LESSON 14: Cost Control
BASIC TERMS AND CONCEPTS
Controlling - which is a function of management that ensures performance is in accordance with the plan.
Cost- the price paid for goods or services when the goods are consumed or when services are rendered
Cost control- regulates cost based on the cost standards set by the food service establishment
Food Cost- cost of food items or edible sold in a food service establishment, often referred to as “cost of goods sold”
Food Cost/Revenue = Food Cost %
Beverage Cost- cost related to the sales of alcoholic beverages.
Labor Cost- is the cost of all employees involved in running the operation, referring to their salaries and wages, fringe benefits, insurance, and retirement taxes
In some cases, it is the 2nd largets cost, next to food cost
Two Categories of Labor Cost are:
Fixed Labor Cost- salaries of employees who are paid a fixed amount, regardless of volume of business (manager, cashiers, supervisors, and chef)
Variable Labor Cost- salaries or wages of employees, which vary with the changing volume of business (waiters or service personnel)
Overhead Cost- includes costs that are not classified as food and labor
Some are fixed (e.g., rental, depreciation, and insurance)
Also includes operating costs such as cost of utilities, repairs, advertising and promotion, office supplies, transportation.
Four Basic Steps in the Control Process
Establish standards for the operation. These standards include:
Quality Standards- degree of excellence of raw materials.
Quantity Standards- measure of wt, count or volume
Standard Cost- pre-determined cost of food, labor, and other expenses which are included upon during the planning process.
Standard Procedures- established methods, routines, techniques and processes used in a day to day operations to ensure that cost standards are met.
Train all concerned individuals to follow established standards.
Monitor performance consistently, and periodically compare actual performance with established standards.
Take appropriate action to correct deviations from standards.
Characteristics of Good Cost Control Systems
Must be designed to fit the operation, rather than interfere with it.
Must provide accurate, detailed data.
Must be simple to operate.
Must have a clear separation of duties so that no single person has control over the transaction from beginning to end.
Cost of operating the system must not go beyond what is due of that which is being controlled
II. FOOD COST CONTROL
Why should food cost be controlled?
Objectives of Food Cost Control
Food cost control aims to:
General data for management reports
Price goods and quotations properly
Prevent wastes and inefficiencies
Analyze income and expenditure
Evaluate performance over a given period
Compare performance of an operation over different periods of time, or compare performance of two or more operations
Obstacles of Food Cost Control
Hindrances that make food cost control difficult:
Limited shelf life and perishability of food
Unpredictable volume of business, making forecasting difficult
Edible raw materials are highly prone to pilferage
Short cycle of operation from menu planning to sales
Municipality of small value transactions
High degree of departmentalization within the foodservice operation
Unstable market conditions, thereby affecting the quality of and cost of raw materials
Varies menu items produced and sold
How to control Food Cost
Develop financial policies
Set financial target and standard food costs, based on the objectives and nature of the operation
Develop routine operational controls and reporting system
Includes clerical procedures and data recording
Post operational control
Major elements are food cost reporting, assessment of results and taking appropriate corrective action, when necessary
III. FOOD COST CONTROL THROUGH MENU PLANNING AND PRICING
Standard Recipe- a written formula detailing ingredients and respective quantities needed in order to produce desired quality and quantity of a menu item
Information found in a standard recipe include following:
Name of recipe
Total yield, expressed in terms of volume, wt or count
Portion size
Number of portions the recipe can produce
List of ingredients and their specifications
Quantity of each ingredient (i.e. wt, volume, or count)
Step-by-step method of preparation/cooking procedure
Special instructions, if any
Cooking time, temperature
Equipment needed
Recipe cost (optional, as this is done from time to time to cope with the desired yield or changes)
Recipe Conversion- involves adjusting the quantity of a recipe to attain the desired yield or serving portion
Two methods of recipe conversion:
Factor Method
Conversion factor = (required yield)/(recipe yield) or Conversion factor = what you NEED/ what you HAVE
Percentage Method
Total wt of recipe = adding wt of each ingredient % by wt of each ingredient = wt of ingredient/ total recipe wt
Menu- a list of food or items offered by a restaurant or a foodservice establishment
Sales History- a written record of the number of portions of each item sold every time it appears on the menu; also known as a daily summary or portion sales.
Popularity Index- ratio of the number of menu items sold in a given period over the total number of menu items sold in the same period.
Forecasting- predicting what is likely to occur in terms of revenues and expenses, using available data.
Principal element in control, uses sales data to predict future sales
Yield- the resulting quantity obtained after a recipe has been prepared, which may be expressed in count, volume or wt
Pre-costing- calculating the cost of a recipe prior to actual preparation to determine whether it will meet cost objectives
Food Cost Percentage- the ratio of the cost of food as purchased over the sales multiplied by 100.
Ways to Control Food Cost in Menu Planning
Conduct market analysis to determine needs and trends, paying capacity, likes and dislikes of clientele.
Use standard recipes.
Get information on the popularity of menu items.
Make a menu forecast based on records, observation and knowledge of trends and competition,
Pre-cost menus using current prices to determine if food cost objectives will be met.
Plan to use foods in season or those which are readily available.
Weigh the advantages and disadvantages of using convenience foods.
Utilize leftovers when possible.
Check inventory regularly. Include slow moving storeroom items in the menu plan.
PRICING METHODS USED IN FOODSERVICE
Most common combination of Pricing methods
Direct Food Cost Method
This method is only concerned with the cost of food in relation to the selling price
FC%= cost of food as purchased/selling price X 100 or
Price (SP)= cost of food/ %Food cost desired
What the Market will Bear
Based on the assumption that if a customer attaches a certain value to a product and is willing to pay much for it, there is no reason why it should not be marketed at that price.
Competition Pricing
Largely based on the competitor’s price, with the assumption that the competitor’s prices are also satisfactory for one’s clientele.
Average Cost Plus Profit
Possible if the menu is relatively homogenous. Selling price is determined by getting over-all cost which it wishes to cover, then adding desired profits.
All Cost Plus Profit
The percentage profit desired must first be ascertained.
E.g. if a 10% profit is desired, all cost must be totalled and is considered 90% of the selling price, which is then obtained by dividing cost by 0.9 thus, an item that costs P2.70 will have a selling price of P3.00.
Minimum Sale Pricing
Based on the rationale that every customer costs a certain amount to serve, and those costs will be covered by having minimum charge.
Tradition Pricing
Some prices are considered traditional giving little room for variations.
Price Cost
a cost of food plus labor based on the fact that some food items are more labor intensive that others, thus making the direct food cost method impractical.
How to price effectively
Know your product
Know your clientele
Know your competitor
Know the supply and demand for the product/s you are selling
Know the psychological basis for pricing
IV. FOOD COST CONTROL IN PURCHASING
Objective: To ensure continuing supply of sufficient quantities of food with quality appropriate for intended use, purchased at the right time at the most favourable price.
Buying- an activity which involves selling policies and making decisions about what product to buy, how to buy them, who are the vendors to be patronized and at what frequency and quantity
Ordering– a clerical activity involved in the buying procedure
Purchase standards- rules or measures established for making comparisons and judgements to be used as basis for determining the extent to which results meet expectations.
Quality standards- the degree of excellence of raw materials and finished products.
Quantity standards- measure of wt, count or volume
Specifications- statement of particulars developed for every material purchased, developed according to purchase standards
Must clearly state the following details and description about the product:
Common trade name
Standard, grade or brand
Size of container or number of packaging units in a container
Unit in which prices will be quoted (kilo, dozen, crate, gross)
Area of origin (bangus, dagupan), number of pieces per unit (5 pcs bangus a kilo), condition (fresh, chilled, frozen, cured), packaging medium (packed in brine, syrup), age (a day old), type of packaging (canned, bottled, tetra pack)
Par Stock- the normal quantity of an item required in a given operating period
Record point- figure representing the number of units that should be on the shelves before additional quantities are ordered.
Standing Order- prepared in advance, order specifies how much an item should be automatically delivered each day or a week or a month.
Purchase order (PO)- a written request by the buyer for the vendor to sell goods and services to an establishment.
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LESSON 15: MARKETING MANAGEMENT
MARKETING
Ascertaining needs and wants of the consumers
Creating product- service mix that satisfies these needs and wants
Promoting and selling the product- service mix to generate profit
Product-service-mix-include foods, beverages, meeting facilities, atmosphere, table appointments, personal attention by service personnel.
TRADITIONAL MARKETING MIX (4 Ps)
Product- combination of products and services
Place- where sold, channels of distribution
Promotion- method of communicating with the tangible market
Price- pricing policy that stimulates sales to achieve financial target
THE ROLE OF MARKETING PLAN
Marketing Planning
Competitive assessment
Developing a marketing strategy
Forecasting sales
Marketing Execution
Develop ads and promo materials
Establish communication system (media)
Train sales personnel
Marketing Evaluation
Develop and evaluate data from a marketing information system (MIS)
Check performance vs. target
Review market share
THE LIFE CYCLE OF HOSPITALITY (FOODSERVICE) ORGANIZATION
Five Stages
Stage 1- Introduction
Stage 2- Conservative expansion
Stage 3- Rapid expansion
Stage 4- Plateaued maturity
Stage 5- Decline or regeneration
Observations
May go from 1 to 5
May skip some stages
May stay in 1 stage for a longer time
TRENDS AFFECTING FOODSERVICE MARKETING
Shrinking guest loyalty
Increasing customer sophistication
Market segmentation
MARKETING STRATEGIES (communication or promotional mix of the 4Ps)
Advertising- any paid form of nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor
Personal Selling- oral presentation in a conversation with prospective customers for the purpose of making a sale
Public relations- non-personal stimulation of demands by providing commercially significant news about the product or service
Sales promotion- other activities that increase the demand/sales- a direct inducement offering an extra incentive to take actions, be it to buy the product or to inquire about further information
Publicity- any promotion that is not paid for -may be + or -
-restaurant review, news or magazine articles citing a product or service
ADVERTISING
Critisms:
Lots of ads contain misleading information
Results in a vicious circle of spending among competitors
Consumers pay for the ads resulting in higher prices of products
Give the larger chains an unfair advantage
Make consumers purchase things they don’t want or can’t afford
Media used:
Print (newspaper, magazine)
Radio
Television
Direct Mail
Outdoor (posters, painted bulletins, billboards, neon signs, etc)
Brochures
Supplemental media
Social media (facebook, instagram, tweeter)
MEDIA SCHEDULING
Continuous- constant amount of advertising over time
Flighting- schedule set-up in spurts and stops; blitz ad with nothing in between
Pulsing- constant low level with blitz ads in between
Production Guide fo 60 secs Radio Commercial
5-10 sec- Introduction
30-40 sec- Commercial copy
5-10 sec- Recap of pertinent point
5-10 sec- Musical logo
EXAMPLE OF PRINT MEDIA
Direct promise headline
“You’ll love our 42-item salad bar”, “it’s fast or it’s free”
News Headline
“Grand Opening- February 14”
Curiosity Headline
“Who says you can’t get something for nothing?”
Selective Headline
“To all single women”
Emotional Headline
“Mother’s day-What have you done for your mom lately?”
PROMOTIONS
Objectives:
Increase customer awareness
Introduce new products and services
Increase customer count
Combat competition
Encourage present customers to buy more
To stimulate demand in non-peak periods
Type of Promotions
Push Techniques
POS Displays- counter displays, tent cards, banners, bunting
Cooperative ads- group ads, tie-ups
Advertising materials- camera-ready ad materials; menu board/picture boards
Collateral materials- brochure, flyers, directories
Convention and manager’s meeting- venue to introduce new products and services
Pull Techniques
Sampling-new product trial; menu tasting for booked functions
Price-reduction promo-price-offs;discounts
Price-reduction coupons- certificates, cut out, direct mail, handed over
Combination offer of bundling- packaged meals
Premiums- extra merchandise or gift; for free or sold cheaply
Contest and sweepstakes- winning
TYPES OF TV COMMERCIAL
Demonstration- preparing a menu, banquet in progress
Straight announcer- 1 person narrating
Testimonial- word of mouth; uses a series of satisfied customers
Problem solving- “What should you give your GF for her birthday?”
Storyline- “Karen po!; “Break muna direk!”
Musical- visual effects of products backed with appropriate music “KFC’s bakit ngayon ka lang dumating?”
DIRECT MAIL ADS
Based on the AIDA (attention, interest, desire, action) principles
Ex: “Act within 10 days and receive a free gift”
“Call today for reservation; limited patrons to be accommodated”
Maintaining a mail list- potential customers
In-house
External list
Response rate of 1-2% acceptable; 5% outstanding
PERSONAL SELLING
4 components of successful selling
Prospecting and qualifying- select good prospects before investing
Planning and delivering sales presentations- initial and subsequent contract (by phone or personal visit); AIDA principle
Overcoming objections- price, product, service, pressure to decide, individual sales manager
Closing the sale
Continuous affirmation- “YES” series
Prestige or statues close- “name dropping”
Assumptive close- assume that you have a deal
Hanging closure- for future confirmation
PUBLIC RELATIONS (PR)
Press Kit includes:
Fact Sheet
Description of the local trading area
Special features of the product-service mix
Specific details about the product-service mix of the facility
Photographs
Biological sketch of the GM
Common techniques
News releases
Photographs
Letters, inserts, and enclosure
House organs and newsletters
INTERNAL MARKETING/PROMOTION
Training guest-contact personnel
Product-service knowledge (menu, SOPs)
Physical skills (tableside cooking, wine pouring, bartending)
Attitude
Reassurance
Entertainment
Other techniques
In-house signs
Table tents
Directories
Meeting planner guides
Brochures
Flyers etc.