By Jeff Dover
Food and beverage is an important part of a meeting, conference or convention. Many delegates rate networking as one of or the key reason they attend, and much of the networking is done at meals or on breaks. Gala dinners can be another highlight. A facility with good food and beverage is important to event convenors when choosing a venue. For the venues, food and beverage is a key component of the offering.
In some facilities which self-operate foodservice, food and beverage revenue accounts for more than 50 per cent of total revenues (though in others it can be much less). Other venues must set menu prices at levels that hurt their ability to compete for value-conscious events.
fsSTRATEGY often conducts food and beverage operational reviews for our clients, which include convention centres, conference centres, banquet halls and convention hotels. We thought it would be appropriate to share some of the opportunities for improvement in foodservice operations that occur time and time again at such facilities.
Knowledge of menu item costs
To effectively price menus, the cost of menu items must be known. Further, it is important to evaluate the menu cost and adjust pricing as appropriate over time. This is especially true in venues that are booking events (and food and beverage) a significant time in advance. We recommend a menu costing program (often available from a broadline distributor or as part of your event management and point of sale systems) that is kept up to date with current ingredient costs.
When costing menu items, it is important to cost everything included in the meal. This could include rolls and butter, paper products if appropriate, etc.
Many event venues use buffets. This is an effective way to feed large groups of people quickly, and requires less labour than table service. However, properly costing buffets is more challenging than plated dinners or platters because the portion sizes are not constant. Portions must be estimated based on amounts prepared for the size of the group adjusted with actual usage data collected over time. The amount of food prepared for buffets must be sufficient to feed the group (and look full) but with little excess to reduce waste, and prepared with reasonable portion sizes.
Calculation of monthly cost of sales
We are often surprised that some venues do not calculate cost of sales on a monthly basis. Not doing so robs the venue’s food and beverage team a valuable management tool. Cost of sales should not just be purchases during the month but calculated using the formula beginning inventory plus purchases less closing inventory. To be fully effective, the inventory must be valued at current costs.
Pay attention to work in process inventory. How do you account for food items that have been prepared for an event (e.g., salads, sauces, soups or desserts)? hese items must be accounted for fairly. I worked with a chef once who would look at the inventory calculations on a monthly basis, work on an adding machine and come up with a number for work in process inventory. Remarkably, his cost of sales was within 0.5 per cent of budget every month. And then, he retired…
Calculation of theoretical cost of sales (and comparison to actual cost of sales)
Theoretical cost of sales should be calculated each period based on itemized sales (the number of items prepared and actual menu item costs). Theoretical cost of sales for each period should be compared to actual cost of sales. Most venues compare cost of sales to budget, which is not nearly as effective a management tool. Comparing to budgeted food cost may allow for considerable inefficiencies in food service operations and food and beverage cost control. Often, such comparisons result in raising menu prices, even in cases where the price is correct but cost control procedures have opportunity for improvement.
Actual cost of sales should be about one to one-and-a-half points greater than actual cost of sales. The difference accounts for some waste (spillage, breakage, the soup left on the side of the kettle, etc.). If theoretical cost of sales is greater than actual cost of sales plus the waste factor, the venue is not fulfilling the value promise to its patrons.
Preparation of profit and loss statement for each event
Successful venues prepare projected (before) and actual (after) profit and loss statements for each event. This includes the revenue generated and direct expenses associated with the event. Such profit and loss statements help venue management make decisions when negotiating events. A venue does not want to accept a less profitable event early in the booking window if a more profitable event may be reasonably expected. Less profitable events might be more attractive in shoulder seasons. The preparation of event operating statements helps manage the booking calendar and determine appropriate event priorities.
Food and beverage revenues and expenses should be included in the operating statements. Venues often negotiate with convenors during the shoulder seasons and food and beverage is a typical negotiating tool (e.g., no room rental if food and beverage is ordered). Effectively projecting of food and beverage revenues and direct expenses is important when entering such negotiations.
Preparation of profit and loss statements by revenue centre
In addition to preparing a profit and loss statement for each event, venues should prepare operating statements for each profit centre, including each food and beverage centre. A venue’s food and beverage operations are more than catering, and often include quick-service and full-service restaurants and bars. Operating statements should be prepared for each profit centre. To do so, direct labour and cost of sales must be tracked by outlet. Accurate transfers must be prepared and costed at the appropriate value. These statements will help determine when to open various food and beverage profit centres and help determine necessary guarantees should an event convenor want a profit centre open when the venue knows it will not be profitable.
Effective food and beverage cost control
Food and beverage cost control sounds simple and most foodservice professionals are aware of such controls. However, we frequently find examples of cost controls not being practice. Controls should be implemented and adhered to for ordering, receiving, storage, issuing, production, and returns to the storeroom. Unfortunately, observing poor cost control measures is a frequent occurrence. Employees at one recent client’s facility were observed serving a plated dinner from two separate lines with vastly different portion sizes coming off each line. More recently, we observed employees at a conference centre taking food from a dairy order to different outlets prior to the order being properly counted by the Receiver. In another operation review, 20 or so cases of wine were stacked in the hall by the employee entrance all weekend. The reason? Month end was on the Tuesday and if the wine was received, it would have to be counted. A current client allows concession staff to take home leftover food (without any record being kept), to which a cynic would suggest that “extra” is being prepared so leftovers will occur.
Many venues provide great food and great service but are not as profitable as they should be (or charge more for each item than they need to) because of poor cost control procedures. Such controls are simple, and should be followed at all times.
Labour cost control
For many venues, controlling labour expenses is challenged by collective agreements governing scheduling. Other than cost of sales; however, labour cost is the greatest food and beverage expense. Management should ensure that such costs are controlled – to the extent possible within any collective agreements.
fsSTRATEGY suggests that clients prepare labour matrices for each event. How many Banquet Managers, Porters, Servers, Bartenders, Cooks and Stewards are required based on guaranteed numbers of patrons? For retail foodservice outlets, labour matrices should be prepared based on projected covers per hour and adjusted to allow time for preparation and to meet labour laws or collective agreement requirements. I hate seeing a “Monday” schedule as opposed to a well thought-out schedule based on activity in the venue. Staffing levels should be sufficient to ensure proper service without being fiscally irresponsible.
By effectively managing food and beverage operations, venues can be more profitable or more competitive in terms of menu pricing. It is easy to become blind to poor foodservice management practices in a venue. Regular foodservice audits should be conducted and solutions implemented in response to identified opportunities for improvement. Effective foodservice management is not rocket science. However, poor cost control management may significantly hurt a venue’s profitability. Are there opportunities for improvement at your venue?
About the author
Jeff Dover is a Principal with fsSTRATEGY Inc. a niche consulting firm based in Toronto focused on assisting foodservice operators to enhance customer satisfaction, revenues and return on investment. For more information visit www.fsSTRATEGY.com.