Food and Beverage Management

Positioning Your Menus

For Business Success

1

Learning Outcome

Explain how menus are designed in relation to dayparts.

Discuss ways to optimize usage of space resources.

Perform calculations to evaluate daypart revenue.

Evaluate the importance of food and beverage sales revenue forecasting.

Forecast net income.

Understand how food and beverage costs is calculated by applying forecasts to standard recipes.

Realize the value of forecasts to enable proactive decision making.

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Dayparts

• Dining habits traditionally recognize breakfast, lunch, and dinner as food-service.

• Dayparts:

• Breakfast between 6:30 AM to 9:30 AM

• Lunch between 11:30 AM and 1:30 PM

• Dinner between 5:30 PM to 10:00 PM

• Averages only 9.5 hours of a 24-hour period– 40% of the day– Facilities are underutilized by nearly 60%– What affects your decision to what extent you will

utilize your physical space assets3

Maximum Utilization of Dayparts

• The strategy that involves maximum utilization of your physical space assets are

• Plan to capture existing demand for established dayparts

• Create product and service offerings that optimize the revenue during existing day parts

• Create services that can generate revenue between those established dayparts

• Reduce total cost during a percentage of the other hours between those established dayparts

• The numerous possibilities point to the need for a well-researched, market-driven business vision

4

Revenue generation between traditional Dayparts

• What options are available to generate revenue or reduce total cost during a percentage of the other hours between those established dayparts.

• Strategies can include:– Dining room as rental space for meetings, cooking classes,

product launches or other social activities – Offer brunch, afternoon tea, or post-dinner late-night meals– Producing ingredients or recipes for retail sale – Using your kitchen to prepare banquet food to be served off-

premises– Casual staff on hour rates– Full timers that work peak period split shifts

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Maximized Space Utilization

5.2

Dayparts

• No matter how you use your restaurant during the time available, your menu must support your plan for Seat turnover

• The number of customer served during a specific period of time divided by the number of available seats.

• Seat turnover needs to be considered based on

• Your vision and mission

• Your concept

• Your financial forecast and financial sustainability

The most expensive item in operating your restaurant is the empty seat.

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The summary of daypart

In summary, strategic operators should:

Use generally recognized dayparts solely as a guide

Conduct market research to identify opportunities to optimize utilization of their physical space and other resources

Decide how these opportunities may fit with their existing business vision

Enact changes to create an enhanced vision better aligned with the market and their resources

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Evaluating Daypart Utilization

• Average total revenue per daypart

• Average food only revenue per daypart

• Average beverage only revenue per daypart

• More detailed:

• Average total revenue per hour

• Average food only revenue per hour

• Average beverage only revenue per hour

• As you calculate operating data to obtain important information that assist you to analyze opportunities for financial improvement.

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Placeholder image

The Menu Life Cycle

5.3

Calculation of Average Total Revenue per Daypart

Calculation of Average Revenue per Hour in Breakfast Daypart

5.4

Using the data from Figure 5-3 and the methodology from Figure 5-4, calculate average daily revenue per hour for the remaining dayparts.

Assume lunch is a 2-hour daypart. Assume dinner is a 4.5-hour daypart

Lunch = $2,064.52

Result :2 = $1,032.26

Dinner = $3,548.39

Result :4.5 = $788.53

This are averages looking at each hour in exactly the same way. Dayparts performance can be captured reflecting the actual sales

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Captured Average Hourly Breakfast Revenue

5.6

Evaluating Daypart Utilization

What is Prime cost ?

Is composed of food cost, beverage cost, and direct labor cost

Knowing the prime cost helps operators with?

Calculate profitability of daypart

The commitment to daypart decisions

Group task in class

Evaluate the prime cost of serving breakfast per hour use 5.6 data and

Breakfast F&B cost 28% of revenue

Direct labor cost 35% of revenue

Answer if it is profitable to be open from 6:30 AM to 7:30 AM? 14

Calculate Breakfast Daypart Details

Total Breakfast Revenue 1129.03

F&B cost 28%

1129.03=:100=11.29x28= 316.12

Labor cost 35%

1129.03=:100=11.29x35= 395.16

Total prime cost daypart breakfast 711.28

Gross profit 417.75

Day part evaluation 6.30 to7.30 am income 60.40$

Food Cost 28%

60.40 = :100= 0.604 x 28 =16.91 (variable cost)

Labor Cost 35%

1129.03= :100= 11.290x35: 3 =131.71 (fixed cost)

Total prime cost 148.6215

Forecasting Revenue

• Your menu drives revenue and your income.

Why is and adequate revenue stream necessary ?

• To ensure required cash flow to pay bills.

• Because a long-term trend of insufficient revenue is a business killer.

• You must be able to predict revenue by using forecasting tools.

– Simplest form - a subjective best guess (guesstimate)

– Supported with data - a valuable predictive tool16

A Worksheet For Forecasting Revenue

• Once menu items and their prices have been established, a worksheet can be developed for forecasting revenue.

• Sales mix

• Number forecasted of a particular item (45 pumpkin

cheesecake) : the total number of items forecasted (168

desserts) x100 = menu mix % for an item.• 45 Pumpkin cheese cakes sold : 168 x100 total sold desserts

=26.78%

• Rows 33 and 42 list the same menu item, but at different prices

• Row 33 is the standard price, row 42 is the “Happy Hour” price.

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Malt Beverages Menu Engineering Worksheet

5.7

A Worksheet For Forecasting Revenue

• For purposes of analysis and menu engineering, a separate worksheet should be prepared for each menu category.

• The level of menu categorization should be based on the perceived competition between menu items.

• Main courses don’t often compete with appetizers.

• Appetizers tend to compete with Soups and Salads.

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Appetizers Menu Engineering Worksheet

5.8

Desserts Menu Engineering Worksheet

5.9

Historical Item Sales, with Adjustments

• In Figure 5-9 , you might see a pattern where approximately 45 slices of pumpkin cheesecake are sold during each period.

• You might anticipate this level of sales in future forecast periods.

• This is a valid assumption only if

• customer traffic remains consistent.

• The customer base are the same, the menu offerings did not change and the sales staff are not directed to explore different strategies

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Historical Item Sales, with Adjustments

• The objective approach is based on historical customer traffic data.

• This technique requires three distinct steps:

– Step 1. Forecast total guest traffic for the period.

– Step 2. Apply historical demand for individual menu categories to predict total category demand.

– Step 3. Apply menu mix history to the predicted category demand.

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New Forecast Calculation

For the actual period (see 5.9) we had 200 guest visiting the restaurant.

168 of this customers selected a dessert (See 5.9)

168 : 200 x 100= 84% of visiting customers purchased a dessert

The pumpkin pie represented 26.8% of the sales mix (see 5.9)

168:100x 26.8 = 45 Pumpkin cheesecake

Due to bad management a competitor went bankrupt and you predict to get some of the market share.

Increase in guest visits of 19 covers (guesstimate)

How much pumpkin cheese cake pies will you new sales forecast reflect?

You do not forecast any dessert sales % and sales mix % changes

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New forecast calculation

New Guest forecast?

84% of 219 Guest order a dessert

How many desserts sold forecasted?

219:100x 84=184 desserts

How many pumpkin cheese cake sells forecasted if sales mix is constant with actual sales 26.8%

184:100x 26.8 = 49.3 cheese cake sold

New forecast entry 49 cheese cakes

The results of these steps can be entered into a menu engineering worksheet to quantify forecasted sales revenue

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Dessert Forecasts Entered into a Menu Engineering Worksheet

5.11

Assess the accuracy of your forecasts

• It is important to assess the accuracy of your forecasts periodically.

• Sales Ratio

• Comparison of forecasted and actual bottled beer sales

• Calculate a ratio actual sales : forecasted sales=ratio

• Forecast revisions based on historical variances

• Multiply forecasted sales by ratio= new sales forecast

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Comparison of Forecasted and Actual Bottled Beer Sales5.12

Forecast Revisions Based on Historical Variances

5.1

3

The effect on underestimating Forecasting

Forecasting can be imprecise and constant validation against actual will ensure that you learn to predict your business performance.

You will get better while doing

Effect of Underestimating

insufficient inventory

operational resources may not be available

advertised items and services not available

demand exceeds production forecast

Outcome

customer dissatisfaction

staff under unnecessary stress 30

Effect on Forecast overestimating

Effect on overestimating

excess food and beverage production

food spoilage

quality loss

extra costs

excessive labor cost due to inaccurate schedules

anticipated revenues that do not materialize can result in a shortage of cash flow

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Assess the accuracy of your forecasts

• It must be noted that the results of any forecasting process should be questioned prior to accepting them and mobilizing purchasing, recipe production, employee scheduling and operational support

• Factors that have an effect on forecasting: – Area or regional events … can increase or decrease business – Holidays… can increase or decrease business – Public works construction, e.g. street repair in front of your

restaurant – Weather… can increase or decrease business – Managerial intuition (comes with experience supported by

understanding historical data)

– It is acceptable if not appropriate to modify forecasts!

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Calculating Net Income

• Net income is

• The revenue remaining after all costs and expenses have been deducted.

• Expenses result from consumption of inventory (food, beverage, and supplies) , labor costs, occupancy costs, taxes, insurance, and other operating costs .

• The next element of forecasting involves costing the menu items anticipated being sold during the period.

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Calculating Food And Beverage Costs

To start estimating (potential) food and beverage costs you first need to

put a value on your inventory.

This is best achieved by capturing the

actual purchase price of each item/ ingredient used

This process is most effectively accomplished with the help

of the suppliers price list or using the actual receiving data information of existing stock.

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Elaborating Recipes

Certain inventory items/ ingredients are cooked or otherwise transformed to become ingredients in recipes.

Conversion recipes

Whole Oranges to Orange Juices

Sup Recipes

Chicken bones become chicken stock with the additional use of other ingredients.

It is useful to prepare recipe cards for these items and cost them out in units used in other recipes

Yield tests/ butcher tests

Calculate whole meat cuts that become steaks

Conversion/yield and sub recipes ensure

that we are applying the correct value to the recipe 35

The Recipes

Once the costs of inventory items and sub-recipes are established, the next step is to record and cost recipes for all menu items

What ever format is used there are fundamental/standard information on a recipe card that should be uniform.

What are these?

Once recipe costs have been calculated they should be updated on a continuous basis. This practice will assure that recipe costs are reflective of the most current ingredient prices

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Standard Recipe information

Recipe Name

Yield is the number of portions produced by this recipe

Batch Cost is the total cost to produce all portions on the recipe

Portion Cost is the cost to produce one serving portion of the recipe

Sales Price is the price a customer will be charged for one portion

Cost % is the relationship between Portion Cost and Sales Price (Cost % = (Portion Cost ÷ Sales Price) x 100

Recipe Unit is the volume or weight hat an ingredient is measured by (For accurate calculation this should be in liters & kilogram avoid pcs, cups and spons)

Amount is the number of recipe units required to produce the desired recipe yield

Unit Cost is the actual cost of one unit of an ingredient

Total Ingredient Cost is the cost for the number of ingredients used in the recipe Total Ingredient Cost = Amount (of Ingredients) x Unit Cost (of Ingredients)

Preparation Method is the steps required to prepare the recipe 37

Forecast Worksheets

Once recipe costs have been calculated they should be updated on a continuous basis. This practice will assure that recipe costs are reflective of the most current ingredient prices.

When menu price, food cost, and forecast number of items sold are determined, then that data is entered into a Sales Forecast Worksheet

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Forecast Worksheet5.18

Forecast Worksheets

• Once all the data has been entered into the Sales Forecast Worksheet, the totals for sales of food and cost of sales (food) (and all the other categories) can be entered into the Income Statement .

• Cell D30 of Figure 5-20 indicates the dollar amount remaining after Total Cost of Sales have been subtracted from Total Sales.

• The difference of this equation is referred to as

• gross profit.40

Pro Forma Statement of Income with Sample Data (Sales and Cost of Sales Only)

5.20

Controllable expenses

From gross F&B profit to net Profit

Other expenses need to be considered for deduction

Fixed and or Variable salaries

Employee benefits

Other controllable expenseMarketing, Legal, Consultancy

Rent and other occupancy expensesCleaning, Electricity, Gas, Water, Maintenance

Bank and loan Interest

Depreciation of Assets

Taxes42

Hierarchical Linkage of Software

5.19

Putting It All Together

• The importance of positioning your menus within an informed context.

– Understand the impact of Dayparts– How menus function at different times of day– The basics of revenue generation– How costs and expenses diminish revenue

• If you are able to predict net income prior to each operating period, then your potential for success is improved.

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