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)
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A Bit of Wisdom
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.
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