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      Ron's Tip Jar - Published by Ron Santibanez   

July 18, 2012

 


In This Issue:

Tips and Things - Four Faces Of Food Cost

A Bit of Wisdom - Restaurant Myth

 


 Tips and Things

Four Faces Of Food Cost

Embrace food cost not as a single percentage, but from four different perspectives.

In order to appreciate the full value of food-cost control, you must examine it from “the four faces of food cost”. The four faces are maximum allowable, actual, potential, and standard.

Assume you’re opening a new restaurant and preparing a pro-forma income statement. What percentage should you run? The answer to that question is partially answered by the calculation of the Maximum allowable food-cost percentage, or MFC.

The MFC is the high-water mark for your food cost; if it exceeds the percentage that percentage of sales, your profit will be diminished by that percentage amount. Remember: Each operation will have its own unique MFC because it has unique expenses and sales.

The second food cost is the percentage that appears on your monthly income statement. It is a reflection of the food cost you actually ran during that accounting period, thus the name Actual Food cost percentage, or AFC.

The third perspective is referred to as potential food cost percentage. It is also called Theoretical food cost percentage because it is calculated by dividing the total or potential food cost by the total or potential food sales (PFC).

The fourth and final face of food cost answers the management question, “what should my food cost be at the end of the accounting period?” That percentage is referred to as the Standard Food Cost Percentage, or SFC. The SFC is compared to the AFC to assess the effectiveness of the food cost control during the accounting period. It is calculated by adding employee meals, and management allowances for unfavorable waste and quality control to the PFC percentage.

The four faces of food cost represent the highest food cost can rise and still return a minimum profit; what food cost percentage the operation actually incurred; the food cost percentage based on the menu-sales mix and zero waste; and what the food cost should be, given all known allowances for food consumed but not sold. Only then can you fully comprehend the true purpose and value of food-cost analysis.

 


 Life is a great big canvas; throw all the paint on it you can.

 DANNY KAYE (1913–1987)

 


For those of you who would like to grow your own herbs and vegetables for your restaurant but don't have the room, a new product is now available. It is called the Tower Garden. This would be a terrific addition to your patio dining area. It is a unique product, it is attractive, and it is sure to become a conversation piece. You can use it to grow a multitude of vegetables, flowers, fruits, and herbs. The cost is minimal, and it pays for itself in a matter of months.   

Click here for more information on this amazing product and to order. It's great for the home as well.


A Bit of Wisdom 

 Restaurant Myth.....

KEEPING FOOD COSTS LOW MEANS LARGER PROFIT MARGINS.

Many of the most profitable restaurants in the country have high food costs, some as high as 45% - 50%. The issue is not how high or low food costs are, but, rather how many gross profit dollars your menu items are generating. That’s why menu items should be promoted based on their gross profit contribution (dollars) rather than having a low food cost (percentage).

Remember, you bank dollars, not percentages.

  

 


 

Additional "Tips" are now available on "Ron's Blog."

 


   

Follow me on Twitter @ronsantibanez. I post frequent tips and suggestions to Improve Your Profitability.


 

We are now featuring recipes from Chef Bob's Recipe File. We will be posting new recipes each week.

You can also view our past newsletters on the site as well. 


  

Visit our web site RestaurantExperts.  You can view additional tips and techniques that are regularly posted on our Profit Line Facebook page.


Click here to view our feature page on our client, Salad Republic 

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 We encourage you to contact us if there are specific subjects you would like to see addressed in "Insights" or "Ron's Tip Jar".

"Insights" is a newsletter discussing issues that affect your restaurants profitability delivered by Ron Santibanez. You may also view past issues of "Insights" and "Ron's Tip Jar" by clicking here.

Contact us at ron@RestaurantExperts.com


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