Chapter 7

Managing Food Costs and

Menu Pricing Strategies

Management of Food and

Beverage Operations

Sixth Edition
Competencies for
Managing Food Costs and Menu Pricing
Strategies

1. Discuss the benefits of standard recipes, and

explain the procedures involved in using standard
recipes. 155 - 163
2. Summarize what is involved in determining
standard portion costs for menu items, total
standard food costs, and standard portion costs
for beverages. 163 - 169
3. Describe the four subjective menu pricing
methods, explain the value of the two main
objective pricing methods, and describe the role
of pricing in managing a successful, competitive
food and beverage operation.169 - 172
Slide 2
Advantages of Standard Recipes

• Procedure of how to use pg 155 - 163

• A Standard Recipe: Consistency of quality,
flavor, portion size
• Efficient purchasing and production
• Correct number of items prepared
• Effective scheduling
• Less supervision required
• Guesswork is eliminated
• Written documented record
Slide 3
Standard Recipe

• Definition: formula for producing a food

and beverage item
– Specifies required quantity/ingredients
– Preparation procedures
– Portion size
– Portioning equipment
– Any other info needed to prep an item

Slide 4
Standard Recipe
• Exhibit 1: sample menu item
• Yield: 100 portions – how much it
makes
• Each portion: 1cup – size
• Ingredients are in weights (# and oz)
and measures (liquids)
• Lists exact procedures to
make/instructions

Slide 5
Exhibit 1

Slide 6
Standard Recipe
• ADVANTAGES of:
– Consistency of:
• Quality
• Flavor
• Portion size – all lead to Satisfied guests in which you can
build a solid base of repeat clients
– Accurate Food Costs – why? Consistent info – operations meet
financial goal. If not consistent, = no reliable cost info and
budgeted food costs will not be met.
– More efficient purchasing practices – exact amounts ordered
to produce menu items
– When mgr knows standard recipe yield a specific # of standard
size portions – the correct amount of each item prepared. Not
too much or too little.

Slide 7
Standard Recipe
– Less supervision is required if using standard
recipe. No guesswork
– If chef is absent; others can still make recipe
– A printed version of the standard recipe does not
need to be in the production area if the staff has
it memorized.
– Electronic standard recipe – will print in
production area and can be quickly adjusted to
different yields

Slide 8
Recipe Management Software
• Maintains three most important
files in the food service computer
system
1. Ingredient file
2. Standard recipe file
3. Menu item file
Data is used to produce special reports
for management/ownership

Slide 9
1. Ingredient File
• An ingredient file contains important
data about each purchased
ingredient, such as:
- Purchase unit – 50# case of 10/5# boxes/case
- Issue unit – cost per issue unit 5# box
- Recipe unit – 3 #’s
• Some ingredient files may specify more
than one recipe unit (example, bread may
have units expressed in slices [french
toast] and ounces {bread crumbs} if bread
has several uses per recipe)
Slide 10a
Ingredient File
• Ingredient files may be accessed by other
management software programs (such as
inventory software), so it is especially
important that the data within the files be
accurate
• Initial set-up/updates can be challenging but
benefits are greater than without
• Best programs “speak to each other” and can
run various numerous reports
• Info should be accurate as many other
programs rely on data from the ingredient file

Slide 4b
2. Standard Recipe File

• A standard recipe file contains recipes for all

menu items
• Standard recipe conversion software converts
ingredient amounts from purchase units to
production units and can calculate nutrition data
– (ensures accuracy/calculations needed to adjust
recipes to yield quantities required by sales
forecasts)
– From purchased units #’s – need to convert to OZ –
Exhibit 3 pg 160

Slide 5
Exhibit 3: Weights and
Measures

Slide 13
Standard Recipe File

• Including sub-recipes – ingredients used to make

another ingredient in a recipe
• i.e. enchilada sauce used in a burrito file
• Ingredients for a particular standard recipe is
called “chaining” recipes
• Computer maintains a single record of a menu
item that includes a number of sub-recipes
• Exhibit 2 – page 158

Slide 5
Ex 2

Slide 15
 Menu Item File
• A menu item file contains information related to
the menu items tracked by an integrated point-
of-sale (POS) system
• Listed by recipe code #, selling price, ingredient
quantities for inventory and sales totals by unit.
• This file stores historical information about the
actual number of items sold
• This data can be shared with other management
system components and used to project future
unit sales, determine the number of ingredient
quantities to purchase, schedule staff, and
generate various sales analysis reports for
management
Slide 6
Steps for Developing Standardizing Recipes

• Standardizing existing recipes according to a

series of steps
• Select time period for S. R. development. i.e. do
3/week at weekly cooks meting
• The chef or bartender describes preparation and
reviews with cooks at meeting
– What ingredients, how much, exact procedures. In a
Standard Recipe format.
• Double-check recipe by observing.
• Page 159 – 160: New Yield, list ingredients,
equivalent Weights and Measures
Slide 7
Steps for Developing Standardizing Recipes

• Record the recipe.

• Share standard recipe draft with staff.
• Test for quality and quantity by using a
taste panel
• Rating Scale like Exhibit 4 page 161
• Once agreed upon through testing – it is
now considered a standardized recipe
• Train employees in standard recipe use.
Provide copies. Use photos
Slide 7
Exhibit 4

Slide 19
Standardized Recipes
• Challenges to implement
– Staff attitudes if haven't used before
– Cooks feel a lose of creativity.
– Concerns about time to standardize recipe/time
to train and follow
– Ensure all ingredients are available with using
a S.R. use phrase “when available” on menu
– Test S.R. with your actual equipment; important
for bake shops where altitude/humidity affects
uantity of liquid/yeast. Fine tune.

Slide 20
Standardized Recipes
• Caution when using trade magazines/books
– Production and management must agree
on
• Recipe
– Concise
– Accurate
– Readable
– Amounts needed, types needed, etc.
• Eliminate human error or review
periodically
Slide 21
Adjusting Standard Recipe Yields

• Used to easily increase or decrease recipe

size
• Adjustment factor = desired yield ÷
original yield
• Desired portion ÷ original portion =
adjustment factor
• Total volume of desired yield ÷ total
volume of original yield = adjustment
factor

Slide 8
Adjust Standard Recipe

• Yield is 100 portions; want 225 portions

– 225 desired/100 original = 2.25 adjustment factor
– 2.25 or A.F. multiplied to each ingredient

• Yield is 35 portions of .25 cup ; want 75

portions of .25 cup
• 75 x .25 = 18.75 = 2.14 adjustment factor
35 x.25 8.75

Slide 23
Adjust Standard Recipe
• Yield can be calculated to produce the
same quantity of portions' with a different
portion size.
• Desired portion /original portion = A.F.
– (40) of 12 oz portions vs. (40) of 8 oz portions
– 8 oz desire/12 oz original = 0.67 AF
– (Assume)20 pounds (original) = (40) 12 oz
portions | ? = (40) 8oz portions
– ? New amount = 20 # (original) x 0.67 AF =
13.4# to make (40) 8 ounce portions

Slide 24
Adjust Standard Recipe
Change number of portions and portion size
– Total Volume (or size) of original
– Total volume (or size) of desired
– Calculate the AF
Total Volume of Desired yield = AF
Total Volume of Original Yield

Total Volume of Desired Yield = 75 portions x 6 oz/portion = 450 oz

Total Volume of Original Yield = 50 portions x 4 oz/portion = 200 oz
450 oz = 2.25 AF
200 oz

Slide 25
Adjustment Factor

• Caution:
– If adjusting quantities is too great – it might not be
accurate. Better to do by batches. i.e. increase to a
batch that fits a sheet pan and then multiply from there.

• Computer Software:
– quick and accurate by quantities. But quantities might
not be practical. Better to round your measurements.
– Herbs and seasonings may need to go by taste.

Slide 26
Standard Recipe Cost Calculations

• Determine the following:

• Standard Recipe Cost
• Standard Portion Sizes Cost
• Standard Portion Costs for individual
portions or entire dinner can then be
calculated
• Definition:
– Portion Cost is the cost of food incurred by
preparing ONE portion of a menu item
according to its standard recipe

Slide 9
Standard Recipe Cost Calculations

• Standard portion cost

Sum of a recipe’s ingredient costs ÷ number
of portions the recipe yields for ONE item
• Total meal cost
Add the portion costs of all meal components
combined to form meals that are priced and
sold as one menu selection.
• i.e. Fish Dinner: comes with salad, dressing,
starch, vegetable, bread and butter, fish.
Calculate each portion cost then total
together. Exhibit 6 – Page 165
Slide 9
Standard Portion Cost
• Portion Cost is determined by dividing the sum of the recipe’s ingredient
costs by the number of portions that the standard recipe yields
• Sum of recipe ingredeint costs
Number of portions recipe yields = PC

$75 for 50 portions 75/50 = $1.50 portion cost

Exhibit 5 – page 164 is computerized version example of precosting a

hamburger sandwich
• Combo meals: list each menu item, obtain cost from each item from pre-
costed recipe. Add together – if there is a choice, use the most popular or
the most expensive choice
Price Changes?
• Beef rises from $3.55 to $3.78 all items are pre-cost. Calculate again.
Use computer software = easiest, fast and consistent

Slide 29
Determining Total Standard Recipe Cost

• Managers use a control process to

determine total standard food cost. Should
be based on actual sales of each menu
item and with their standard portion costs
• Food cost percentage
Food cost ÷ selling price
• Contribution margin
Food revenue minus food costs
• Drink cost percentage
Drink cost ÷ selling price × 100

Slide 9
Determining Total Standard Recipe Cost

• POS records individual unit sales of a specific

menu item
• Pg. 166 – Exhibit 7 Standard Food Cost
Report
• Steak example
• Rev $76.13 – F.C. $26.76 = $49.37
contribution margin
• Food Cost Percentage – Food cost / food
revenue $26.76/$76.13 = 35.15% food cost

Slide 31
Exhibit 7

Slide 32
Determining Total Standard Recipe Cost

• The standard food cost report can be run by

the hour, by day, by week, any other time
period.
• Compares ideal (theoretical) food cost to
actual food cost for all items.
• Managers can determine the performance of
the food service operation based on report
• If Actual is higher than standard, need to
investigate why? Then take corrective action

Slide 33
Determining Total Standard Recipe Cost

• How come?
• Bottom line profit is reduced by one dollar for each
dollar that food costs are higher then required.
• Every dollar saved will increase the bottom line as profit
• Same is true if actual is LOWER than theoretical
• Might seem like good news – but guests may be paying
more for less food than managers had planned for.
• Adjust this or guests may stop coming because they are
not receiving value they should for the amount of money
they are spending

Slide 34
Determining Total Standard Recipe Cost

• Beverages – drink costs

• Calculate percentages

Slide 35
Pricing Menu Items

• All commercial and many non commercial

FS need selling prices of menu items.
• Perception – offering good value is more
likely to generate the sales revenue
required to meet its financial goals.

Slide 36
Subjective Menu Pricing Methods
• Reasonable Price Method
The price management believes will represent a value to
guests
• Highest Price Method
The highest price management thinks guests will be
willing to pay
• Loss-leader Price Method
An unusually low price set for certain menu items set
with the assumption that “loss leaders” will draw in
guests who will order more expensive items once they
are on the premises
• Intuitive Price Method
The price management guesses will appeal to guests;
trial-and-error
Slide 10
Pricing menu items

• Contrast –
– Objective pricing method ensures that costs,
the property’s profit requirements and the
guest’s perceived value of the dining
experience are incorporated into the selling
price.

Slide 38
Objective Menu Pricing Methods

• Desired food cost percentage markup

Selling price = item’s standard portion cost ÷ desired
food cost percentage
• Use a desired food cost percentage
• If new item is offered, - mgr determines reasonable food
cost percentage
• ? What is reasonable?
– Intuition
– National average
– Previous Acceptable food cost
– Randomly decides

Slide 11
Selling Price

• Selling price
• $1.50 (items standard food cost)/33% (desired food cost
percentage
• $4.55 rounded
• Like it? Or can use $4.75, $4.95, $4.25
• Use property’s approved operating budget as guideline
• Other things to consider?
– What is the competition charging?
– Elasticity of demand (the relationship between selling price and the
volume sold)
• What is better – lower food cost or a higher contribution margin
– pg 171

Slide 40
Lower Food Cost vs. Contribution Margin

Slide 41
 Objective Menu Pricing Methods
• Profit pricing
Selling price = item’s standard food cost ÷
budgeted food cost percentage
• Ensures profit requirements and non food
expenses are factored into the pricing decision

Slide 11
Competition and Menu Pricing

• One of the most important concerns in menu

pricing decisions is the restaurant’s competitors
• To price menus effectively, managers must know
competitors’ menus, selling prices, and guest
preferences
• Managers can respond to competitors by
lowering or raising menu item prices
• Before changing a menu item’s price, managers
should know the elasticity of demand for that
item—the extent to which demand changes as
the price changes
Slide 12
Hints
• Reasonable Price Method – define
• When do you use adjustment factor?
• Sub-recipes – when used?
• Portion Cost – define
• Loss Leader Pricing – what kind is it?
• Info on Standard Recipe – what do you need?
• Elasticity of Demand – know this
• Order of Standard Recipe
• Menu Pricing – know different strategies

Slide 44