ON TRACK: A Nice N Easy employee constructs a burrito for
sale in the store (left), while two others show off pizzas and
pastries. The company recently began measuring food waste
using “waste PLUs” on the registers to track how much staffers
are throwing away as a percent of sales.
Cost in
Translation
W
Calculating true costs
for foodservice can
give retailers the edge
ithout taking any sides, Jack Cushman of Nice N
Easy Grocery Shoppes wants to set the record
straight about foodservice margins.
“[Food people] don’t even know what margin means,” says
Cushman, Ph.D., and executive vice president of food services
for the Canastota, N.Y.-based chain. “To be honest with you,
we still view it like most retailers who look at margin. Foodservice doesn’t work like that. But what we’ve done over the
years—really, the food people—we just kind of adapted.”
In a nutshell, a simple margin upsell does not work for
foodservice because it does not account for food waste or
labor costs. Food cost, on the other hand, does.
Let’s back up for a second. Foodservice may come with
its challenges, but as we’ve heard for years from industry
experts—and, perhaps more important, the numbers—it
can pay off handsomely when done right.
According to the NACS 2009 State of the Industry survey, average annual foodservice dollar sales per store rose
3.6% to $241,620 in 2008. Much of this growth was driven
by food prepared on site, which saw a 6.5% increase in
average sales per store.
By Abbie Westra
[email protected]
And compared to the rest of the foodservice industry,
c-stores are poised for growth. According to The NPD
Group, c-store foodservice spending grew by 5% from
November 2007 to November 2008, while QSR sales inched
up only 1%, casual-dining sales stayed stagnant and midscale-restaurant sales dropped by 2%.
The challenge for retailers comes in combining the economics of a retail operation with the foodservice component to actually realize profits for their efforts.
Food Cost vs. Margin
Foodservice is based on food-cost percentage, which is the
relationship between sales and the cost spent on food to achieve
those sales. (See sidebar on p. 84 for calculating food cost, food
cost percentage and other vital foodservice numbers.)
Foodservice costs are controlled in three steps. First, accurate sales and cost data is collected. Then those sales and costs
are monitored and analyzed. Finally, corrective action is taken
to make actual costs hit the theoretical costs you created as
benchmarks: Are you throwing out too many slices of pizza
at the end of the night? Is the deli worker putting too many
J u l y
2 0 0 9
CSP
83
DELI AT THE READY: Tedeschi Food Shops recently standardized its grab-and-go commissary
products with its TD’s Deli on-site food program. While some stores have a full-sized deli, many
have TD’s Deli Express, which supplies customers with a bevy of premade sandwich choices.
ounces of ham on the sandwich? Did
you correctly cost out the labor of baking those bagels?
Some of the costs to monitor:
䊳 Controllable costs include food
cost, which can be managed through
standardized recipes, portion control
and pricing. Another controllable cost
is labor. Noncontrollable costs, on the
other hand, include licenses or rent.
Targeted ideal cost is the ideal
amount your company wants to
spend—your goal.
䊳 Potential (or theoretical) cost is
the expectation of what the food cost
should be, if you comply with all costcontrol procedures.
䊳 Actual food cost is the most controllable cost you incur. It consists of
five areas: cost of food sold, cost of food
䊳
lost through poor purchasing, cost of
food lost in receiving and storage, cost
of food lost in production and cost of
food lost by service staff.
“Clearly, only the cost of food sold
to customers should be spent,” says
Clement Ojugo, regional financial controller for Delaware North Cos., Parks
& Resorts, and author of “Practical
Food & Beverage Cost Control.” “It’s
the manager’s job to minimize or eliminate the others.” This is where calculating food costs comes into play.
“It’s not really the cost itself that’s the
problem; it’s the difference between the
actual cost and the theoretical cost,”
Ojugo says. “If there is a major difference
between the two, then there is a problem,
1.0
=
%=1.60
+4/item
Controlling Costs,
Foodservice Style
standard against which food cost is judged. It can be broken down to
menu category, menu item or day-part.
food cost / sales = food cost percentage
Food cost is the actual dollar value of the food used by an operation
Compare this number to company goals as well as historical costs to
during a certain period. It includes the expense incurred when food is
ensure you’re on track for projected profits. If you aren’t meeting your
sold, given away, wasted or stolen. Calculating food cost requires
food-cost percentage, then something is wrong in your standards and
accurate opening and closing inventory data, which should be calculated
controls, such as a staffer using too much deli meat on a sandwich.
weekly, or at least monthly.
The menu is the primary foodservice sales tool. With that, creating
(opening inventory + purchases = total
food available) – closing inventory
= food cost
standardized recipes is the key element in meeting your goal food cost
percentage.
Standardized recipes will tell you how much an item actually costs
once all ingredients have been prepped (remember, you’re paying for
the entire lettuce head, even the part you throw away). Your foodservice
From there, you want to calculate the food cost percentage, which is the
department must determine whether they will use the As Purchased (AP)
relationship between sales and the cost spent on food to achieve those
method, which costs an ingredient at the purchase price, prior to any
sales. Like margin in the retail world, food-cost percentage is often the
waste being removed. The Edible Portion (EP) method costs ingredients
84
CSP
J u l y
2 0 0 9
because the theoretical cost, technically,
should be your budget, your target.”
For c-store retailers, breaking out
these numbers is crucial to understanding the true cost of foodservice.
“[Colleagues] say, ‘Well, jeez, if you’re
making a 50% margin on something,
you should be doing back flips,’ ” says
Cushman. “I’m thinking, yeah, but if it
takes me 20% labor to do it, and then
it takes me 10% to 15% cost, and then
if you add some occupancy because I
share the building and he may be making 2% to 3% profit … then 50 margin
isn’t 50 margin anymore.”
Calculating Labor
The amount of hours an employee
clocks in a foodservice operation is significantly higher than in a retail store,
so it’s important to factor it into not
only the entire P&L, but also into each
menu item’s cost.
“To be technically correct in the
restaurant world, margin is food cost
and the direct labor it costs to produce
the product,” says Cushman. “Convenience stores don’t get into that level of
detail, but it’s really important.”
He gives the example of a
microwave sandwich: “If I make a 30%
margin on it, which means you have a
70% food cost, that’s fine because I
don’t have any labor into it. Or I can
make one myself and have a 50% food
cost with 20% labor. If you add those
things up, you still have a 70 margin.”
At this point, you must ask a big
question: Are you better off making it
in-house or buying a packaged sandwich? The only way to know is by
crunching the numbers.
When John MacDougall, founder
and president of Nice N Easy, decided
to commit the company to foodservice
15 years ago, he began bringing in
industry veterans such as Cushman to
run the program. Cushman was teaching Strategic Planning in the Business
School and Quantity Foods in the Hos-
pitality Program at Kansas State at the
time. He also had spent time at Dominos Pizza and Mr. Gatti’s Pizza.
The company created the Easy Street
Eatery, a “quick-service model” that
makes on-site sandwiches, salads, pizzas and pastries. About 50 stores even
have precious floor space designated
for eat-in dining areas, some as much
as 350 square feet.
For Nice N Easy and other foodservice-focused c-stores, the scale will
always tip toward made-to-order for
the value it adds.
Waste must also be factored into the
food cost equation. “The closer you can
get to made-to-order, the better food
costs you’re going to run,” he adds.
Generally, made-to-order items have
the least waste, cold grab-and-go comes
next, and hot-held foods have the highest waste numbers.
Nice N Easy recently began measuring food waste using “waste PLUs” on
the registers. If a slice of pizza gets
00= c 4+
ost
= food
after it has been trimmed. It’s vital to pick one and stick to it.
Another important cost-control measure is to make sure your items
are priced appropriately. There are a number of markup methods used by
the foodservice industry. The Texas Restaurant Association (TRA) Markup
Method uses sales, costs and profit to determine markup: add labor
expenses in percentage, all other expenses except food cost in percentage
and profit in percentage. Subtract the total of these, in decimal format,
from 1.00; that is your divisor. Divide the standard portion cost of the menu
item by the divisor, and the result is the selling price of item.
1.00 – (labor expenses + all other
expenses except food cost + profit)
= divisor
menu item cost / divisor
= menu selling price
With the Factor Method, 1.00 is divided by the standard food cost
percentage to get the factor. The factor is then multiplied by the menu
item cost to get the selling price.
1.00 / standard food cost percentage
= factor
factor x menu item cost
= menu selling price
And the Markup on Cost Method takes the menu item cost divided by
the standard food cost percentage to get the selling price.
menu item cost / standard food cost
percentage = menu selling price
While the TRA Method takes more time, it takes into account all expenses
and profit of the operation, not just the cost of the menu item.
J u l y
2 0 0 9
CSP
85
EASY GOING: Nice N Easy Grocery Shoppes makes all of its food, including salads, subs,
pizza and pastries on-site, promoting the Easy Street Eatery on many of its store signs.
dropped on the ground, the manager
rings up the “waste pizza” PLU. “It’s a
zero sale, but now it’s in our technology. So then we can differentiate
between overportioning, theft or waste,
assuming everybody was honest.” The
company then takes that data and determines where to scale back on food production throughout the day or week.
Creating a Separate P&L
At Tedeschi Food Shops, Rockland,
Mass., director of foodservice Brian
Matlock has created a separate P&L for
the foodservice operations at each deli
location. (Twenty-one of Tedeschi’s 189
stores feature a full-service deli; the
other stores are supplied with prepared
foods from a commissary.) “Having a
separate foodservice P&L definitely
helps to manage controllable lines and
86
CSP
J u l y
2 0 0 9
overall profitability,” he says.
Matlock is working to standardize
the commissary-delivered food offering
with the made-on-site deli products.
Tedeschi has a new commissary line
extension, called TD’s Deli Express, that
recently was rolled out to 37 locations.
“It complements the image, quality
and consistency of our core on-site
brand, TD’s Deli,” says Matlock. The
brand extension has also helped justify
putting more resources toward marketing the TD’s Deli brand, and it ensures
a consistent product from store to store.
Costing Across the Categories
Another hurdle retailers face when implementing a foodservice program is the difference between category management,
cross-menu inventory and what Cushman calls “the grocery-store mentality.”
In a foodservice operation, an item
with a high food cost percentage is
offset with an item that has a low food
cost. Inventory is further complicated
by single items being used in multiple applications.
“If you look at our reports, they are
broken up by departments, and each
department exists because it has common inventories in it,” says Cushman.
“All the beer you sell, it goes in there, and
you have a targeted margin. Of course,
if you sell a lot of low-margin beer, you’re
not going to hit your target margin. If
you sell a lot of high-margin beer, you’re
going to blow away your margins. Each
department kind of stands by itself.”
Over the years, Cushman has realized that this strategy doesn’t work in
the foodservice business: “We tried to
break it down by subs and wraps and
pizza and dispensed drinks and salads.
But one slice of cheese may go in three
or four different items; it goes across
three or four different categories. So it
makes it very difficult to use that grocery-store mentality.”
So Cushman and his team are on the
hunt for a software program that is geared
toward foodservice in a retail operation.
They are currently testing one that gives
every single item a PLU with a costed-out
recipe, “so we know how much we
should be spending on the item level.”
“There really isn’t a lot of help like
that in the convenience store community. We’re really on the very beginning
stages of it,” says Cushman.
Right People, Right Cost
Cushman, Matlock and Ojugo all
emphasize the importance of not only
hiring the right people to man a foodservice program, but also preparing to
pay the price.
For Cushman, labor cost is his Achilles’
heel. “You have to watch labor, but you
still have to give them enough labor to do
the work you’re asking to do,” he says.
“Otherwise they’re going to find shortcuts. When you find shortcuts in foodservice, then you jeopardize food safety.”
On-site foodservice requires not just
customer service clerks, but also people
to prep the food, build it up and break it
down at the end of the day. These people, while costly, are charged with the
most important part of a food operation:
making it fresh, sanitary and appetizing.
“There is plenty of time to shave the
nickels and pennies after you build the
business, but build the business first,”
says Cushman.
Have foodservice people in the
88
CSP
J u l y
2 0 0 9
upper levels of the company to help to the way they measure success,’ ” says
explain the P&L to the executive team, Cushman. “You need to teach them
and enlist strong field people to mon- about how you historically have done it,
itor what’s going on at the store level. but at the same time you have to realize
But it doesn’t stop there, according that there was a whole business that
to Matlock. “Store management must existed there before you showed up at
have a strong food background and be their door.”
As the c-store industry continues to
given budgeted sales, labor and waste
goals that are broken down to daily tar- explore foodservice opportunities, Cushman sees retailers getgets to monitor sucting the hang of
cess,” he says. “And “It’s not really the
they need to be held
cost itself that’s the foodservice metrics,
eventually creating a
to financial incentive
problem;
it’s
the
sort of hybrid system.
parameters plus or
difference between
“My belief is it’s
minus to those tarthe
actual
cost
and
got to get to itemgets so they can grow
the business and
the theoretical cost. level inventory across
have a vested interest
If there is a major the board,” he says.
“If I’m going to sell a
in doing so.”
difference
between
fridge pack of Coke,
As for the frontthe two, then there there’s a product cost
line staff, consider
with that, and maybe
is a problem.”
hiring people with
a labor cost is 5%
foodservice experience who understand the importance because the handling is very minimal.
of food safety and customer service, And then each PLU has its own labor
and who are willing to put the work component and margin component,
and then food is the same way.”
into making the program successful.
—Additional information provided
Living in a Retail World
by “Practical Food & Beverage Cost Con“I always tell people who come from the trol,” by Clement Ojugo, and “Controlfood world, ‘You’re playing in the ling Foodservice Costs,” from the NRA
■
retailer’s world now. So you have to adapt Education Foundation.