Food and Beverage Management

Chapter 8

Food and Beverage Control

 Objectives
• Understand the objectives of F&B cost control

• Perform a break-even analysis and understand the budget

• Understand the concepts of standard recipes, yields, and portion

sizes

• Understand the methods of F&B cost control

• Differentiate the basics of revenue control and the differences

between manual and computerizd systems

• Calculate the basic operating ratios.

 F&B Control
• Defined = guidance and regulation of costs/revenue

• Cost may range from 25 to 50%

• Amount of control is related to the size of the operation

• Type and volume of data must be selectively determined.

 F&B Control
• Purchasing and pricing are two important parts that
complete the circle of effective F&B control.

• Limitations of a control system:

– Can only identify problem areas and trends, cannot
automatically correct such problems
– Will require constant management
– Will need management action to evaluate the
information produced and to act upon it.
 The objectives of F&B control
• Analysis of income and expenditure
• Establishment and maintenance of standards
• Pricing
• Prevention of waste
• Prevention of fraud
• Management information.
Special problems of F&B control
• Perishability of the product
• Business volume unpredictability
• Menu mix unpredictability
• F&B operation short cycle
• Departmentalization.
The fundamentals of control
The fundamentals of control (continued)
• The planning phase
• The operational phase
• The post operation phase.
 Budget
Budget – a plan expressed financially/quantitatively
– Reflects policies of an establishment and determines
business operations for a particular sales period
• Usually one year, often broken into 13 4-week
periods, or 13-week quarters, or two 4-week and
one 5-week period

Budgetary control – a method of control in which

responsibility for budgeted results is assigned to
managers
– Continuous comparison of actual and budgeted
figures.
 Budget (continued)
2 types of budgets:

– Capital = concerned with assets and liabilities

• Equipment, plant and cash.

– Operating = concerned with day-to-day income and

expenditure
• Sales, cost of sales, labor, maintenance, head office
 Budget (continued)
Cost of operating a unit or dept. is usually analyzed
under three headings or elements of cost:
1. Material Costs – costs consumed and of additional items, are
deducted from material costs and added to labor costs
2. Labor Costs – wages/salaries paid to all employees, plus any
employer contribution to government taxes, bonuses, staff
meals, retirement, etc.
3. Overhead Costs – other than materials and labor; rent, rates,
insurance, depreciation, repairs, printing and stationery, china
and glassware, and capital equipment.
 Types of Costs
Examine costs by their nature and behavior in relation to changes
in the volume of sales:

– Fixed costs – remain fixed irrespective of volume of sales =

rent, rates, insurance, management

– Semi-Fixed costs – move in sympathy with, but not in direct

proportion to the volume of sales = fuel costs, phone and
laundry, contain a fixed and variable cost element

– Variable costs – vary in proportion to the volume of sales

– Total costs – sum of the fixed costs, semi-fixed costs and

variable costs involved.
 Types of Profit
Gross profit
= total sales – cost of materials

After-wage profit (or net margin)

= total sale – (material + labor costs)

Net profit
= total sales – total costs (material + labor +
overhead costs).
 Break even analysis
• Enables the relationship between fixed, semi-
fixed and variable costs at specific volumes of
business to be represented on a graph.

• Break-even is defined as that volume of

business at which the total costs are equal to
the sales and where neither profit nor loss is
made.
Budget & break-even analysis
 Essentials of a Control
System
• Menu planning

• Production control

• Stock management

• Purchase ordering

• Menu analysis.
 Basic Concepts in
F&B Control
• Production planning

• Standard yields

• Standard recipes

• Standard portion sizes.

 Inventory Control Cycle
• Purchase order
• Delivery note
• Invoice
• Requisition
• FIFO
– First in first out – goods received first should
be sold to customers first.
• LIFO
– Fast in first out – used in fine dining to ensure
freshest quality.
Weekly/Monthly Food Cost Report
Advantages
– Simple and quick to produce
– Can give an indication of the general
performance of unit.

Disadvantages
– Information is only produced after 7 or 28
days
– Provides no intermediate info
– Does not provide daily or to-date info on
purchases, requisitions, and sales.
 Daily food cost report
for small to medium-sized establishments

Advantages
– Simple and easy to follow
– Reasonably detailed
– Record daily stock level, purchases, food
requisitioned, and food sales; enables daily food cost
percentage to be calculated for to-date totals
– To-date food cost percentage smooths out uneven
daily food cost percentages and highlights corrective
action to be taken.

Disadvantages
– Relies heavily on accuracy of basic info collected
– Not totally accurate, ignores staff meals, food
transferred to bars which is given away (nuts, potato
crisps, lemons, limes, etc.).
 Food Cost Percentage
• Any variance of more than 1% between potential
and actual cost should be investigated.

• Usually costed per establishment twice/year.

• Usually the actual cost of food sold is higher than the

potential because food is a perishable commodity,
difficulty of being exact when forecasting, small
amount of waste is unavoidable.

To Calculate food cost percentage:

Opening inventory + purchases – closing inventory =
Cost of food consumed.

Food cost/sales of food = Food-cost percentage

 Methods of beverage
control
• Bar cost system

• Bar stock or bottle control system

• Potential sales value system

• The millimeter system

• Banqueting and function bar system

• Automated beverage dispensing system.

 EPOS Reporting
Electronic Point of Sale
• Menu item preference

• Menu item profitability

• Sales by meal period

• Sales by server

• Category report

• Table waiting times.

 Procedures Necessary for
Revenue Control
• Opening procedure
• Working procedure
• Closing procedure
• Procedure for accepting foreign currency
• Procedure for accepting credit cards
• Procedures for accepting vouchers such as
luncheon vouchers
• Procedure for accepting cheques
• Procedure for accepting traveller’s cheques
• Procedure for a complimentary or signed bill.
 PSA and Menu Engineering
• Profit Sensitivity
Analysis
• Menu Engineering
– Popularity
– Profitability
• Stars
• Plow-horses
• Puzzles
• Dogs

Menu Engineering
 Forecasting
• Forecasting is imperative due to perishability and
lack of storage space.
– How many customers will show up, at what time of day,
what will they consume?

• Forecasting affects purchasing, pricing,

production, number of employees to hire. Info
needed:
– Sales History
– Turn-down History
– Cancelations and No Shows trends
– Competitor data
– Market trends at local, national, international levels
– Weather forecast
– Information about special events and new attractions.
 Operating Ratios
• Total F&B sales
• Departmental profit
• Ratio of F&B sales to total sales
• Average spending power
• Sales mix
• Payroll costs
• Index of productivity
• Stock turnover
• Sales per seat available
• Rate of seat turnover
• Sales per waiter/waitress
• Sales per square meter.
 Summary
• Basic issues of control at the planning of operational
phases and the post operation phase
• Essential skills for any F&B manager, such as setting up
a break-even analysis and budget
• Importance of standard recipes and standard portion
sizes, which is essential to a good control system
• Cost control reports are also examined, and flexibilities
of today’s EPOS systems
• Concepts of PSA and menu engineering
• Issues with non-computerized systems
• Operating ratios useful in the assessment of an
effective F&B control system.