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

October 18, 2008

Foodservice Programs to Build Profits in C-Stores

Outline of the “Foodservice – Building Profits in C-Stores” speech I gave at the The Foodservice Distribution Conference & Expo earlier this week.

  1. Food Service – Building Profits in C-Stores
  2. State of the Industry-Fuel
    Fuel companies- least trusted out of 20 industries
    Volatility of fuel prices- inventory management- $3.50 in ground and selling it for $3.25
    Capital tied up inventory-$100,000 per site
    Fuel customers are not entering the store
    Credit-card fees- 10 cents a gallon, margins are averaging 11 cents. Net margins of 1 cent
  3. Last line of defense
  4. State of the Industry
    Cigarette margins are as low as 10% vs. 20% in the late 1990’s
    Proposed Federal excise tax of .61 a pack
    Wal-Mart ‘s “Market Side” small-scale stores
    Car wash sales (90% margin) have decreased as much as 50% in some markets
    Lottery sales are down due to inside traffic
    Increased labor , $8.50 in Washington in 2009
  5. Industry Trends
    Oil companies are selling company owned convenience stores to retailers
    New construction has slowed down
    Large retailers (Circle K) will continue to buy out smaller (10-100 store) retailers
    Retailers are looking for other streams of income; prepaid phones, phone cards, etc.
    RETAILERS SEE FOOD SERVICE AS ONE OF THE FEW OPPORTUNITIES LEFT
  6. Food service sales growth
    Food service sales grew 11 percent in 2007, largest category increase
    Foodservice eclipsed cigarettes in gross margin dollars for the first time in 2007
    Sandwiches increased sales 16 percent
    Roller grill sales rose 9.6 percent
    Coffee sales rose 8.2 percent last year
  7. Food Service Trends
    Environmentally safe “Green”
    Obesity issue
    Healthy
    Meal Replacement – take home meals
    Organic
    Any program that will reduce labor
    Programs that have low investment
  8. Branded food service Subway, Godfather’s
    Branded peaked in the 1998,down 35% in 2007
    Royalties of 8-12% and low volumes have driven this downward trend
    Retailers need to weigh brand equity and national advertising
    Taco Bell and others have exited the market
  9. Leveraging a food service brand
  10. Unbranded food service “Jim’s Sandwiches”
    Unbranded food service increased 19% in 2007
    Requires food service expertise
    Creativeness, systems and food safety
    7-11’s new menu pizza, wings, tenders, and burgers
    Retailers need a partnership with suppliers, such as; Turbo- chef, signage, and menu development
  11. Unbranded concept
  12. Unbranded Food Service
  13. Semi- branded food service Hot Stuff –Piccadilly Circus
    15% increase in 2007
    Appearance of brand equity
    Systems and training in place
    Low labor
    Pre-made quality products
    Royalties are built into the supplier price
  14. Semi-branded
  15. Semi-branded
  16. Roller grill
    Roller grill sales increased 9.6% in 2007
    Overcoming “Two dried up hot dogs” image
    New items, taquitos, scramblers, fiesta rolled dogs
    Retailers are looking for a complete package, menu board, item identifiers, promotional materials
    Food safety issues may threaten this program
  17. Roller grill of the past
  18. Roller grill of the future
  19. Roller grill of the future
  20. Pre Packaged Program sandwiches, burritos
    C-stores have a stigma of gas station food
    Over come the “Wedge” sandwich image
    Small investment and low risk
    Confidence- Kraft, Pierre, Oscar Meyer
    No extra labor
    Open air cooler, signage, merchandising
  21. Pre-packaged of the past
  22. Pre-packaged of the future
  23. Open air merchandising
  24. Replacing the “wedge”
  25. Product confidence
  26. Breakfast
    Breakfast hours sales grew 30.7 %
    Customer counts are heavy in the mornings
    Breakfast is the biggest growing segment
    Retailers want products that won’t increase labor costs
    Need for microwave products
    Portable items are needed
    Attractive display cases at the register
  27. Donut program
  28. Executable- counter top
  29. Coffee
    Starbucks look
    Quality that can compete with Starbucks
    6 blends of coffee
    Cappuccino machine with 6 flavors
    6 flavored packet choices
    BIG SUPPLIER PROBLEM- service from third parties. 8hrs to 2 days
    Direct suppliers, service is 4 to 8 hours
  30. Coffee of the future
  31. Fast food war
    Discounting, McDonald’s $1 menus, Taco Bell less than $1 menu, and Subway $5 subs
    QSR aggressive focus on growing breakfast
    McDonald’s success with premium coffee
    Espresso on McDonald’s menu in 2008
    Portable growth, breakfast and snack wraps
    McDonald’s $1 soft drinks to steal C-store sales
  32. Supplier partners of the past
  33. Supplier Partners of the future
  34. Supplier Partners of the future
  35. Supplier opportunities
    Unbranded partnerships
    Comprehensive roller grill program
    Prepackaged sandwich-burrito
    Executable breakfast products
    Upscale coffee with service
    Signage and merchandising
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August 22, 2008

DUE DILLIGENCE – DOING YOUR HOMEWORK

Filed under: Speeches — Tags: , , , , , , — deandirks @ 4:19 pm

Outline of the “Due Dilligence – Doing Your Homework” speech I gave at the FOOD SERVICE AT RETAIL EXPO 2008.

  1. DUE DILLIGENCE
    DOING YOUR HOME WORK
  2. HOMEWORK
    Financial analysis
    Physical issues
    Day part customer count
    Choosing the correct format
    Core competency for food service
    Upper management commitment
  3. FINANCIAL ANALYSIS
    PROJECTING DAILY SALES
    Inside customer counts 478
    Capture Rate 20%
    Expected F.S customers 96
    Average transaction $7
    Projected daily sales $669
    Monthly sales $20,076
  4. PROJECTING FOOD COST
    Food costs=COGS / Sales
    Projecting food costs are complicated
    An item w/ $2 cost w/ $7 retail = 28%
    An item w/ $2 cost w/ $6 retail = 33%
    Sales mix skews food cost
    TB #1- 34% bean burrito mix =22%fc
    TB #2- 24% bean burrito mix=24%fc
  5. LABOR
    Don’t listen to general labor cost %
    Write a manning table w local labor rates.
    Washington state min wage is 8.25
    Labor in Washington vs. Mississippi, how can you discuss labor % ?
    Include incremental supervisor labor
    Include taxes, bonus, and benefits
  6. EXPENSES
    INCLUDE ALL EXPENSES
    Rent 
    Linen/Laundry 
    Telephone 
    Credit Card Service Charges 
    Other Taxes/ B&0 
    QSR Royalties- 
    Depreciation 
  7. Required rate of return (Hurdle Rate)
    INVESTMENT -$181,148
    Cash flows 
    YEAR 1-$29,106
    YEAR 2-$25,406
    YEAR 3- $22,176
    YEAR 4-$19,357
    YEAR 5- $16,897
    END OF YEAR 5 YEARS- $112,942
    $68,206 Left on the investment at the end of 5 yrs
  8. ANALYZING CUSTOMER COUNTS
    Customer counts per day part
    This information will dictate the format
    Heavy lunch-deli
    Heavy dinner- hamburger, chicken
    Heavy breakfast- donut, breakfast sand
  9. PHYSICAL REVIEW
    Drive thru-critical hamburger formats
    Parking- limited can be offset by high carry out, Subway for example
    Store layout to share labor, donut formats need to be by the registers for impulse
    Signage restrictions
  10. THE HUMAN FACTOR
    Is the owner committed to food service?
    Does the owner understand that it may take time to show a profit?
    Skill set for managing food service
    Research market rate for FS managers
    Are you willing to take on another staffing problem.
  11. THE REWARD
    Food service can be very profitable. Do your homework, select the correct concept and know how to manage food service

August 20, 2008

Marketing in Today’s Foodservice Environment

Filed under: Articles — Tags: , , , , , , , — deandirks @ 11:56 pm

Growing foodservice sales has several challenges in today’s environment. The high price of fuel reduces inside customer counts and no matter how you look at it people just have less disposable income. In most cases, dispenser marketing opportunities are used for fuel promotions or beer and cigarette deals that may drive customers inside the store. This does not leave food service with a lot of options other than to grow segments (such as breakfast), offer new items or discount.Traditional quick-service restaurant (QSR) companies have decided to compete with discount menus. This started heavily in December 2008 when McDonald’s had a same-store sales decrease for the first time in 56 months. In January 2009 McDonald’s came back with its $1 menu and every QSR followed suit to compete. Even segments that have not traditionally discounted — in particular Subway — were led into this trap when Quiznos ran a 12-inch sub for $5 special. Subway’s sales decreased so it matched the Quiznos promotion with a $5 sub program.

I call this discount marketing plan the “Pizza Model.” Years ago, the pizza market went to war discounting pizza and today the segment can’t sell a pizza unless it is discounted. The Subways of the world are walking into the same trap. At the same time, Subway and others may have had no choice because sales were declining.

One thing to remember is that the whole foodservice market is driven by the QSR companies, not franchisees. For the most part, QSR companies are not concerned with franchisee profit but with total sales. The companies get paid royalties on gross sales not the franchisees’ net profit.

Subway franchisees I talk to tell me that the $5 sub promotion drove sales by 10 percent to 20 percent. At the same time food costs went up 5 percent to 7 percent, so the net affect was lowering the bottom line profit.

Taco Bell’s “Why Pay More” promotion produced 6 percent sale growth. Menu prices are 79 cents, 89 cents and 99 cents. Franchisees are concerned that the sales mix of certain items on this menu is significantly hurting food costs. For instance, the 89-cent Cheesy Double Beef Burrito has high a food cost, slightly above 50 percent. When the promotion was launched, Taco Bell was betting on products like the lower-cost bean burrito to be a higher part of the sales mix.
The biggest danger in getting customers accustomed to a discounted menu is that when raw food prices go up, customers react negatively to raising prices to answer the higher cost of goods. The pizza market felt this hard when cheese rose 50 percent and flour costs doubled last year.

What is the answer in the convenience store world? I think gorilla marketing:

— Convenience stores need to be viewed more as the good guys; animosity for the oil companies is something retailers need to address. Quite honestly, I don’t blame consumers. Oil companies are creating huge profits and what charities are they involved in at store level? The charity work is always done by the retailer. I have always felt strongly about our responsibility as retailers to raise and contribute money for charities. We need to get more involved with fundraisers for charities like St. Jude Children’s Hospital, Breast Cancer or a multitude of others. This goes a long ways in separating retailers from the oil flags they wave.

— Remember, all marketing needs to drive sales back to the store. Get involved in school events. Give out free coupons for kids from first through eighth grade. You know that the parents have to drive them to redeem the coupon and rarely will they buy only the one item. Frequent reader programs worked well for me when I was an operator.

— Market your ability to deliver food to events.
— Tie foodservice marketing with the fleet fuel business. United Parcel Service was a big customer of a retailer I once worked for, and the drivers were required to fuel at our locations. We gave all the UPS drivers a free small coffee if they purchased a breakfast item. In most cases, they traded up to a larger coffee and we got a big long term lift due to frequency.

— Everyone needs to grow breakfast with presentation by the register. Retailer short-sightedness on receiving money for counter displays that don’t move product may need to be reviewed. Turns are where it is at, not stagnant placement money.

No matter how you look at it, we are in very difficult times and need to grow sales or we won’t survive.

 

This August’s article I wrote for csnews.com; it can also be found here: http://www.csnews.com/csn/foodservice/article_display.jsp?vnu_content_id=1003834847

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

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