
    75% of coffee sales 5-8, reduce flavors after 8
    Brix soda machines once a month.
    Cappuccino  and coffee machine dumps checked monthly.
  10. FOOD COST CONTROL
    Record all waste
    Inventory at COST once a week.
    Inventory paper products associated with food items
    Food cost info to supervisors the day after inventory
    Call managers and request an action plan
    Food cost management is a minute by minute, day by day process. 
  11. LABOR CONTROLS
    Make labor control part of your culture.
    Time series vs. customer count
    Think dollars, not hours
    Daily and weekly labor a function of sales
    Sales per labor hour
    Make managers accountable for effective  reviews and raises
    YTD labor is one of criteria for bonus
  12. LABOR CONTROLS
    Part time labor. Recruit, recruit, recruit. Needed to reduce labor
    Shift leaders, who will send people home when it is slow
    Hours of operations in food service
    Training is critical, but don’t allocate training dollars
    If the manager is allowed training hours they will use them , they should be training
    Move equipment to reduce labor.
  13. LABOR TOOLS
    Schedule labor based on 15- minute customer counts, not employee needs
    Actual vs. budgeted labor report
    Labor distribution report, overtime, average wage, shift differential, and overtime rates
    Action plan e-mailed the same day.
  14. SUMMARY
    There are no silver bullets in  food service.
    You should not be in the food service business unless you are expensing all costs to a separate Profit and Loss statement
    Success requires hourly and daily attention to food and labor controls.
    You need to react to poor sales, excessive labor or high food costs the next day, not on the 10th of the next month when the P&L is produced

Entering or Expanding Food Service

Filed under: Speeches — Tags: , , , — deandirks @ 9:00 pm

Outline of the “Enter or Expanding Food Service” speech I gave at the Pinnacle Summit 2008 in Grapevine, Texas.

By Dean Dirks

  1. THE RISK
    Soft U.S. economy.
    Diminishing customer counts.
    High food costs.
    Escalating labor costs.
    High energy costs
    Closure rates: Quizno’s 7.5%– Blimpie 16.1%– Krispie Kreme 10.7%.
  2. THE REWARD
    Profits can be $5k-$10k a month .
    It the concept is a good fit, it will create a destination location.
    One stop shop is attractive to consumers.
    Food service builds frequency.
    Inside sales will lift because of ancillary purchases.
  3. GUT CHECKS
    The companies’ ability to operate food service.
    Willingness to pay market rates for food service managers.
    Staffing stores- a big problem, do you want to add to the problem?
    The owner’s patience to loose money in the beginning.
  4. GUT CHECKS
    Where do your core competencies lie?
    Unbranded (creativity)
    Saves commissions
    No support network.
    Longer to develop
    Branded (systems in place).
    Lack of control with inspections, audits, etc.
  5. SITE REVIEW
    Locations often fail due to poor site reviews.
    Traditional restaurants spend $10,000 to $20,000 on site reviews.
    Visibility, data shows that the “if you build it they will come” theory is not always true.
    Poor signage destroys food service
  6. SITE REVIEW
    Adequate parking, making money at food service can’t be a trade off for hurting inside sales
    Parking at the pumps due to poor parking
    Walk-up business, office and factory workers can offset parking
    Drive thrus are critical for some concepts.
  7. SITE REVIEW
    Logistic issues, flow of customers
    Demographic match
    Day part customer counts in the store, deli stronger from 11-2,  pizza stronger 5-8, chicken 5-8.
  8. THREATS
    If the concept is a branded, realize that QSR companies can build as close to as they choose.
    Bridging strategy.
    Future developments that may change traffic flows, new malls, and possible future QSR plans.
    Available real-estate for traditional QSR restaurants to build.
  9. SALES FORECASTING
    Customer counts, capture rate data and average check used to forecast sales.
    If branded companies use sales numbers complete your own due diligence.
    High sales “hide  sins”, low sales make it hard to manage COGS and labor.
  10. CALCULATING COST OF GOODS
    Don’t use % information given to you.
    Develop recipe for each item, include everything, condiments, napkins, straws.
    Cost each recipe.
    Set the retail price of each item.
    Calculate estimated sales mix.
    Calculate ideal cost of goods, + 3%.
  11. LABOR FORECAST
    Don’t use % when forecasting labor.
    Write a schedule to staff the location.
    Labor rates differ state to state-a percent won’t work.
    Use loaded labor (payroll taxes).
    Calculate total fixed labor.
  12. LABOR FORECAST EXAMPLE
    Two people needed to staff a deli.
    They can produce 4k a wk in sales or 6k a wk in sales.
    The fixed scheduled dollars are $1,200.
    4k a week in sales = 30% labor costs.
    6k a week in sales= 20% labor costs.
  13. FINANCIAL ANALYSIS
    Develop a profit and loss forecast based on previous information.
    Enter all expenses, labor at all levels (senior management), utilities, water, credit card fees, etc.
    Consider the opportunity cost of the space. Analyze the cost of a beer cave and a lift in beer sales for example.
  14. THE END OF THE DAY
    Calculate internal rate of return.
    Determine whether the internal rate of return meets the owners hurdle rate.
    If the internal rate of return doesn’t meet the owner’s threshold for risk it may  be better to pass.

THE PERFECT STORM – HOW TO NAVIGATE IT

Filed under: Speeches — Tags: , , , — deandirks @ 6:04 pm

Outline of “The Perfect Storm – How To Navigate It” speech I gave at the Pinnacle Summit 2008 in Grapevine, Texas.

By Dean Dirks

  1. THE PERFECT STORM
    Soft U.S. economy.
    Elastic retail prices.
    High food costs.
    Escalating labor costs.
    Decreasing labor pool.
    High turnover.
    Increasing credit card costs.
    Increased energy costs.
  2. QSR/Fast Casual Stock Values vs. 2007
    Jack in the Box (-18%)
    Wendy’s (-23%)
    Denny’s  (-29)
    Domino’s Pizza  (-58%)
    Panera Bread  (-12%)
    Ruby Tuesday (-68%)
  3. DETIORATING SALES
    McDonald’s same store sales down- first time in 56 months.
    Starbucks- closing 100 stores in 2008 .
    Taco Bell, Pizza Hut & KFC- 5% below projected  earnings.
    Domino’s same store sales down 1.6%
    Average QSR same store sales were  flat for Q1 vs. last year’s 3.7% growth.
    Quiznos and Krispie Kreme experiencing closure rates of 8-10%
  4. PRICE ELASTICITY
    QSR prices are elastic, chains are discounting to grow sales.
    While food and labor have increased, the average QSR has only raised prices 4-7%.
    McDonald’s, Burger King, Wendy’s discounted menu.
    Subway $5.00 sub promotion.
  5. QSR PLAN TO SURVIVE
    Enhance customer service.
    Upgrade accuracy.
    Increase speed of service.
    Attack new markets, coffee, breakfast & espresso.
    Technology to reduce labor & improve quality.
  6. POINT OF SALE
    80% of QSR customers are frustrated by the speed of service.
    Kiosks will increase speed of service with accuracy.
    70% of QSR customers stated that rude employees are the #1 reason for not returning.
    Kiosks will eliminate this issue
  7. POINT OF SALE
    80% of QSR customers stated that inaccurate orders will cause them not to return.
    Kiosks will increase order accuracy.
    70% of QSR customers will not come back due to drive through accuracy.
    Drive thru touch screens will increase order accuracy.
  8. KIOSK SALES GROWTH
    1 out of 3 associates will try to suggestive sell.
    “Would you like to add a combo meal for just 99 cents more? ”30% more success than“Would you like a combo meal?”
    Kiosks scripted for suggestive selling to advance. 
  9. TECHNOLOGY POINT OF SALE
    E-Menu boards can be updated in real time, enabling managers to highlight specials or make changes
    E-Menus that a will allow guests to place their orders, play a variety of video games and pay their tabs at the table.
  10. RISING FOOD COSTS
    Food prices rose 7.6 percent in 2007, the biggest price increase in 27 years.
    Corn price is $5.56 vs. $3.34 last year
    Wheat price is $10.38 vs. $5.80 last year
    Flour increased (93%), cheese (25%) and eggs (35%) in 2007.
    Food cost increases are a long term problem.
    Australian drought and Ethanol
  11. IDEAL COST OF SALES
    Recipe built, linked to raw goods.
    Raw product costs entered and   change the recipe costs.
    Items sold per wk multiplied by the recipe cost (100 burritos X .40)
    Total item costs divided/income.
    Ideal food cost based- sales mix.
    Variance to the ideal cost of sales.
  12. REDUCE FOOD COSTS
    Weekly inventories-daily protein.
    Smaller portions- lowered pricing.
    Menu changes-replace bacon w/ham to reduce a recipe cost
    Promos on low food cost items.
    Low cost coffee, fountain sales.
    Category manage raw products.
  13. RISING LABOR COSTS
    Federal minimum wage will increase from $5.15 to $7.25 an hour over the next two years.
    Current US average minimum wage is $6.27
    Washington-7.93 minimum wage
    Oregon- 7.80 minimum wage
  14. TECHNOLOGY LABOR MANAGEMENT
    Schedules- customer counts/ 15 minutes- sales/labor hour
    Labor tracked in real time, managers can at any time check labor costs via internet
    E-mail alerts -employees are close to overtime or real labor is exceeding scheduled labor.
  15. TECHNOLOGY ELIMINATE STAFFING
    3,200 of McDonald’s units have automated beverage systems linked to the cash register. Drops the cup, fills it with ice, soda and conveys it to the drive-through.
    Wendy’s in 2007 rolled out grills with flippers that cook a burger on both sides simultaneously.
    McDonald’s is testing an automated french fry machine.
  16. TECHNOLOGY ELIMINATE STAFFING
    Automated grill- will transport food from an attached freezer to the grill.
    U.of Wisconsin developed a robot that slaps the bun on a finished burger and will assemble three burgers per minute.
    Self-cleaning fryers & broilers.
  17. ENERGY COSTS
    Restaurants spend on average 3 to 5 percent of their total operating costs on energy costs.
    QSR’s are building much smaller foot prints and engineering kitchens for efficiency.
  18. SUMMARY
    The QSR industry is under a great deal of pressure.
    QSR’s have targeted the c-store market in terms of coffee, drinks and breakfast.
    Our industry must strive for the same standards and efficiencies as QSRs to succeed.

 

May 13, 2008

The 1 Percent Edge

Filed under: Articles — Tags: , , , , , , — deandirks @ 5:35 pm

Escalating food prices, rising labor costs, and higher energy costs are forcing operators to become better at food cost management. Shaving 2 percent off of $5 million is a $100,000 savings, which in many cases will get an operation in the black.

If the below best practices are followed at least 1 percent of food costs will be lowered.

Pricing:
– Analyze your pricing. Customers won’t notice a change from 89 cents to 99 cents.
– Review the sales mix of an item you are considering to raise. Items with a 25 percent sales mix will impact the bottom line more than an item with a 1 percent sales mix.

Ideal cost of sales model:
– Calculate the ideal cost of sales for each of your foodservice operations. In simple terms, the model tells you ideal food costs based on sales mix.
– Food costs should be evaluated by the variance from the ideal cost of sales.
– Based on the sales mix, one operation could be under performing, another over performing.
– The model allows recipes to be built, which are linked, to raw goods. When the cost of raw products changes this data, calculate the new cost of the recipe.

Administrative:
– Cost accounting is the standard in the restaurant industry, but the way retailers do food cost accounting is not accurate. If a store is using retail accounting and a customer double cups a coffee cup, the foodservice operation is $1.25 short. The standard in the restaurant industry is to use cost accounting which simply means SALES MINUS COST OF GOODS SOLD. Cost of goods sold divided by sales gets you your food cost. Basically, most convenience store people operate restaurants like convenience stores, which is a primary problem.
– Monthly P&L’s are a must, with all expenses associated with the food service unit allocated, including credit card fees on food items, utilities, depreciation, uniforms, and other costs.

Ordering:
– Utilize appropriate and accurate Par levels.
– Product should always be properly organized for ease of ordering and inventory taking.
– Accurately inventory on the day of the order.
– Take into account all potential changes, including seasonality, special events etc.
– Only the manager should order.

Receiving:
– Check product temperatures at time of delivery. This will extend the shelf life of produce.
– Check the invoices off.
– Manage inventory utilizing FIFO (First In First Out) method.
– Ensure product quality upon delivery, for example, check the color/quality of lettuce, etc.
– Date the product at the time of delivery.
– Make sure all credits are received and processed.

Preparation:
– Portion correctly.
– Weigh every third item during slow periods.
– Record waste so problems can be corrected.
– Squeeze bottles and pans until completely emptied.
– Scrape cans and bags to ensure minimal waste.
– Make sure your prep person adequately trained.
– Follow correct carryover procedures.
– Equipment must be calibrated correctly. Check cheese pumps, coffee and cappuccino drops.
– Brix fountain machines every month
– Keep holding equipment at the proper temperature.
– Recipe cards in place.

Inventory Procedures:
– Only managers should complete weekly inventories.
– Take into consideration items that may have been removed from a case. If there are three blocks of cheese left in a 6-block case, make sure you inventory three blocks. Some people will only inventory full cases.
– Transfers should be properly documented and accounted for.
– Inventory products wall to wall rather than skipping around.

Controls:
– Monitor your average check and hourly sales, and react to unexplained trends.
– Have all items been rung up correctly?
– Employee meal policies should be in place, known by all, and tightly monitored.
– Control the number of sauce packets given in the drive thru.
– Cashiers should log in so performance can be monitored. Track deletions, voids, and shortages.
– Check invoices for correct pricing.

Food cost control requires all of these procedures and policies to be followed hour by hour and day by day. Traditional QSRs (quick service restaurants) are obsessive about food costs and in most cases, controlling these costs predicate the success or failure of the restaurant.

This article was written for csnews.com; it can also be found here: http://www.csnews.com/csn/foodservice/article_display.jsp?vnu_content_id=1003791939

May 7, 2008

Due diligence is a major factor for failure in the c-store foodservice industry

Filed under: Articles — Tags: , , , , — deandirks @ 9:32 pm

Volatile fuel margins, increasing labor costs and the threat of federal taxation on cigarettes leaves owners looking for new income streams. While food service is profitable for many companies, many others have failed. Traditional quick service restaurant (QSR) companies spend a great deal of money on site selection but still experience 4 percent to 10 percent closure rates, with some concepts experiencing failure rates as high as 20 percent.

In many cases, due diligence is a major factor for failure in the c-store foodservice industry. Here are just of few of the things professional consulting firms analyze when researching locations for QSR companies. They should be part of your own due diligence:

The Physical Location

— Is the location highly visible? Data shows that the “if you build it, they will come” theory does not always apply to c-store foodservice.

— Are there signage restrictions? Poor signage destroys foodservice.

— Is there adequate parking? Making money at foodservice can’t be a tradeoff for hurting inside sales by lack of parking.

— What’s the potential walk-up business? A lot office and factory workers can offset parking concerns.

— Can you install a drive-thru? If a drive-thru is critical for your concept, be sure the prospective facility can allow it.

The Data

— What kind of customer counts can you expect? Capture customer rate data and average check in order to forecast sales.

— How will customer counts vary by daypart? If a store has strong customer counts between 11 a.m. and 2 p.m., a dinner concept is a poor choice.

— What are you food costs? Analyze projected recipes to make sure food costs and retails are set correctly.

— What are your labor costs going to be? Analyze impact of foodservice operation on your labor costs.

— Develop a Profit and Loss statement forecast based on all of the above factors.

— Calculate internal rate of return.

— Determine whether the internal rate of return meets the owners hurdle rate.

Other Issues to Consider

— Your company’s ability to operate foodservice.

— Your company’s ability to pay market rates for foodservice managers.

— Staffing stores is a big problem. Are you willing to add to that problem?

— The owner’s patience to lose money while the foodservice operation grows.
What are the Potential Threats?

— If your concept is a branded, realize that most QSR companies can build locations as close to yours as they want. Is there available real estate nearby for traditional QSRs to build?

— Future developments may change traffic flows, new malls, etc. Research these possibilities along with potential Department of Transportation road changes, construction, etc.

In spite of this due diligence, food service is still high risk and no amount of pre-entry research can totally predict success or failure.

This article was written for csnews.com; it can also be found here: http://www.csnews.com/csn/foodservice/article_display.jsp?vnu_content_id=1003725010

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