Lesson 1: Managing Revenue and • The question is not whether costs are too

Expense high or low, but whether costs are too high

or too low, given management’s view of the
intended value to be delivered.
 Revenue and sales are the same. Business Flowchart
 Expenses and costs are the same.

Professional Foodservice Manager

✓Hospitality managers controls product

production to product sales/ distribution.

✓Management of foodservice is more

challenging than the management of a
manufacturing or retailing business.
Revenue - Expenses = Profit
✓The food service operator must serve as
food factory supervisor, and a cost control • Revenue is the amount of money an
manager. operation takes in.

Management Task Checklist: • Expenses are the costs of the items

required to operate the business.
• Profit is the amount of money that remain
after all expenses have been paid.
• The following terms will be used
interchangeably: revenue and sales;
expenses and costs.
• All foodservice operations, including non-
profit institutions, need revenue in excess
Profit: The Reward for Service of expenses if they are to thrive

• If management focuses on controlling . • Profit is the result of solid planning,

costs more than on properly servicing sound management, and careful decision-
guests, problems will certainly result. making.

• Managers should never feel that “low” Revenue – Desired Profit = Ideal Expense
costs are good and “high” costs are bad.
• Desired profit– Profit that the owners of a
That is not true.
business want to achieve based on an
• Improvements in business operations estimated quantity of revenue.
should yield more customers which, in turn,
• Ideal Expense– Management’s view of
will yield greater operational expense.
the correct or appropriate amount of
• Efforts to reduce costs that result in unsafe expense necessary to generate the same
conditions for guests or employees are estimated quantity of revenue.
never wise.
Revenue varies with: – Costs related to the sale of alcoholic
beverages like beer, wine and liquor
• number of guests served – can be
achieved through adding seating or drive- – May also include ingredients, mixers and
through windows, extending operating garnishes.
hours, and building additional foodservice
• Labor Costs
units are all examples of management’s
efforts to increase the number of guests – Cost of paying all employees, including
served payroll taxes
• amount of money spent by each guest – Labor costs are usually second only to
- Suggestive selling by service staff, food costs in total money spent in a
creative menu pricing techniques, and foodservice operation
discounts for very large purchases
– Some operations include the cost of
• Operators can increase revenue by: management in this category. Others may
prefer to place the cost of managers in the
– increasing the number of guests served
Other Expenses category.
– increasing the amount spent by each
• Other Expenses
guest
– Includes all expenses that are neither
– increasing the number of guests served
food, beverage nor labor; examples include
and the amount spent by each guests
utilities, rent, and advertising.
• But our focus will be on managing and
Sample Operating Results
controlling costs, not on generating
additional revenue
• Environmental sustainability describes a
variety of earthfriendly practices and
policies designed to meet the needs of the
present population without compromising
the ability of future generations to meet their
own needs.
• Positive benefits that accrue when Percentages
businesses incorporate green activities are • Numbers can be difficult to interpret due to
significant and on the increase. inflation. Therefore, the industry often uses
Four Major Foodservice Expense percentage calculations.
Categories: • Operating results of businesses are most
• Food Costs often reported in both amount in currency
and percentage.
– Costs associated with producing menu
items • Managers are usually evaluated on their
ability to compute, analyse, and control
– Largest or second largest expense expenses expressed in percentage terms.
category
• Percent (%) means “out of each hundred.”
• Beverage Costs • There are three (3) ways to write a
percent:
– Common Form ▪ “%” sign is used, as in Percentages in Foodservice
10%
• Percentage of revenue that went to pay for
– Fraction Form ▪ the part, or a portion of expenses:
100, as in 10/100
– Decimal Form ▪ the decimal point (.), as
in 0.10
Forms of Expressing Percent

If expense is smaller than revenue, some

profit will be generated.

• Divide the number that is the part by the

number that is the whole. Note: Percent is
to be multiplied to 100.
Part = Percent
Whole • Modified profit formula:
• For example, assume that 840 guests
were served during a banquet at your hotel
and that 420 of them asked for coffee with
their meal. To find what percent of your
guests ordered coffee, divide the part of the
group who ordered coffee (420) by the size
of the whole group (840).
420 = 0.50 or 50%
840
Percent Computation
Understanding the Income (Profit and
Loss) Statement
• A profit and loss statement (P&L) lists
revenue, food and beverage cost, labor
cost, other expenses, and profit.
• The P&L is important because it indicates
the efficiency and profitability of an
operation.
 • Managers are often evaluated on the Common Percentages Used in a P&L
basis of their ability to meet established P&L Statement
targets.
• The accounting tool managers use to
report an operations’ revenue, expenses,
and profit for a specific time period is called
the Statement of Income and Expense.
• The Statement of Income and Expense is
also commonly known as the Income
Statement; or the profit-and-loss
statement, which is shortened by many
food service managers to simply the P&L.
Example: Dan’s Steakhouse Costs and
• A Uniform System of Accounts is used Profit as a Percentage of Revenues
to ensure consistency in reporting operating Expressed in Pie Graph
results for a business.
• The Uniform System of Accounts for
Restaurants (USAR) is used to report
financial results in most foodservice units.
• The USAR is published by the National
Restaurant Association (NRA).
Example: Dan’s Steakhouse P&L
Based on the formula:
Understanding the Budget
Revenue − Expenses = Profit
• Budget
–A budget is an estimate of projected
revenue, expense, and profit for a defined
accounting period.
–The budget is also known as the plan or
forecast

Example: Dan’s Steakhouse P&L with . All effective managers, whether in the
Percentage commercial (for profit) or non-profit sectors
should utilize properly developed budgets.
• Performance to budget is the
percentage of the budget actually used.
Sample below:
 Performance to Budget Summary

• The 28-day-period approach to

budgeting – 13 equal periods of 28 days
each • Managers must determine if they are “In-
line” with the budget or if there are
“significant” variations from the budget.
• A significant variation is any variation in
expected revenue, costs or profits that
management feels are areas of concern.
• Plus (more than) or minus (less than) 10
percent of budget in each category is
considered in line, or acceptable
• If significant variations with planned results
occur, management must:
• Percentages are used to compare actual
1. Identify the problem
expense with the budgeted amount, using
the formula: 2. Determine the cause
3. Take corrective action
Technology Tools
Sample: One Week Budget • Most hospitality managers would agree
that an accurate and timely income
statement (P&L Statement) is an invaluable
aid to their management efforts.
• There are a variety of software programs
on the market that can be used to develop
this statement.
• Computer programs exist to compare
actual results to budgeted figures or
forecasts, to prior-month performance, or to
prior-year performance.
• P&L’s can be produced for any time
period, including months, quarters, or years.
• Most income statement programs will have • With accurate sales records, a sales
a budgeting feature and the ability to history can be developed.
maintain historical revenue (sales) and
Advantages of Accurate Sales Forecasts
expense (cost) records.
• Accurate revenue estimates
• Not all information should be accessible to
all parties, and security of cost and • Improved ability to predict expenses
customer information can be just as critical
as accuracy. • Greater efficiency in scheduling needed
workers
• To effectively manage an operation, a
manager will need to communicate with • Greater efficiency in scheduling menu item
employees, guests, and vendors. Thus, the production schedules
software needed to operate a business • Better accuracy in purchasing the correct
should include products for word amount of food for immediate use
processing, spreadsheet building, faxes,
and e-mail. • Improved ability to maintain proper levels
of food inventories
Lesson 2: Creating Sales Forecasts
• Improved budgeting ability
Importance of Forecasting Sales
• Lower selling prices for guests because of
• “How many guests will I serve today?” increased operational efficiencies
– “This week?” • Increased money available for current
– “This year?” facility maintenance and future growth

• Guests will provide the revenue from • Increased profit levels and stockholder
which the operator will pay basic operating value
expenses and create a profit. • Forecasts of Sales Histories
future sales are normally based on your
sales history. • Sales history is the systematic recording
of all sales achieved during a pre-
• A Sales Forecast predicts the number of determined reporting (accounting) period.
guests you will serve and the revenues they Sales histories can be created to record
will generate in a given future time period. revenue, guests served, or both.
Importance of Forecasting Sales • Sales to date is the cumulative total of
• Determine your actual sales for a current sales reported in the unit.
time period by using a point of sales (POS)
system. It is a computerized system
programmed to record sales and payment
information.
• Distinction between sales (revenue) and
sales volume (covers)
• Sales may be a blend of cash and non-
cash.
Sales History Sample
14-Day Fixed Average Sample

Sales History based on Guests Served

14-Day Sales Levels

Computing Averages for Sales Histories

• An average or mean is defined as the
value arrived at by adding the quantities in a
series and dividing the sum of the quantities
by the number of items in the series. Seven-Day Rolling Average
• Fixed average is an average in which you
determine a specific time period.
• Rolling average is the average amount of
sales or volume over a defined but changing
time period.
Sales History • A weighted average is an average that
weights the number of guests with how
• Guest count is the term used in the
much they spend in a given time period.
hospitality industry to indicate the number of
people you have served. • The weighted average sales per guest for
2 days is as follows:
• Examples of operations that are often
more interested in guest count than in daily
revenue include schools, colleges, health
care facilities, and those food service
facilities found on military bases.
Weighted Average
• Some operations record both revenue and
guest counts.
• Compute average sales per guest, a
term also known as check average.

Sales History for Brothers’ Family

Restaurant Sample
Maintaining Sales Histories
• Sales history may consist of:
– Revenue, number of guests served, and
average sales per guest
– The number of a particular menu item
The manager of Brothers’ Family served, the number of guests served in a
Restaurant has decided to monitor and specific meal or time period, or the method
record the following: of meal delivery (for example, drive-thru vs.
counter sales.)
1. Sales
❖ In most cases sales histories should be
2. Guests served
kept for a period of at least two years.
3. Average sales per guest
Sales Variances
What is the help of POS in the sales
history? • Operation experiences some sales
variance or differences from previous sales
Modern POS systems record: levels
• The amount of revenue generated in a • These sales variances are normal
selected time period
• It will give you an indication of whether
• The number of guests served your sales are increasing, declining, or
staying the same
• The average sales per guest
• Important to predicting future sales levels
• Including sales variance as an additional
component of the history.
• Sales variances are changes from
previously experienced sales levels
• The variance is determined by subtracting
sales last year from sales this year

Sales History and Variance

• Percentage variance indicates the

percentage change in sales from one
time period to the next.

Forecasting Future Revenues

• Managers use sales histories to predict, or
forecast, their future revenues, guest
counts, or average sales per guest levels.

How to Compute for Percentage

Variance
Forecasting Future Revenues Guest Count History

First-Quarter Guest Count Forecast

First-Quarter Revenue Forecast
Based on the last quarter of the year’s
• Based on the Revenue History, you can
percentage variance of 6.1%, here is the
get the forecast for the 1st quarter by using
guest count forecast for the next year’s first
percentage variance of 7.5%
quarter (based on the number of guests last
year).

First-Quarter Revenue Forecast

Forecasting Future Guest Counts

Forecasting Future Guest Counts

• By using the same techniques employed in
Forecasting Future Average Sales Per
estimating increases in sales, managers
Guest
can estimate increases or decreases in the
number of guests served. • Average sales per guest (check average)
is simply the average amount of money a
guest spends during a visit.
• Using data taken from the sales history, • Undertaking green initiatives can help
the following formula is utilized to forecast increase guest counts. Customers are
future Sales per Guest: increasingly concerned about the quality of
their environment.
Technology Tools
• The importance of accurate sales histories
for use in forecasting future sales is
• An average sales per guest forecast can unquestionable. A modern POS system can
also be obtained by dividing the revenue be invaluable in this effort.
forecast by the guest count forecast • Many systems today can be utilized to do
the following:
1. Track sales by guest count or by date
2. Monitor cash vs. credit sales
First-Quarter Average Sales per Guest
Forecast 3. Maintain products sold histories and
check average data
4. Compare actual sales to prior-period
sales Technology Tools
• Many systems today can be utilized to do
the following: (cont.)
5. Maintain rolling sales averages
6. Forecast future sales in increments
Forecasting Future Average Sales Per 7. Maintain actual sales to forecasted sales
Guest variance reports
8. Maintain reservations systems
• Reservation software makes it possible for
operators to reward repeat guests by
developing their own “frequent dining”
programs, similar to a hotel or airlines’
frequent-traveler programs.
• Customer complaints can be tracked and,
if desired, coupons to compensate guests
Forecasting Future Sales for difficulties can be printed and distributed.
• When used alone, sales histories are not • For those operations that rely on
sufficient to accurately predict future sales. reservations to control bookings, software of
• Managers must also consider potential this type is available to instantly identify
price changes, new competitors, facility repeat guests, giving the operator a display
renovations, improved selling programs, screen that can include such information as
and other factors.
frequency of visit, purchase preferences,
and total dollars spent in the operation.

Lesson 3: Purchasing and Receiving

Forecasting Food Sales
• Forecasting future sales addresses the
important operational questions of:
“What will they order?”
Forecasting Item Sales
“How many people will I serve today?”
• The proper amount of menu item
production minimizes the chances of
running out of an item before a meal period
is over; and it minimizes the chances of
having excessive amounts unsold when the
meal period is completed
Menu Item Sales History
Forecasting Food Sales
Factors influencing the number of
guests to be served include:

❖Competition

❖Weather

❖Special events in the area

Forecasting Food Sales
❖Holidays
• Popularity index is defined as the
percentage of total guests choosing a given ❖Facility occupancy
menu item from a list of alternatives.
❖Advertising and promotions

❖Competitor advertising

❖Quality of service

❖Changes in operating hours

❖Operational consistency

Sales histories track past performance and

thus they are not precise estimates of future
sales.
Forecasting Beverage Sales Unlike beer and wine, however, using that
information to estimate the exact drink
• Alcoholic beverages are those products
guests will request can be difficult.
that are meant for consumption as a
beverage and that contain a significant Standardized Recipes
amount of alcohol. These products are
• Standardized recipes control both the
generally classified as:
quantity and quality of what a kitchen will
▪ Beer produce.
▪ Wine • A standardized recipe details the
procedures to be used in preparing and
▪ Spirits
serving each menu item.
Forecasting Beverage Sales
• A professionally developed standardized
Beer: Fermented beverages made from recipe will contain the following:
grain and flavored with hops
1. Menu item name
Wine: Fermented beverages made from
2. Total yield (number of servings)
grapes, other berries and fruits.
3. Portion size
Spirits: Fermented beverages that are
distilled to increase the alcohol content of 4. Ingredient list
the product; these are also referred to as
5. Preparation/method section
liquors.
6. Cooking time and temperature
Forecasting Beer Sales
7. Special instructions, if necessary
–A specific beer brand might be sold in
individual cans, bottles, or in kegs. 8. Recipe cost (optional)
– Keg beer is also known as draft beer, or
beer in a form of packaging in which the
beer is shipped in multi-gallon units for bulk
sale.
Forecasting Wine Sales

In many operations the forecasting of wine

sales will be divided into two parts:
–Wine-by-the-bottle
–Wine-by-the-glass
Some managers use the following
Forecasting Spirit Sales arguments against implementing
Like beer and wine, the number of guests standardized recipes:
who order a mixed drink (a drink made with 1. They take too long to use.
a spirit) can be recorded and analyzed.
2. My people don’t need recipes; they know
how we do things here.
3. My chef refuses to reveal his or her Factor Method Usage
secrets.
4. They take too long to write up.
5. We tried them but lost some, so we
stopped using them.
6. They are too hard to read, or many of my
people cannot read English.
Reasons for using standardized recipes
include:
1. Accurate purchasing
2. Dietary concerns are addressed because
ingredients are identified
3. Accuracy in menu laws are addressed
because ingredients identified
4. Matching food used to cash sales
Percentage Method
5. Accurate recipe costing and menu pricing
6. New employees can be better trained
7. Computerization of a foodservice
operation depends on them.
• When adjusting recipes for quantity (total
yield), two general methods may be
employed.
Factor Method
Percentage Technique
 Sample Product Specification

Purchasing
Purchasing is essentially a matter of
determining the following:
Selected Produce Container Net Weights
1. What should be purchased?
2. What is the best price to pay?
3. How can a steady supply be assured?
What Should Be Purchased?
Product specification (spec) – a detailed
description of an ingredient or menu item.
• A spec communicates, in a very precise
way, with a vendor so that an operation
receives the exact item requested every
time.
Purchasing
• Each menu item or ingredient should have
its own spec. • Product yield is the amount of product
remaining after cooking, trimming,
A professionally developed spec includes: portioning or cleaning.

➢Product name or specification number • Product yield has a direct impact on

product costs
➢Pricing unit
What Is the Best Price to Pay?
➢Standard or grade
• The best price is more accurately stated
➢Weight range/size – count as the lowest price that meets the long-term
goals of both the foodservice operation and
➢Processing and/or packaging its vendor.
➢Container size • Make vs. Buy decisions (example: burger
bun)
➢Intended use
• Bid sheet – comparison shopping
➢Other information such as product yield
• Price comparison sheet – after –Orders for meats, produce, and some
managers have received bids from bakery products are best split among
suppliers, they can compare those bids. several vendors, perhaps with a primary
and secondary vendor in each category so
Purchasing
that you have a second alternative should
• Bid sheets and price comparison sheets the need arise.
are a good place to start.
Purchasing Ethics
• Other determining factors: vendor • Ethics have been defined as the choices
dependability, quality of vendor service, and
of proper conduct made by an individual in
accuracy in delivery Purchasing
his or her relationships with others.
• Minimum order requirement is the smallest
• Ethical Guidelines
order that can be placed with a vendor who
delivers. 1. Is it legal?
– If the minimum order requirement 2. Does it hurt anyone?
cannot be met using the lowest prices, then
3. Am I being honest?
the manager may have to choose the
supplier with the next highest price to fill a 4. Would I care if it happened to me?
complete order.
5. Does it compromise my freedom as a
How can a steady supply be assured? buyer?
–Suppliers have a variety of prices based 6. Would I publicize my action?
on the customer to whom they are quoting
them. ➢Kickbacks always hurt the company

– It is simply in the best interest of a Purchasing Beverages

supplier to give a better price to a high-
• Determining which wines to buy is a matter
volume customer.
of selecting both the right product and
• Cherry Pickers – how suppliers describe packaging form for an operation’s needs. To
the customer who gets bids from multiple do so managers must first determine if they
vendors, then buys only those items each will sell wine by the:
vendor has “on sale” or for the lowest price.
❑Glass
• Slow pay means high pay (higher prices
paid for operators who are slow to pay their ❑Split or half-bottle
bills).
❑Carafe
• Vendors can be great source of
information related to new products, cooking ❑Bottle
techniques, trends and alternative product
usage.
• One vendor versus many vendors
–Staples and non-perishables are best
purchased in bulk from one vendor.
Wine Bottle Sizes • Well liquors are those spirits that are
served when the guest does not specify a
particular brand name when ordering. The
name stems from the concept of the “well,”
or the bottle holding area in the bar.
• Call liquors are those spirits that guests
request by name, such as Jack Daniel’s,
Kahlúa, and Chivas Regal. Extremely
expensive call liquors are sometimes
referred to as premium liquors.
Beer Purchasing
Spirits Purchasing Beer is the most highly perishable of
alcoholic beverage products. The pull date,
• Spirits have an extremely long shelf life -
or expiration date, on these products can be
the period of time they can be stored with
no significant reduction in quality. as short as a few months or even a few
weeks.
• Thus, managers can make a “mistake” and
Because of this, it is important that the
purchase the wrong spirit product or too
beverage operator only stock those beer
much of one without disastrous results, but
only if that product can be sold over areas and craft beer items that will sell relatively
on able period of time. quickly

Purchase Orders
A purchase order (PO) is a detailed listing
of products requested by a buyer.
• A PO may include a variety of product
information but must always include the
quantity ordered and the price quoted by the
supplier.
• The purchase order (PO) should be made
out in triplicate (3 copies.)
 The receiving area must be large enough to
allow for checking products delivered
against both the delivery invoice, which is
the seller’s record of what is being delivered
and the PO; the buyer’s record of what was
ordered.
Receiving
• Accessibility to equipment required to
Purchasing move products to their proper storage area
and to dispose of excess packaging is
The advantages of a written Purchase important.
Order are many and include the following:
• Receiving areas must stay free of trash
1. Written verification of quoted price and clutter, as these make it too easy to
hide delivered food items for later attempts
2. Written verification of quantity ordered
of theft.
3. Written verification of the receipt of all
• Remember that the delivery person is also
goods ordered
a potential thief.
4. Written and special instructions to the
• The receiving area should be kept
receiving clerk, as needed
extremely clean, since you do not want to
5. Written verification of conformance to contaminate incoming food, or provide a
product specification carrying vehicle for pests. The area should
be well lit and properly ventilated.
6. Written authorization to prepare vendor
invoice for payment. Receiving Food and Beverage Products
Receiving Food and Beverage Products Although the tools and equipment needed
for effective receiving vary by type and size
In proper ordering and receiving one of operation, some items are standard in
individual places the order, while another any receiving operation. These include:
individual is responsible for verifying
delivery and acceptance of the product. • Scales

• Auditors are individuals responsible for • Wheeled equipment

reviewing and evaluating proper operational
• Box cutters
procedures. They can determine the
potential for fraud or theft. • Thermometers
The requirements for effective receiving are: • Calculators
1. Proper location Receiving Food and Beverage Products
2. Proper tools and equipment
3. Proper delivery schedules
4. Proper staff training
Delivery Schedules ✓Pull dates (beer)
• Some operators are able to demand that Receiving Beverages
deliveries be made only at certain times.
These are called acceptance hours. The When receiving beverage products, the
operation may refuse to accept delivery of following items are of special concern and
products at any other time. should be verified: (cont.)

• Some large operations prefer to establish • Correct vintage or year produced (wine)
times in which they will not accept • Correct unit price
deliveries. These are called refusal hours.
• Correct price extension
Staff Training
• Correct invoice total
• Receiving clerks should be trained to verify
the following product characteristics: weight, Verifying Price
quantity, quality, and price.
In the area of training staff to verify proper
• Receiving clerks should be required to pricing, two major concerns should be
weigh all meat, fish and poultry delivered, addressed:
with the exception of unopened Cryovac
1. Matching PO unit price to delivery invoice
(sealed) packages.
unit price
• When an item is ordered by weight, it
2. Verifying price extensions and totals
should be verified by weight.
Price extension is the process by which
Credit Memos
you compute extended price.
• Shorting is the term used to indicate that
Receiving
an ordered item has not been delivered as
requested. • A contract price is an agreement between
buyer and seller to hold the price of a
• When a vendor shorts the delivery of an
product constant over a defined period of
item you ordered, that item may or may not
time.
appear on the delivery invoice.
• Extended price is the unit price of an item
• If the item is listed on the delivery invoice,
multiplied by the number of units delivered.
the delivery driver should sign a credit
memo. A credit memo indicates an ➢Never assume extensions are correct
adjustment to a delivery invoice must be because a computer did them!
made.
➢If a supplier consistently shorts an
Receiving Beverages
operation, that supplier is suspect both in
When receiving beverage products, the terms of honesty and lack of concern for the
following items are of special concern and operation’s long-term success.
should be verified:
➢Training your receiving clerk to assess
✓Correct brand and evaluate quality products is a
continuous process.
✓Correct bottle size

✓No broken bottles or bottle seals

Receiving Records Storing Food Products
• Some large operations use a receiving The storage process, in most foodservice
record when receiving food. establishments, consists of three main
tasks:
• A receiving record generally contains the
following information: name of supplier, 1. Placing products in storage
invoice number, item description, unit price,
2. Maintaining storage areas
number of units delivered, total cost,
storage area, and date of activity. 3. Maintaining product security
• Receiving reports can be helpful if it is
important to record where items are to be
delivered or have been delivered. Placing Products in Storage

Technology Tools When an operation stores an inventory item

management must first choose between the
This chapter focused on managing food- use of a LIFO (last in, first out) or FIFO (first
related costs by controlling the areas of in, first out) method of product rotation for
forecasting future sales, using standardized that item.
recipes, effective purchasing, and proper
receiving.
• There are a variety of software programs
that are available that can assist managers
in purchasing and receiving. These include:

➢Recipe Software: To forecast production,

cost and adjust recipes

➢Purchasing Software: To create bid

sheets and prepare purchase orders • When using the LIFO storage system,
the storeroom manager intends to use the
➢Receiving Software: To record deliveries
most recently delivered product (last in)
before he or she uses any part of that same
product previously on hand.
Lesson 4: Managing Inventory and
Production • When using the FIFO storage system,
the storeroom manager intends to rotate
Inventory Control stock in such a way that product already on
• In most cases, after purchased items have hand is sold prior to the sale of more
been received, they must be immediately recently delivered product. With FIFO,
placed into storage. oldest products (first in) are used before
newer products.
• Food and beverage product quality rarely
improves with increased storage time. • FIFO is the preferred storage technique for
most perishable and nonperishable items.
• The quality of most products purchased
will be at their peak when the product • Failure to implement a FIFO system of
ordered has been delivered. storage management can result in
excessive product loss due to spoilage,
shrinkage, and deterioration of product ❖Hallways leading to storage areas should
quality. always be kept cleared and free of excess
storage materials and empty boxes.
• Some operators date inventory items and
indicate the day (or hour) in which the Refrigerated Storage Areas
product should be pulled from storage,
thawed, or even discarded (disc.). ❖Potentially hazardous foods are those
which must be carefully handled for time
Maintaining Storage Areas and temperature control to keep them safe.
To maintain the quality and security of
❖Refrigerator temperatures used to store
delivered items, the items should be
potentially hazardous foods should be
immediately placed into one of three
maintained at 410F (5 0C) or less.
storage areas:
❖In most cases, the lower areas of the units
 Dry-storage
tend to be coldest in refrigerators.
 Refrigerated storage
 Frozen storage ❖Walk-in refrigerators should have easily
Dry-Storage Areas cleaned shelving units that are at least six
inches off the floor and are slotted.
Dry-storage areas should be maintained at
a temperature ranging between 650F and ❖Shelves and walls should be properly
750F (180C and 240C). Temperatures cleaned on a regular basis.
below or above that range can be harmful to
❖Refrigerators should be opened and
food products.
closed quickly when used.
❖Shelving in dry-storage areas must be
❖Condensation drainage systems in
easily cleaned and sturdy enough to hold
refrigerators should be checked weekly.
the weight of dry products.
Freezer Storage
❖Slotted shelving is preferred over solid
shelving because it allows for better air ❖Freezer temperatures should be
circulation around stored products. maintained at 0 0F (- 180C) or less.
❖All shelving should be placed at least six ❖Newly delivered products should be
inches above the ground. carefully checked with a thermometer when
received to ensure that they are solidly
❖Dry-goods products should never be
frozen.
stored directly on the floor.
❖Refrigerators and frozen-food holding
❖When placed into storage, all can, and
units remove significant amounts of stored
case labels should face out for easy product moisture which can cause freezer
identification. burn in meats and produce.
❖Large quantities of bulk items (for ❖Stand-alone freezers should be placed six
example flour and sugar) should be stored to ten inches away from walls to allow for
in wheeled bins whenever possible the free circulation of air.

❖Frozen-food holding units must be

regularly cleaned inside and out.
❖Constant temperature monitoring is Storing Beverage Products
essential
• When storing wine, it should be exposed
❖It is also important to periodically check only to the minimum amount of light
that gaskets on freezers, as well as on necessary.
refrigerators, to ensure they create a tight • The cork protects wine from its greatest
seal. enemy, oxygen.
Storing Beverage Products Oxidation occurs when oxygen comes in
• Storage areas should be clean, free of contact with bottled wine – it smells
infestation, and large enough to allow for somewhat like vinegar.
easy rotation of stock. • Wine should always be stored in such a
• Security is crucial in beverage storage way that the cork remains in contact with
areas. A two-key system is often used; the the wine to stay moist, usually on its side.
individual responsible for the beverage area • Storage should keep the cork, and thus
has one key while the other key is kept in a the wine, cool, dark, and moist.
sealed envelope in a secured area. In the
event of emergency, the envelope can be Liquor Storage
opened.
❖Spirits should be stored between 700F
• Spirits should be stored in a relatively dry and 800F (210C to 270C) in a locked or
storage area between 70 and 80F (21 to highly secure and dry storage area.
27C).
❖Because spirit products do not generally
• Beer in kegs or unpasteurized containers require refrigeration, they may be stored
should be stored at refrigeration along with food products, if necessary.
temperatures of 36 to 38F (2 to 3C).
Inventory Management
• Canned beer should be covered when
stored to prevent dirt from accumulating on ❖Proper inventory management seeks to
the rim. provide appropriate working stock, which
is the amount of an ingredient management
• Pasteurized beer should be stored in a anticipates using before purchasing that
cool, dark room at 50 to 70F (10 to 21C) item again, and a minimal safety stock, the
• The three components critical to wine extra amount of that ingredient that should
storage are temperature, light, and cork be kept on hand to meet higher than
condition. anticipated demand.

• Most experts agree that wines should be Proper inventory levels are determined by a
stored at a cellar temperature or variety of factors:
approximately 500F to 570F (120C to 1. Storage Capacity
140C).
2. Item perishability
• White wines, however, are often stored at
refrigerator temperatures. 3. Vendor delivery schedule

• Heat is an enemy of effective wine 4. Potential savings from increased

storage. purchase size
5. Operating calendar ❖The inventory valuation sheet has a place
for all inventory items, the quantity on hand,
6. Relative importance of stock outages
and the unit value of each item.
7. Value of inventory cash to the operator
❖There are also places for the date the
• Do not overload storage capacity because inventory was taken, the name of the
it can lead to greater spoilage and loss due person who counted the product, and the
to theft. name of the person who extends
(calculates) the monetary value of the
• Shelf life is the amount of time a food item
inventory.
retains its maximum freshness, flavor, and
quality while in storage. ❖“Taking the inventory” can be a very time-
• The cost to the vendor for too frequent consuming task.
deliveries will be reflected in the cost of the ❖ A physical inventory, one in which the
goods to the operator.
food and beverage products are actually
Determining Amounts in Inventory counted, must, however, must be taken to
determine actual product usage.
❖Inventory levels may be determined by
counting the item, as in the case of cans, or ❖Some operators take a physical inventory
by weighing items, as in the case of meats. monthly, weekly or even daily.
Volume (e.g., gallons, quarts, and the like),
Product Issuing and Restocking
is another method of establishing product
amounts. ❖Issuing is the formal process of removing
needed beverage, food, and supply
❖Inventory methods used to determine
products from inventory.
amounts of spirits include counting,
weighing and visual estimates of product ❖The issuing of products should occur only
remaining in open containers. after the product has been requisitioned.
Determining Inventory Values ❖A requisition is a formal request to have
• Proper inventory control requires products issued from storage.
monitoring both the amount and value of • Food, beverages, and supplies should be
items in inventory. requisitioned only as needed based on
• Valuing, or establishing a money value for approved production schedules.
an inventory item is performed using the • Needed items should be issued only with
following item inventory value formula: management approval. Product Issuing and
Restocking
• If a written record of issues is to be kept,
each person removing food, beverages, or
supplies from the storage area must sign,
acknowledging receipt of the products.
❖Inventory value is determined using a
form similar to the inventory valuation • Products that do not ultimately get used
sheet. should be returned to the storage area, and
their return should be recorded.
Special Concerns for Issuing Beverages ❖As bar-code-reading hardware and
software programs become more popular,
• Although various systems could be used
additions and deletions to and from
for issuing liquor, many managers favor the
inventory are increasingly recorded
empty for full system of liquor replacement.
electronically.
• In this system, each bartender is required
to hold empty liquor bottles in the bar or a ❖In all cases, however, perpetual inventory
closely adjacent area. At the conclusion of systems, regardless of the form they take,
the shift, or at the start of the next shift, must be verified, on a regular basis, by an
each empty liquor bottle is replaced with a actual physical inventory.
full one. ABC Inventory Control
• The empty bottles are then either broken • Category A inventory items are those that
or disposed of, as local beverage law require tight control. They are typically high-
requires. value items, and though few in number, they
Restocking Inventory can make up 70 to 80% of the total
inventory value. Example: Alcoholic drinks
❖It is management’s responsibility to
• Category B items are those that make up
monitor reductions in product inventories
10 to 15% of the inventory value and require
and purchase additional products as
only routine control and record keeping.
needed.
Example: Soft drinks and Bottled water
❖Proper restocking of inventory is critical if
• Category C items make up only 5 to 10%
product shortages are to be avoided and if
of the inventory value. These items require
products needed for menu item preparation
only the simplest of inventory control
are to be available. Restocking Inventory
systems. Example: Tissue papers
❖A perpetual inventory system is one in ABC Inventory Control
which the entire inventory is counted and
recorded, and then additions to and To develop the A, B, and C categories,
deletions from total inventory are recorded follow these steps:
as they occur.
1. Calculate monthly usage in units (e.g.,
❖Accuracy in maintaining perpetual pounds, gallons, cases and the like) for
inventory systems is essential. each inventory item.
2. Multiply total item usage times its
❖A bin card is simply an index card (or line
purchase price (unit value) to arrive at the
on a spreadsheet) that details additions to
total monthly amount of product usage.
and deletions from a given product’s
inventory level. They are most often used 3. Rank items from highest amount usage to
for wines and spirits. lowest.
❖The accurate use of a bin card, or any
other perpetual inventory system, requires
that every addition to, and subtraction from,
the products in inventory be carefully
recorded
 an item that should be held in inventory at
all times.
• A good way to ensure a manager has
checked all in storage items for quantities
on hand is to use a daily inventory sheet. A
daily inventory sheet lists all items held in
storage areas, their unit of purchase, and
their par values on a pre-printed.
• In addition, the form should have the
following columns: On hand, Special order,
and Order amount.
• The ABC system focuses management’s
attention on essential inventory items in When special orders are required, the
inventory, while focusing less attention on formula used to calculate the amount to
lower-cost, slow-moving items. purchase is:

• The ABC system can also be used to

arrange storerooms or to determine which
items should be stored in the most secure
areas.
Managing Food Production
• Regardless of the inventory management
system used management must be strict in • When managers have ordered and
monitoring both withdrawals from inventory received the food and beverage products
and the process by which inventory is they forecast will be purchased by guests,
restocked. their concern turns toward the most
Purchase Points important function of all, controlling the food
and beverage production process.
❖A purchase point is the point at which an
• If any single activity stands at the heart of
item should be reordered and its inventory
foodservice management and cost control,
level replenished.
this is it.
❖An item’s proper purchase point can be Controlling Food Production Costs
established by one of two methods:
• Managing the food production process
1. As needed (just-in-time) means controlling five key areas:
2. Par level Purchase Points 1. Waste
• The as-needed, or just-in-time, method 2. Overcooking
of determining an item’s purchase point is
based on predictions of future sales. 3. Overportioning
Purchasing based on sales and the use of
4. Improper carryover utilization
standardized recipes results in a list of
needed ingredients. 5. Inappropriate make or buy decisions
• When managers use par levels for some Waste
inventory items, they identify the amount of
• Management’s primary goal in reducing • Carryover foods seldom can be sold for
waste in the food production area should be their original value.
to maximize product utilization and minimize
• As a result, carryovers generally mean
the “it’s only a few pennies worth of product
reduced income relative to original product
so it doesn’t matter” syndrome.
value, and thus less profits.
Overcooking
• Carryover items should be properly
• Portion cost is the cost of producing one labeled, wrapped, and rotated so these
serving of a menu item items can be found and re-used easily.
• Overcooking can significantly increase an Inappropriate Make or Buy Decisions
operation’s portion costs.
• Many foodservice operators choose to buy
Overportioning some food products that are pre-prepared.
These items are called convenience foods,
• Overportioning on the part of service
or ready foods.
personnel has the effect of increasing
operational (portion) costs and may cause • Convenience foods most often save
the operation to mismatch its production money spent on labor, equipment, and
schedule with anticipated demand. hard-to-secure food products. They can also
add menu variety beyond the skill level of
• Also, overportioning must be avoided
the average kitchen crew.
because guests always want to feel that
they have received fair value for their • A disadvantage of them is that these items
money. If portions are large one day and tend to cost more on a per-portion basis.
small the next, guests may feel that they
The following guidelines are of value when
have been cheated on the second day.
determining whether to adopt the use of a
• Food scoops are sized based on the convenience product:
number of servings per quart of product
• Is the quality acceptable?
served. Thus, a #12 scoop will yield 12
servings per quart. A #20 scoop will yield 20 • Will the product save labor?
servings per quart; and so on.
• Would it matter if the guest knew?
• The consistent use food scoops and other
portioning tools helps ensure food and • Does the product come in an acceptable
beverage portion sizes are appropriate for package size?
guest and the operation. • Is appropriate storage space available?
• The constant checking of portion size Food Production Schedules
served is an essential task of management
A complete food production schedule
Improper Carryover Utilization process requires managers to:
• Some prepared food items will inevitably • Maintain sales histories.
remain unsold at the end of the operational
day. These items are called carryovers, or • Forecast future sales levels.
in some operations, leftovers.
• Purchase and store needed food and
• Effective carryover utilization is essential beverage supplies.
for controlling product costs.
• Plan daily production schedules. 10. Identify payment method (e.g., Cash,
check, and credit or debit card).
• Issue needed products to production
areas. 11. Record guest sales by table or check
number.
• Manage the food and beverage production
process. 12. Record date and time of sales.
The process of determining how much of Responsible Beverage Service
each menu item to prepare on a given day
The proper management of a beverage
is based on an accurate sales forecast and
operation requires strict adherence to
uses the following formula
control procedures for several reasons:
Prior-Day Carryover + Today’s
1. Beverage operations are subject to tax
Production = Today’s Sales Forecast ±
Margin of Error audits to verify sales revenue. In some
states, these audits are unannounced.
Managing Beverage Production
2. Beverage operations can, in some cases,
Beverage managers can utilize a variety of be closed down “on the spot” for the
control systems ranging in effectiveness violation of a liquor law.
from poor to very good:
3. Employees in a bar may deceptively seek
▪ Free pour to become operational “partners” by
bringing in their own beverage products to
▪ Jigger pour
sell and then keeping sales revenue.
▪ Metered pour
4. Detecting the disappearance of small
▪ Beverage gun amounts of beverage products is extremely
difficult, as, for example, the loss of 8
▪ Total bar system ounces of beer from a multigallon keg.
Total bar systems can perform one or all Technology Tools
of the following tasks:
Programs available in the inventory and
1. Record beverage sale by brand. production control areas include those that
2. Record who made the sale. can:

3. Record sales and/or post the sale to a • Maintain product inventory values by food
guest room folio (bill) in a hotel. category (i.e., produce, meat, dairy, etc.).

4. Measure and dispense liquor for drinks. • Create “shopping lists” through production
of daily inventory and comparison with
5. Add predetermined mixes to drink. production schedules.
6. Reduce liquor values from beverage • Report par stock levels, daily storeroom
inventory value totals as drink sales are issues and daily product usage. Technology
made. Tools
7. Prepare liquor requisitions. • Maintain perpetual inventory.
8. Compute liquor cost by brand sold. • Compute LIFO or FIFO inventory values.
9. Calculate gratuity on checks.
• Maintain inventory products database by
vendor, storeroom location, product type,
alpha order, etc.
• Report below-par inventory levels.
• Report daily cost of goods issued or sold.
• Interface with handheld bar code readers
for accurate inventory count and price
extension.
• Compute inventory loss rates. Cost of Food Sold
• Develop production schedules based • Beginning inventory is the amount value of
weekly, daily or monthly sales forecasts. all food on hand at the beginning of an
• Create product requisition (issues) lists accounting period. It is determined by
based on forecasted sales. completing a physical inventory; the actual
count and valuation of all foods in storage
and/or in production areas.
Lesson 5: Monitoring Food and • Purchases are the sum cost of all food
Beverage Product Costs bought during the accounting period. The
purchases amount is determined by adding
Cost of Sales
and properly summing the value of all
• When the amounts of an operation’s delivery invoices and other bills for products
individual food and beverage costs are purchased in the accounting period.
combined they are referred to as the
• Food available for sale is the sum of the
operation’s total cost of sales.
beginning inventory added to the purchases
• The ability to accurately calculate and made during a specific accounting period.
report an operation's cost of sales is an Some managers refer to food available for
important management skill. • In nearly all sale as goods available for sale because
food service operations a manager's ability this term was commonly used prior to the
to control cost of sales will be used as a publication of the most recent edition of the
primary measure of that manager’s USAR.
competence.
• Ending inventory refers to the amount
Computing Cost of Food Sold value of all food on hand at the end of the
accounting period. It must be determined by
• It is important to recognize that the cost of completing an accurate physical inventory.
sales incurred by an operation in an
accounting period is most often not equal to • Cost of food consumed is the actual
the amount of food purchases in that same amount value of all food used due to its
accounting period. sale, spoilage, waste, or theft.

• Because that is true, managers must use a • Employee meal cost is a labor-related, not
very specific process to accurately calculate food-related, cost therefore, the value of this
their cost of sales and cost of sales benefit, if provided, is subtracted from the
percentages. cost of food consumed and added to the
cost of labor to more accurately reflect an
operation's true cost of food sold.
• Cost of food sold, or cost of goods sold, is
the actual amount of all food expenses
incurred by the operation minus the cost of • In some operations reductions from, and
employee meals. additions to, food and beverage expenses
Food Cost Percentage must be considered when accurately
calculating the operation’s cost of goods
The formula used to compute an operation’s sold.
food cost percentage is:
• These transfers to beverage costs are
made for drink related products such as
fruits and vegetables.
• Transfers (away) from beverage costs are
made for items such as cooking wines and
Cost Per Meal
beers used in food preparation.
Utilizing the Cost of Sales Percentage
Managers who understand the cost of sales
formulas for food and beverages are in a
good position to perform a variety of tasks
Computing Cost of Beverage Sold that can improve the management of their
• Cost of beverage sold is the money operations. These include:
amount of all beverage and beverage- • Calculating cost of sales for individual
related products sold, as well as the costs of product categories
all beverages that were given away, wasted,
or stolen. • Estimating daily cost of sales
• Comparing actual costs to attainable costs
Cost of Sales by Category

In many cases, restaurant managers

calculate separate cost of sales
percentages or proportions only for certain
items such as meats and sea foods.
Similarly, beverage managers often
calculate separate cost of sales
Beverage Cost Percentage percentages for their beer, wine, and liquor
sales.
• To properly analyze an operation's
beverage cost percentage, managers Estimating Daily Cost of Sales
must determine the amount of beverages
The best managers want to know their cost
used and the amount of beverage sales
of sales on a daily or weekly basis, rather
achieved. The formula used to compute an
than merely on a monthly basis.
operation’s beverage cost percentage is:
When they do, they can better address cost The standardized recipe cost sheet is
of sales-related problems as they occur. simply a record of the ingredient costs
required to produce a standardized recipe.
In order for the six-column food cost to be
Managers use standardized recipe cost
an accurate estimate, you must make one
sheets to calculate their total recipe costs
important assumption:
and their individual portion costs.
For any time period you are evaluating, the
Product Yield
beginning inventory and ending inventory
amounts are the same. • Most foodservice products are delivered in
their as purchased (AP) state. This refers
For most operators, the 6-column estimates
to the weight or count of a product as it is
is quite accurate and has the following
delivered to the foodservice operator.
advantages:
• Edible portion (EP) refers to the weight of
1. It is very simple to compute, requiring 10
a product after it has been cleaned,
minutes or less of data entry per day for
trimmed, cooked, and portioned.
most operations.
To determine actual recipe costs, it is often
2. It records both sales history and
necessary to conduct a yield test to
purchasing patterns.
determine an ingredient’s EP cost rather
3. It identifies potential problems before the than its AP cost.
end of the monthly accounting period.
• A yield test is a procedure used for
4. By the ninth or tenth day, the degree of computing actual EP costs on an AP
accuracy in the To Date column is very product that sustains weight or volume loss
high. during preparation.

5. It is a daily reminder to both management

and employees that there is a very definite
relationship between sales and expenses.
Comparing Actual Costs to Attainable For meats and sea foods, managers can
Costs conduct a butcher’s yield test that
considers loss due to trimming inedible fat
When managers calculate overall cost of and bones, as well as losses due to cooking
sales amounts and percentages, and or slicing when they calculating EP costs.
estimate these costs on a daily or weekly
basis, they are in a good position to answer When performing yield tests, managers are
several important operational questions: interested in a product’s waste percentage
and yield percentage.
• What are our actual product costs?
Waste % is the percentage of product lost
• What should be our attainable product due to cooking, trimming, portioning, or
costs? cleaning. Managers calculate an item’s
• How close are we to our cost goals? waste % using the following formula:

In addition to having a standardized recipe

for each item, managers should have a
standardized recipe cost sheet for each
item.
After waste % has been determined, it is • Attainable product cost is defined as that
possible to compute an ingredient’s yield %. cost of goods sold figure that should be
achievable given the product sales mix of a
Yield % is the percentage of product
particular operation.
remaining after cooking, trimming,
portioning, or cleaning. To calculate yield %
managers use the following formula:

Yield percentage is important because, if it • Attainable product cost excludes any

is known, managers can compute the AP losses due to overcooking, over-portioning,
weight they must buy to yield the waste, theft, etc. Therefore, it is rarely
appropriate EP weight amount needed in achieved.
their recipes.
• It is important for managers to establish
• Managers determine the amount of an AP acceptability variance ranges for products in
ingredient they must have available by their own facilities.
using the following formula:
Acceptable and Unacceptable Variance
Managers can calculate their product cost
variances and product cost variance
percentages. When comparing their actual
product costs with their attainable product
costs they use the following formula:

Edible portion cost (EP cost) is the portion

cost of the item after cooking, trimming,
portioning, or cleaning. The EP cost is
useful to know because it represents the Reducing the Cost of Sales Percentage
true cost of an ingredient or menu item
In some cases managers may find that their
based on its product yield. EP cost is
product-related costs are too high to allow
computed using the EP cost formula:
them to meet their profit goals. To achieve
product costs that are at their proper
proportion of sales managers must perform
three important tasks. These are:
• Minimizing product loss in the kitchen
Determining Actual and Attainable Product
Costs • Minimizing product loss in the bar
• Operational Efficiency – Compares how • Optimizing overall cost of sales
well a manager is doing with how well he or percentage
she should be doing.
Minimizing Product Loss in the Kitchen
Food and Beverage Product Security • When bartenders overpour, they are
Tips stealing from the operation. When they
underpour, they are shortchanging the
1. Keep all storage areas locked and
guest.
secure.
Dilution of Product
2. Issue food only with proper authorization
and management approval. • Often called “watering down the drinks,”
this method of bar or storeroom theft
3. Monitor the use of all carryovers.
involves adding water to the product to
4. Do not allow food to be prepared unless a make up for spirits that have either been
guest check or other written request stolen or given away.
precedes the preparation.
Product Substitution
5. Maintain an active inventory management
• When a specific call brand liquor has been
system.
ordered and paid for by a guest, it should be
6. Ensure that all food received is signed for served to that guest. If a bartender
by the appropriate receiving clerk. substitutes a less expensive well liquor for
the call brand, while charging the guest for
7. Do not pay suppliers for food products the higher priced call liquor, the bartender
without an appropriate and signed invoice. may intend to keep the difference in the
8. Do not use “petty cash” to pay for food prices paid for the two items.
items unless a receipt and the product can Use Mystery shoppers
be produced.
• Mystery shoppers (spotters) are those
9. Conduct systematic physical inventories individuals who pose as anonymous
of all level A, B, and C level products. customers but, during their unannounced
10. Do not allow employees to remove food visits, they observe workers carefully and
from the premises without management’s later report to management any unusual or
specific approval. inappropriate behavior by bartenders or
service staff.
Minimizing Product Loss in the Bar
Additional problem areas related to
The following activities must be beverage product control include:
prevented/managed to help ensure the
opportunities for product theft in a bar are • In-room minibars
minimized: • Bottle sales
Order Filled but Not Rung Up • Open bars
• In the ‘order filled but not rung up’ case, • Banquet operations
the bartender delivers the drink as
requested by the guest or server, but the Optimizing Overall Cost of Sales
drink sale is never recorded in the POS Percentage
system; and the bartender simply keeps the
– If costs can be kept constant but sales
amount of the sale.
increase, the cost percentage goes down.
Over- and Underpouring
– If costs remain constant but sales decline,
the cost percentage increases.
– If costs go up at the same rate sales go Vary Recipe Composition
up, the cost of goods sold percentage will
• Even the simplest standardized recipes
remain unchanged.
can most often be varied somewhat.
– If costs can be reduced while sales
• The question of what constitutes an ideal
remain constant, the cost percentage goes
recipe composition must be answered by
down.
management and will directly impact the
– If costs increase with no increase in sales, operations' overall food cost percentage.
the cost percentage will go up.
• Similarly, the proportion of alcohol to mixer
Reducing Overall Product Cost has a profound effect on beverage cost
Percentage percentages.
Six methods for reducing product cost Alter Product Quality
percentage:
• In nearly all cases, higher-quality products
• Decrease portion size relative to price. cost an operator more than lower-quality
products.
• Vary recipe composition.
• That is also true for managers purchasing
• Adjust product quality.
food and beverages.
• Achieve a more favorable sales mix.
• One way to achieve cost savings is to
• Ensure that all product purchased is sold. reduce product quality.

• Increase price relative to portion size. • This area must be approached with great
caution to ensure continued high levels of
guest satisfaction.
Ensure That All Product Purchased Is • When managers find that an appropriate
Sold ingredient, rather than the highest-cost
• These seven words have tremendous ingredient, provides good quality and good
implications. value to guests, product costs may be able
to be reduced using product substitution.
• They include all phases of professional
purchasing, receiving, storage, inventory, • Lower quality products may cost an
issuing, production, service, and cash operator less, but customers may also
control. perceive that menu items made from these
lower quality ingredients provide reduced
Decrease Portion Size Relative to Price levels of value to them and that reaction by
guests must always be avoided.
• Product cost percentages are directly
affected by portion size. Achieve a More Favorable Sales Mix
• Most guests would prefer a smaller portion Sales mix is defined as the series of guest
size of higher quality ingredients than the purchasing decisions that result in a specific
reverse. food or beverage cost percentage.
• Portion sizes are determined by the • Sales mix affects overall product cost
foodservice manager and, as a result, they percentage anytime guests have a choice
are variable. among several menu selections, with each
selection having its own unique product cost c) FDA (Food and Drug Administration) food
percentage. labels
Managing sales mix through the effective d) Diabetic exchange
marketing and promotion of good (lower
e) Weight management components
product cost) items helps managers reduce
their product cost percentage, and increase 2. Calculate total recipe costs and per
their profitability, while allowing the portion portion costs.
size, recipe composition, and product
quality of their menu items to remain 3. Compute product yield and product waste
unchanged percentages.

Increase Price Relative to Portion Size 4. Compute actual versus ideal costs based
on product issues.
While increasing prices is often relatively
easy to do, this area must be approached 5. Estimate and compute daily food cost.
with the greatest caution of all. There is no
❖ Maintain product usage records by:
bigger temptation in foodservice than to
raise prices in an effort to counteract a) Vendor
management's ineffectiveness at controlling
product costs. b) Product

This temptation must be resisted! c) Food category

There are times when selling prices on d) Individual menu item

selected menu items must be increased. e) Ingredient
• This is especially true in inflationary times ❖ Compare portions served to portions
or in terms of unique product shortages.
produced to monitor over-portioning and
• Price increases should be considered only waste.
when all other alternatives and needed
❖ Report food and beverage product usage
steps to control costs have been considered
variances based on actual sales.
and effectively implemented.
• Any price increases passed on to guests ❖ Suggest usages for carryover products.
should reflect only increases in actual costs,
❖ Conduct “make versus buy” calculations
not operating inefficiencies.
on convenience items to optimize employee
Technology Tools productivity and minimize costs.

Advanced technology programs available to

help monitor food and beverage production
Lesson 6: Managing Food & Beverage
efforts and costs include those that can
Pricing
help:
Menu Formats
1. Perform nutrition-related analysis of
menu items, including: Menu formats in foodservice establishments
generally fall into one of the following three
a) Recipe nutrient analysis
major categories:
b) Diet analysis
1. Standard menu
2. Daily menu Disadvantages: item popularity data are
difficult to obtain, may be difficult to plan to
3. Cycle menu
have the necessary ingredients on hand to
Each of these formats can help your efforts prepare the daily menu if the menu is not
to control food costs if they are used in the known well ahead of time, and the daily
proper setting. menu may sometimes serve as a marketing
tool, but it can just as often serve as a
Standard Menu disappointment to guests who had a
• The standard menu is the same every day. wonderful menu item the last time they
It can be printed and handed to guests, dined at a particular establishment and have
displayed in the operation, or recited by now returned only to find that their favorite
service staff. It is the menu format most item is not being served
common in commercial restaurants. Cycle Menu
Advantages: simplifies your ordering • A cycle menu is a menu in effect for a
process, guests tend to have a good specific time period. The length of the cycle
number of choices and guest preference refers to the length of time the menu is in
data are easily obtained effect.
Disadvantages: often do not allow for easy • The cycle menu is an effort by
utilization of carryovers and lack of ability to management to enjoy the best aspects of
respond quickly to market changes and both of these approaches and to minimize
product cost changes their respective disadvantages.
• The standard menu tends to be most • Cycle menus are utilized most often by
popular in those segments of the food institutions such as colleges and
service business. universities, hospitals, assisted living
Daily Menu facilities, correctional facilities, and other
settings where the same guest, or the same
• The daily menu is a menu that changes type of guest, is served every day.
every day. This format is especially popular
in some upscale restaurants where the Menu Specials
chef’s daily creations are viewed with great • Regardless of the menu format used,
anticipation. managers can incorporate relatively minor
Advantages: menu changes on a regular basis.

• The daily menu offers some advantages • This is accomplished through the offering
over the standard menu, for example, of daily or weekly menu specials; which
management can respond very quickly to are menu items that appear on the menu as
changes in ingredient or item prices. desired and are then removed when the
items are sold, or the item is discontinued.
• Carryovers are less of a problem because
any product unsold from the previous day • Daily or weekly specials can provide menu
has the potential of being incorporated, variety, take advantage of low-cost raw
often as a new dish, into the next day’s ingredients, utilize carryover products, or
menu. test-market the selling potential of new
menu items.
Menu Prices
• When managers use an à la carte menu Portion size
guests select individual menu items and
Ambience
each menu item is priced separately. With
the à la carte menu guests choose Meal Period
individual items they want and are charged
only for the items they select. Location

• In many parts of the world, including most Sales mix

of Europe, the prix fixe (pronounced “prefix”)
menu, is the most common style. With the Economic Conditions
prix fixe menu guests choose from a pre-
determined list of items presented as a The economic conditions can have a
multi-course meal. The items included in the significant impact on the prices that
meal are then sold at one set price. restaurant managers can charge for their
menu items.
Factors Affecting Menu Pricing
▪ When an economy is robust and growing,
• It is important to remember that revenue managers generally have a greater ability to
and price are not synonymous terms. charge higher prices for the items they sell.
• Revenue means the amount spent by all ▪ When a local economy is in a recession, a
guests. It is the amount of money an manager’s ability to raise or even maintain
operation takes in. prices in response to rising costs may be
• Selling price (price) refers to the amount more limited. It is the manager’s job to
charged to one guest for his or her monitor local economic conditions and to
purchase. carefully consider these conditions when
establishing menu prices.
Price x Number Sold = Total Revenue
Local Competition
• As price increases, the number of items
sold will generally decrease. • Someone can always sell a lesser quality
product for a lesser price
• Guests seek a good price/value
relationship when making a purchase. • The price competitors charge for their
products can be useful information in
• The price/value relationship reflects helping you arrive at your own selling price.
guests’ view of how much value they are It should not, however, be the only
receiving for the prices they are paying. determining factor in your pricing decisions.
• Increasing prices does not always mean • Successful foodservice operators spend
increased revenue. their time focusing on building guest value
Factors Influencing Menu Price in their own operation and not in attempting
to mimic the efforts of the competition. It is
Economic conditions important to remember that, in the
consumer’s mind, higher prices are most
Local competition
often associated with higher-quality
Service levels products and, thus, with a better price/value
relationship.
Guest type – price sensitivity
Service Levels
Product quality
• Most guests expect to pay more for the • The great chefs know that people “eat with
same product when service levels are their eyes first!” This relates to presenting
higher. food that is visually appealing. It also
impacts size and pricing.
• When personal level of service increases
in an operation, selling prices may also be Sample: A burger and fries that fill an 8-inch
increased. plate may well be lost on an 11-inch plate.
On the 8-inch plate, guests may perceive
• In the hospitality industry, those
high levels of value. On the 11- inch plate,
companies that have been able to survive
guest perceptions of value delivered for
and thrive over the years have done so
price paid may be significantly reduced.
because of their uncompromising
commitment to high levels of guest service, Ambience
and they charge menu prices that reflect
Ambience is the feeling or overall mood
those service levels.
created in an operation. It is affected by an
Guest Type operation’s decor, staff uniforms, music, and
other factors that directly affect its
• All guests want good value for their
atmosphere.
money. But some guest types are simply
less price sensitive than others. The • When ambience is a major customer draw,
question of what represents good value managers find they are selling much more
varies by the type of clientele. than food and, thus, may justly charge
higher menu prices. In most cases,
• Convenience stores provide speed and
however, foodservice operations that count
convenience, and the customers are willing
too heavily on ambience alone to carry their
to pay a premium price.
business generally start out well but are not
• A thorough understanding of who their ultimately successful.
guests are and what these guests value
• Excellent product quality with outstanding
most is critical to the ongoing success of
service goes much further over the long run
foodservice managers as they established
than do clever restaurant designs.
their operations’ menu prices.
Meal Period
Product Quality
➢In some cases, diners expect to pay more
• A guest’s quality perception of any specific
for an item served in the evening than for
menu item offered for sale in the
that same item served at a lunch period.
foodservice business can range from very
low to very high. ➢This is true, for example, in buffet
• In most cases, guests’ perceptions of restaurants that charge a different price for
quality will be based on a variety of factors, lunch than they charge for dinner, perhaps
only one of which is product quality. Visual expecting that guests on their lunch break
product quality and grade of ingredients, as will spend less time in the restaurant and
well as portion size and service level, are thus eat less. You must exercise caution in
additional factors that impact a guest’s view this area, however. Guests should clearly
of overall product quality. understand why a menu item’s price
changes with the time of day.
Portion Size
Location
• Location can be a major factor in
determining price.
• Many themed amusement parks, movie
theaters, or sports arenas are able to
charge premium prices because they have,
in effect, a monopoly on food sold to the
visitors. The only allnight diner on the
interstate highway exit is in much the same • Product Cost Percentage. This method
situation. of pricing is based on the idea that the cost
of producing an item should be a
• Contrast that with an operator who is just
predetermined percentage of the item’s
one of several seafood restaurants on a
selling price.
restaurant row in a seaside resort town. In
this case, it is unlikely that an operation will • The principles of algebra allow managers
be able to charge prices significantly higher to rearrange the formula as follows:
than its competitors.
Sales Mix

➢Of all the pricing-related factors, sales mix

most heavily influences the menu pricing
decision. Pricing Factor

Sales mix refers to the specific menu items • A cost factor or multiplier can be assigned
selected by guests. to each desired food cost percentage as
follows:
Price blending refers to the process of
pricing products, with very different
individual cost percentages, into groups with
the intent of achieving a favourable overall
cost situation.
Assigning Menu Prices
The methods used to assign menu prices in Assigning Menu Prices
food service operations are often as varied
• In many settings, such as “all-you-can-eat”
as the managers who utilize the methods. In
buffets and banquet-style meals,
general, menu prices in food and beverage
foodservice managers cannot determine a
operations have historically been
single portion cost, but rather must calculate
determined on the basis of one of the
their selling prices based upon their plate
following two concepts:
costs.
1. Product cost percentage
• A plate cost is simply the sum of all
2. Product contribution margin product costs included in a single meal (or
“plate”) served to a guest for one fixed price.
Contribution Margin
• Contribution margin is defined as the
amount that remains after the product cost
of a menu item is subtracted from the item’s • Coupons have the effect of reducing sales
selling price. Contribution margin is revenue from each guest in the hope that
computed as: the total number of guests served increases
to the point that total revenue increases.
Selling Price – Product Cost =
Contribution Margin • Value Pricing refers to the practice of
reducing prices on selected menu items in
Assigning Menu Prices
the belief that total guest counts will
• When the contribution margin approach is increase to the point that total sales revenue
used, the formula for determining selling also increases.
price is: • Bundling refers to the practice of
Product Cost + Contribution Margin selecting specific menu items and pricing
Desired = Selling Price them as a group in such a manner that the
single menu price of the group is lower than
• The selling price selected must provide for if the items in the group were purchased
a predetermined operational profit. individually.
• Regardless of whether the pricing method Total food costs on a buffet line or salad bar
used is based on product cost percentage, are a function of two things:
contribution margin or even a completely
different approach, the selling prices How much is eaten?
selected must provide for a predetermined
What is eaten?
operational profit.
• The difficulty in establishing a set price for
• Menu items cannot be priced so low that
either a salad bar or buffet is that total
no profit is possible nor so high that the
portion cost can vary greatly from one guest
operation will not be able to sell a sufficient
to the next.
number of items to make a profit.
• The secret to keeping selling prices low for
Special Pricing Situations
a salad bar or buffet is to apply the ABC
Special pricing situations include: method. A items should comprise no more
than 20% of the total product available; B
1. Coupons items, no more than 30%; and C items, 50%
2. Value pricing
3. Bundling
4. Salad bars and buffets
5. Bottled wine
6. Beverages at receptions and parties
Bottled Wines
• Coupons are a popular way to vary menu
price. • How bottled wines are priced on a menu or
wine list directly affects guests’ perceptions
- Buy one, get one free, (BOGO) of the price/value relationship offered by an
operation.
- Typically, some form of restriction is
placed on the use of the coupon.
• Price spread is the range between the • Assign individual menu item prices based
lowest and the highest priced menu items. on managementsupplied parameters.
• Price spreads on any menu or wine list
should not be excessively large.
• Pricing beverages for open bar events can
be difficult, since each customer group can
be expected to behave somewhat differently
when attending an open bar or hosted bar
function.
• Sales histories can be used to calculate
average consumption rates.
Special Pricing Situations
Beverages at Receptions and Parties
• When product usage histories are
available managers can use the following
formula to calculate their selling prices:
Product Cost + Contribution Margin
Desired = Selling Price
Technology Tools
The mathematical computations required to
evaluate the effectiveness of individual
menu items and to establish their prices can
be complex, but there are a wide range of
software products available that can help
managers:
• Develop menus and cost recipes.
• Design and print menu “specials” for meal
periods or happy hours.
• Compute and analyze item and overall
food cost percentage.
• Compute and analyze item contribution
margin.
• Price banquet menus and bars based on
known product costs.
• Evaluate the profitability of individual menu
items.
• Estimate future item demand based on
past guest purchase patterns.