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Archive for the ‘Food Costs’ Category

It is almost impossible to compare a restaurant’s operations with industry averages.  Organizations like the CRFA aggregate the smallest mom-and-pop with the largest chains to get their averages.  Not many restaurants are “average”, anyway.  Just about all industry statistics are based on surveys, not actual operating results.  Even though such surveys are anonymous, who wants to put down that their cost of sales is 40% or more?  So, the results are often skewed.

There is another way of compiling restaurant operating results.

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Part I in this series focused on fraud and theft up to the point your inventory becomes available for sale.  As we found out, lots can go wrong during the purchasing, receiving and inventory safeguarding processes.  These frauds and thefts involved uncooked food or unpoured alcohol.  Now, let’s uncork a bottle and turn up the heat.

Today, I want to discuss some of the major thefts that happen during “normal” operations.  These thefts involve cooked food or poured alcohol.  These are the ones that take place “right under your nose”.  Today’s post examines food theft.

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IT NEVER HAD A CHANCE TO BE SOLD

Today’s post covers fraud and theft of stock items before they are sold or used in your establishment.  These types of fraud relate to purchasing, receiving and inventory stock keeping.  Subsequent posts will cover additional types of fraud and theft.  These posts discuss one of the most important issues facing restaurateurs.

Any theft of product for sale can result in significant sales and income tax liabilities.  So significant, in fact, that it could put your restaurant or bar out of business.  My restaurant tax blog, Canadian Restaurant Tax Advisor, has a wealth of information about restaurant tax audits and their dire implications for you.

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The majority of the cost of most entrées comes from the “protein” component – meat or fish.  Chefs try to maintain a consistent portion size, usually based on weight.  Despite consistent portions, the cost will fluctuate depending on the raw purchase cost and the butchering yield.  Even if you don’t have recipes fully documented and costed for every menu item, as a bare minimum, you should know the portion cost of the protein component of every plate.  Also, you need to track the number of portions in inventory at all times.  This will allow you to identify major cost problems that may be occurring.

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Rest assured, today’s post is not about tax evasion.  But, it does have a very important implications.  If your food recipes use any alcohol, it’s important to account for it properly.

Proper Accounting

Your food cost of sales should include all of the costs that are incurred in preparing the food menu items.  Sometimes, restaurants forget to include the costs of liquor, wine and beer that are used in food dishes.  Food costs are understated and alcohol costs are overstated.  No big deal to the bottom-line, but it does affect the margins for each category, which are considered in your decision-making.

But there is a far more important reason.

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AbacusWhile there are some signs that we may be emerging from the recession, I think you’ll find that consumer behaviour has been changed, perhaps for many years to come.  Even your “well-off” customers are much more price conscious that they have ever been before.  Actually, they are more value conscious.  In order to “survive and thrive”, you have to continuously monitor your restaurant’s value proposition.

While there’s more to the value proposition than your menu and prices, these are the two aspects that can be adjusted fairly easily in the short-term.  These are also the two areas that most restaurateurs fiddle with first, when times get tough.  We could probably add labour into the mix, too.

Recessions always harm the restaurant industry.  People lose their jobs (or worry that they will lose them), cut back on meals outside the home, and spend less when they do go out.  Most restaurants experience a drop in both volume and check averages, often severely reducing (or eliminating) their profits.  To cover their fixed costs, restaurateurs will try everything to keep the customers they have and steal their competitors’ customers.  Most start with price reductions, either through coupons and discounts or with across the board price reductions.  It doesn’t take long to realize that quality or portion sizes have to be reduced to maintain profitable margins.  Easier said than done!

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I’m sure all restaurant consultants and accountants advise their clients to count inventory regularly.  Depending on how many menu items and ingredients in use, and how many times you count inventory, this simple procedure can represent a very significant time commitment.  Let’s take a closer look at inventory counts and see whether they’re worth the time and effort.

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