Hospitality Learning Online

We cannot discuss Food and Beverage Operations without looking at one of the most important key performance indicators-Food Cost.

 

Food is the biggest revenue generator for the department. A key player when it comes to profitability. No matter which department you are at whether Restaurant, Banquet or in charge of overseeing mini bars in guest rooms, food cost is the biggest component to determine whether you are making money or losing.

 

Knowing your food cost is key to managing food cost successfully. It allows you to identify problems and take appropriate actions on time.

 

It is quite often when Food Cost is considered the cost of the food product, however, food (beverage as well, will review when discussing beverage cost) being a sole revenue source for the department must cover all other expenses of the department.

 

                           Food Cost Formula

 

(Opening Inventory +Purchases) – Closing Inventory = Food Cost

 

Opening Inventory-value of food product in house on given period

 

Closing Inventory-value of product in house on given period

 

Purchases- food purchases in given period. It is necessary to note that all invoices need to be adjusted accordingly and accounted for returns, deliveries that did not meet original purchase (items out of stock) to provide maximum accuracy.

 

There is one more component to consider when reviewing food cost, Purchases, and Credits. These are revenues that are not directly associated with Product Purchase, such as employee meals, complimentary food, food transfers between departments.

These items should be subtracted from Purchases to provide more accurate data.

 

 

As an example:

 

Hotel XYZ began the month of July 2018 with $3,000 inventory. During this month property spent $7,000 on purchases and by the end of the month closing inventory was $2,300. According to the formula we just learned:

 

(3,000+7,000)-2,300= 7,700 Cost of Sales

 

So how well did this property perform for July 2018? We can’t really answer this question without knowing Food Cost Percentage and compare it to our goal.

 

Food Cost Percentage demonstrates the relation between sales and cost spent on food to achieve these sales.

 

          Food Cost Percentage Formula

 

Food Cost / Food Sales = Food Cost Percentage

 

So, if Hotel XYZ generated $26,000 for the month of July in revenues then the calculation will be 7,700/26,000=29%

 

                                                              Food Cost for Hotel XYZ for the month of July will be 29%

 

Comparing 29% to Food Cost Goal we can determine performance for the month of July.

 

There are multiple books written on the subject of how to control Food Cost, many articles populated each day describing different techniques to impact Food Cost. This subject remains one of the most discussed in F&B Industry. To the point that it is over complicated.

If you impact each component in Food Cost formula, manage and control those key players, you will result in remarkable success!