Hotel owners and general managers tend to focus on the rooms department, which is understandable given it typically generates the greatest revenues and contribution margins.
Still, a successful food-and-beverage department can contribute significantly to a hotel’s bottom line. In my experience, hotel food-and-beverage departments are either run very well or very poorly.
Before you stop reading and think “we are profitable,” the Uniform System of Accounts does not allocate occupancy, utilities, administration and many repairs and maintenance expenses to the food-and-beverage department. If you aren’t focused on the middle of the departmental income statement, I guarantee you are leaving significant money — pardon the pun — “on the table.”
If you want to be sure your food-and-beverage department is running efficiently, ask your food-and-beverage director the following questions each month.
What was the variance between theoretical cost of goods sold and actual cost of food sold in each profit center last month?
Often, we focus on the cost of goods sold (“COGS”) in absolute terms: as a percentage of sales and whether it met budget. More important, however, is what COGS should be based on sales mix. Actual COGS is calculated by taking opening inventory, adding purchases and subtracting closing inventory. Theoretical COGS is calculated by multiplying itemized sales by itemized menu item cost. Actual COGS should be one to 1.5 points greater than theoretical COGS, allowing for normal shrinkage.
If your management team is calculating theoretical COGS, this means they are likely managing efficiently as the calculation requires current costing for all menu items. Too many chefs know the center of the plate or protein cost but not the total cost for the menu item.
Does the theoretical COGS analysis suggest any changes required to the profit center menus?
Food-and-beverage directors and chefs should continually be reviewing their menus and considering what needs to change. If a menu item’s contribution margin is considerably less than other menu items in its category, perhaps due to ingredient price increases, it may be time to take action. You may want to reformulate a menu item, which could include changing the ingredients and/or the portioning. If you don’t want to reformulate the item — i.e., it is a signature item — you may want to adjust the price. Another option may be removing the item from the menu and replacing it with another, high-margin item.
The food-and-beverage department management team should approach menu engineering as an ongoing process. Asking this question, and receiving a positive answer, should give you comfort that they actively managing for profitability.
What did you learn from this month’s waste analysis?
Every food-and-beverage operation will have some waste: orders sent back to the dining room, ingredients spoiling, etc. Waste should be tracked and managed. Waste sheets should be readily available in the receiving, storage, production and service areas and should be used to record waste — what was wasted, the amount, the reason and the person recording the waste. All waste should be tracked.
At the end of each period, the waste sheets should be cost-extended and reviewed by the chef and food-and-beverage director. The goal of this review should be to identify ways to reduce waste and to identify variances between the theoretical and actual food costs. Waste reduction is not something you finish; new team members, new products, new policies or simple team member laziness or indifference can result in waste that can be addressed.
What was the labor efficiency last month? Is action required to improve labor efficiency?
In food service, many managers analyze labor cost as a percentage of sales. This calculation; however, does not take into account labor rates. Labor efficiency is a management tool that eliminates labor rates from the calculation. The formula is total revenue for a period divided by total labor hours.
Ideal labor efficiency should be determined for each profit center but is typically between $60 and $80 per labor hour — but can be greater or lesser depending on hotel positioning, brand standards and other factors. Some days will be more labor efficient than others. The food-and-beverage department should be reviewing labor efficiency regularly. If labor efficiency is lower than the benchmark, management may consider cutting labor hours or hours of operation. If labor efficiency is greater than the benchmark, management may want to consider adding labor to ensure throughput is not adversely affected. Labor cost control should be to optimize as opposed to minimize labor. Understaffing compromises service, which ultimately adversely affects revenues both in the food-and-beverage outlets and potentially other hotel departments.
What are the three action items you are planning to improve food-and-beverage operations each month?
The food-and-beverage director and chef should be constantly identifying opportunities for improvement. Areas they should be considering are increasing revenues, controlling costs for food and beverage, controlling labor expenses and improving labor relations.
Summary and conclusion
Almost all hotels have significant room to improve the profitability of their food-and-beverage department. Management of food-and-beverage operations is not rocket science; however, many managers are hired because they know how to operate effectively and efficiently but fail to make the required changes to the hotel food-and-beverage department. Sure, there is resistance to change and the path of least resistance is the status quo; however, managers are well-compensated and inefficiency would not be tolerated in other hotel departments.
The answers provided to the questions above will indicate whether your food-and-beverage department management team is actively managing the department. If they can’t answer the questions, that means they are not calculating theoretical food cost, preparing and analyzing waste reports and/or effectively managing labor. Further, by asking these questions, you are setting expectations that encourage accountability and performance that will benefit the hotel.
Finally, each food-and-beverage department profit center should be analyzed individually. All these questions can be asked to profit center management. And, if cost of goods sold is allocated across all profit centers based on sales, your team is not managing effectively.
Jeff Dover is President of fsSTRATEGY, a consulting firm specializing in strategic advisory services for the hospitality industry, with an emphasis on food and beverage.
This column is part of ISHC Global Insights, a partnership between CoStar News and the International Society of Hospitality Consultants.
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