In previous editions of CORE Profit Strategies, we have explored some best practices to maximize profit and control costs. In this edition, we will look at a daily food cost strategy that is less effective and may not be the best use of your time or resources.

One of My Least Favorite Questions

Have you ever had someone ask you what your food cost is on the 17th day of the month? The day of the month is irrelevant, but it is a question that I’ve been asked on a few occasions.

I will never forget the first time I was asked this by the GM where I worked. Panic set in because I had no idea what the food cost was on that day. My reply was, “food costs are looking good”. Judging by the look on his face, it was apparent that was not the answer he was accustomed to.

Knowing that question would probably be asked later in the month, and if not, then definitely next month, I tried to figure out what he was looking for. Did he expect me to give him a solid “27.58%”?

    Suddenly I remembered that a chef I worked for tracked his food purchases and would announce the food cost daily. Was that the key to giving my boss the answer he was looking for? Maybe, but I thought I would wait for him to clarify it for me. He didn’t ask anything further, so maybe he was satisfied with the reply.

    The next month rolled around, and it happened again. He asked me “How is the food cost this month?”

    Stepping up my game, I replied, “Food costs are looking good. Nothing is standing out at this time”.

    “Yeah, you said that last month,” he stated.

    I jumped in with, “Yes, and the cost came in on target, just as I projected”.

    In return he said, “Yes, but how do you know? Don’t you track your purchases?”. There it was.

    “No, I do not, it’s a waste of time.”

    I told him the story of the chef I worked for who tracked the costs. Before I could get to the end or middle of the story, he cut me off, “Chefs track their costs daily.”

    Why it May Not be Worth the Effort

    Before the hate mail pours in, and instead of reliving the conversation that was filled with adult-rated adjectives and adverbs, let me explain why this exercise is not worth the effort.

    Going back to my story, the Chef I worked for tracked his costs daily based on purchases. It was never accurate, and, on some occasions, the actual cost would vary by 5% from his last prediction. I asked him why he tracked this information, and the answer was an almost robotic, “to control food costs.”

    Having a natural curiosity, this didn’t make sense to me. I needed to get to the root of it. If tracking daily purchases to revenue was a way to control costs, why would there be such a large variance between the chef’s predictions and the actual cost? According to the chef, it was a straightforward revenue divided by purchases.

    Before we answer that question, let me play out what occurs throughout the month in properties that followed this practice.

    The Roller Coaster

    As you can imagine, the food cost would vary throughout the month and the wider the swing, the bumpier the ride. When the food cost was great (that day) the chef was happy. Happy people are usually more generous and giving, so, for that day, portions were a little larger, and waste was not as big of a deal.

    The End-of-the-Month Rations

    On the nasty flip side of this were the days the food cost was over budget. It was like Dr. Jekyll and Mr. Hyde. Get out of the way because the chef was on the hunt.

    Aside from the lecturing that the team was used to getting throughout the month about not wasting food and using portion control, the chef would purposely, and for the most part, randomly order less food to lower the purchases, thinking this would reduce the costs.

    There are a number of issues with this. To start, the chef has no idea if food was wasted or if portion control wasn’t being followed and was constantly looking for someone to blame. This took a toll on his team. As the team became more disengaged, turnover became a problem because no one wanted to deal with walking on eggshells each day waiting to hear what the cost was.

    The other issue was the effect that erratic food ordering had on productivity. As month-end approached, it was as if we were on rations. The cooks would not have the food to prep and, therefore, would not effectively fill their day. As the next month began, the cooks would anxiously await the arrival of the bounty that a new month brings, and as food orders arrived, more labor would be required to replenish the stock that was depleted in the final weeks of the month before.

    All this was completely unnecessary since all the chef really knew each day was that the percentage of food ordered was a higher proportion than the food sold month-to-date. He didn’t know the exact inventory of the kitchen. Just because food was ordered doesn’t mean it was all used.

    Why the large variance between the chef’s predictions and the actual cost?

    The challenge with daily food cost is that food is always in motion, and inventory levels change from day to day. You may purchase all your proteins on Tuesday to prepare and portion for the week. That would mean that Tuesday’s cost would be very high, and the following days would be very low. Many people know this pattern and react less to the daily swings, but that still doesn’t make it a control strategy. Unless…

    It is possible to have an accurate daily food cost, but the work involved would be a greater waste of time. You would need to know your exact usage, inventory, and purchases each day. That may work in a small operation where everything is easily accounted for, but if you have that much time for control, chances are you wouldn’t have food cost issues to begin with.

    In larger operations, it can be possible at the outlet level where food is prepared in a production kitchen and requisitioned daily. In these environments, the outlet would carry very little inventory that would be easily counted in order to replenish for the next day.

    Food Costs are High Order Less

    If anyone ever mentions this strategy, then alarm bells should go off, followed by a big red flag. If purchases are high, then the questions shouldn’t be whether to order more food or what’s your food cost, they should be:

    Did you order food that you didn’t need at some point? Do you still have it?

      • If you did order too much food and the poor ordering practices didn’t lead to waste, the only issue with ordering too much food is your inventory will be high.

    Is it common practice to order food you don’t need? Do you have a system for food ordering and stock rotation?

      • If set up the right way, the chef would only order food that is needed in the first place. The fact that they fluctuate their ordering based on their daily food cost screams that they don’t have a good process for determining how much food is needed.

    Did loss occur? How did it happen, and how can it be avoided?

      • Food that is sold or wasted needs to be replaced, plain and simple. You can’t decide to not order something if you need it, and not having menu items available doesn’t save costs, it leads to dissatisfied customers.

    What Does it All Mean?

    Chasing daily food costs and fluctuating orders based on costs rather than need is a sign of disorganization and lack of structure. Kitchens that run in this fashion do not have strong food cost culture, systems, or processes.

    What Comes Next?

    This is a topic that has caused me some sleepless nights. By eliminating the daily food cost tracking, the energy can be put to more productive use.

    In the next series of CORE Profit Strategies, we will start to unravel food procurement and purchasing strategies.

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