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Recipe for Restaurant Profits: Restaurant Success Series from ICE and American Express

File Name : Recipe for Restaurant Profits
Length : 0:07:32 minutes Speakers : Steve Zagor, Brian Buckley
Verbatim : Yes Time codes : No Special Comment : [0:00:00]
[Audio Starts] Steve Zagor: What is the number one thing
that you need to know to make money in the restaurant business? I�ll give you a hint.
It�s probably the thing that you can easily control the best. It happens to be food cost
and labor cost. Or as we know in the industry, it�s called prime cost. Prime cost is food
cost, which is the cost of ingredients, and labor cost which is the cost of labor and
salaries. That�s all it is. And let�s break that down just a little
bit. Let�s talk about food cost because we�ve got lots of food here in our lab.
And, then, we�re going to talk a little bit about labor cost. So, we kind of understand
how they blend together. Food cost is a percent. It�s strictly the ingredient cost divided
by the selling price. So, if you think about an item that cost you $2.00 to get to the
guest or the customer and you�re charging $6.00 for it, it�s two divided by six which
is 1/3 which is 33%. That�s what food cost is.
So, it�s a very simple calculation. There�s nothing else put into that number. There�s
not the cost of takeout containers. There�s not the cost of electricity. It�s a very
pure number. Is it as easy as it sounds? I�ve invited Brian Buckley with me and Brian Buckley
is a world-renowned expert in the area of food cost. He teaches at the Institute of
Culinary Education and he�s done many consulting engagements working with restaurants and food
businesses on how to design their food cost. So, Brian, welcome.
Brian Buckley: Hi class, how are you? To keep things simple we�re going to start with
a banana and why a banana? Because, it�s a perfect example of how we have to think
about food. We have to think of it in two ways. We have to think of it as the amount
of food that we purchase and the price that we get to use.
This is a one pound banana and, now, in order to make our banana cream pie we have to peel
it obviously, because, we cannot use the banana peel. And we will weigh the edible portion
as well and we find that it is eight ounces, exactly half, so, that would be I believe
50% yield? Steve Zagor: So, what Brian is saying, he�s
using the term called yield. Yield is the percentage of usable product left to serve
after everything, trimmings, loss, everything. So, in this particular case Brian is telling
that banana has a 50% yield. That means half of it we�re throwing away and half of it
we can eat. Fifty cents a pound is what our banana cost. So, if we have eight ounces of
our one pound of banana left, that�s half. So, we got what�s called a 50% yield. I
mean yield is what you actually have left to eat from what you buy.
Now, what does that mean? Let�s think of that for a moment. We paid $0.50 a pound for
that banana, so, but we can only use half of it. So, what are we going to do with our
cost? We�re really going to double the cost, because half of it we�re throwing out. The
real cost of our banana is $0.50 divided by 50%. So, this banana is really costing you
a dollar. Brian Buckley: Well, we also have to think
about what we call the intangibles. Are we serving it on a nice plate, is the waiter
wearing a tuxedo or a T-shirt? Are we going to have a beautiful designer restaurant to
serve it in or is it just going to be just a roadside stand. All those intangibles have
something to do with the price. But, we always have to start with the fundamental that is
know what it cost me so that I can decide what it costs the customer.
Steve Zagor: So what he�s saying if this is a white tablecloth restaurant and a very
expensive place then we could probably get more. Even though that hamburger is still
costing us the same we could probably add some selling price on it. But, in the real
world of restaurants, what do a lot of restaurants do to get their selling price?
Brian Buckley: Well, they make it up, Steve. Frankly, they go around and look at menu a
and menu b and menu c and they sort of find some acceptable price in the middle. I used
to do it until I learned better and it�s just the wrong thing to do.
Steve Zagor: A lot of very, very well-known restaurateurs around the United States do
exactly that. They don�t really have recipes, they don�t really understand what the cost
of a product is and they just come up with a selling price based upon throwing darts
against the wall and figuring out, here�s what the neighbors are doing this is what
I can do. But that�s not really the best way of doing it. It�s really leaving money
on the table. So, now we talked about food cost. Let�s
talk about labor cost. The labor cost is simply the cost of salaries and wages plus it would
be the cost of all the other hourly people and you add all those up. You add what you�re
paying on a weekly or monthly basis, depending on when you�re calculating it. And, you
come up with a total cost of labor. But, there�s one more thing to put in and
it�s called benefits. Some of the benefits are the little things that are taken out of
your check. The federal government mandated benefits, like unemployment comp and workmen’s
comp, et cetera. Other benefits might be insurance or paid holidays, the paid vacations. So there�s
a whole slew of benefits that still go into that labor number. And, we�ve got to add
those in to get our real prime cost. So, let�s do an example. Our food cost of
an example restaurant, let�s say our overall food cost is 30%. That means all of our ingredients
for all of our restaurants divided by the sale of 30%. And, let�s come up with our
labor cost, let�s say that we take all of our salaries and our wages and we divide those
by sales and we come up with 27%. And, we have benefits, and of course, all of those
wonderful things that we all like, the paid vacations and paid holidays. And, benefits
is probably, right now in the New York area it�s probably around 20% of payroll, which
would come out if we put it on the same sheet as a percentage of sales, is about five to
six percent of sales. So, if I add these all up, I get 57 and six
is 63%. That is the prime cost for our mythical restaurant. Now, what does that mean? This
is the very important piece of the puzzle that I want everybody to understand. If you
want to make money in the food business, your ceiling in most cases is 65%. That way there
is adequate room for rent. That way there is adequate room for all of the other expenses
that are not contained in these product costs and labor.
So, if you can do that. If you can get 65% or lower, lower is even better. Fifty percent
would be great. But, not a lot of businesses can do that, it�s keeping the numbers low.
It�s getting that number exactly where, because, think about it. We still haven�t
added in all of the other expenses. We haven�t added them in rent. We haven�t added them
in cleaning supplies, as we haven�t added them in credit card discounts if you take
credit cards. I hope you can use this to your benefit to
make more money and to be more successful than you have been in the past.
[0:07:32] [Audio Ends].

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