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Determine Accurate

R i
Recipes C
Costs
t For
F YYour
Food & Beverage
Operations
SlideShare Presentation
Westerville, OH  May 8, 2013
© 2013 Return On Ingredients LLC  P.O. Box 2387  Westerville, Ohio 43086-2387  614.423.4410  Fax 614.340.7946

Request to have this presentation conducted live for your association, group or event at
info@ReturnOnIngredients.com
Mark Kelnhofer
• BA in Accounting and Business Administration in 1993
• Masters in Business Administration (MBA) in 2005
• Ohio Dominican University, Columbus, Ohio
• Manufacturing Cost (1993 – 2013)
• Plastics, Lighting, Tire Repair Kits, Buses, Restaurants
• Bravo/Brio Restaurant Group (2002 – 2010)
• Return On Ingredients (2009 – Present)
• Bravo/Brio Restaurant Group,
Group Eddie V’s
V s, Pistacia Vera,
Vera Bob Evans
Farms, Gordon’s Gourmet, Midwest Culinary Institute, Luce,
Crème de la Crepe, Cooper’s Hawk Winery, Zauber Brewing Co.,
Hospitality USA

• Ohio Dominican University (2007 – Present)


• Adjunct Faculty, Financial & Managerial Accounting
• Midwest Culinary Institute (2011 – Present)
• Adjunct Faculty, Food, Beverage & Labor Cost Controls
Bravo/Brio Restaurant Group

4.2% = $ millions in savings
Return On Ingredients LLC   P.O. Box 2387   Westerville, Ohio 43086‐2387   614.423.4410   Fax 614.340.7946
Return On Ingredients® and its logo are registered trademarks by Return On Ingredients LLC 
Brio Tuscan Grille – Easton Town Center
Columbus, Ohio
Bravo! Cucina Italiana
Virginia Beach, VA
Bon Vie – Easton Town Center
C l
Columbus,
b Ohi
Ohio
Mark Kelnhofer

• BA in Accounting and Business Administration in 1993


• Masters in Business Administration
Ad (MBA)
( A) in 200
2005
• Ohio Dominican University, Columbus, Ohio
• Manufacturing Cost (1993 – 2013)
• Plastics,
l Lighting,
h Tire Repair Kits, Buses, Restaurants
• Bravo/Brio Restaurant Group (2002 – 2010)
• Return On Ingredients (2009 – Present)
• Bravo/Brio Restaurant Group, Eddie V’s, Pistacia Vera, Bob Evans
Farms, Gordon’s Gourmet, Midwest Culinary Institute, Luce,
Crème de la Crepe, Cooper’s Hawk Winery & Zauber Brewing Co.,
Hospitality USA

• Ohio Dominican University (2007 – Present)


• Adjunct Faculty,
Faculty Financial & Managerial Accounting
• Midwest Culinary Institute (2011 – Present)
• Adjunct Faculty, Food, Beverage & Labor Cost Controls
Other Food Manufactures…

• Restaurants
• Casinos
• Hotel & Lodging
• Sports Arenas
• Hospitals
• Colleges and Universities
• Catering and Banquet Centers
• Theme Parks
• Horse Race Tracks
• ….and others!
Amtrak

Fox Business
News
08/02/2012
Restaurants vs. Manufacturing
RESTAURANTS MANUFACTURING
Ingredients Raw Materials
Restaurants vs. Manufacturing
RESTAURANTS MANUFACTURING
Prep Production Work In Process
Restaurants vs. Manufacturing
RESTAURANTS MANUFACTURING
Menu Item Finished Goods
Restaurants vs. Manufacturing

RESTAURANTS MANUFACTURING
BOH (chef)
( h f) / Di
Direct
t Labor
L b
FOH (bartender)
Restaurants vs. Manufacturing
RESTAURANTS MANUFACTURING
FOH (Waiter/Waitress) Indirect Labor
Restaurants vs. Manufacturing
RESTAURANTS MANUFACTURING
Recipe Bill of Material
Restaurants vs. Manufacturing

Other manufacturing aspects as well


• Prep Time = Labor Routing
• Customer Order = Manufacturing Order
• Overhead
O h d (V(Variable
i bl andd Fi
Fixed)
d)
• Recipe = Bill of Material (BOM)
Top Reasons
To Know
Y
Your Costs!
C t !
The
Restaurant
I d t
Industry
The Restaurant Industry
United States – Highly Competitive

Source: NRA 2013 Industry Forecast


The General
Economic
C diti
Conditions
The Economy

• Less Discretionary Income


• Eating Out Decisions Change
• Lower Sales Volumes
• “Pi hi
“Pinching P
Pennies”
i ”R Reaction
i

Shouldn t we be pinching pennies


Shouldn’t
in all economic conditions?
Commodit
Commodity
Costs
Commodities In The News
FSR Magazine, 03/2013
“Protein
“P i Prices
P i
Rise,
Restaurants
Cope”
Commodities In The News

QSR Magazine, 03/20/2013, “Commodities in Crisis”


Fuel Update
Business First,
12/03/2012
/ /
Cost Management
NRA Daily, “Restaurant Operators Report
Higher
g Food Costs”,, 12/28/2012
/ /

Source: NRA Daily, 12/28/2012


Cost Management
NRA 2013 Industry Forecast,
“Food Costs Continue To Chopp Into The Bottom Line”

Source: NRA 2013 Industry Forecast


Cost Management

NRA 2013 Industry Forecast, “Controlling Costs Is No Picnic”

Source: NRA 2013 Industry Forecast


Cost Management

NRA 2013 Chefs Survey, “Balancing Rising Food Costs”

How do you
respond to
higher food
costs?
Commodity Research

Source: American Restaurant Association


www.americanrestaurantassociation.com
1-888-423-4411  Fax 941-953-4034
Forecasting and Managing Food and Energy Commodities
ck
se, Bloc
Chees Commodity Research

Source: American Restaurant Association (ARA), http://www.americanrestaurantassocaition.com


Ground
Beef, G d Commodity Research

Source: American Restaurant Association (ARA), http://www.americanrestaurantassocaition.com


R Pork
WCR Commodity Research

Source: American Restaurant Association (ARA), http://www.americanrestaurantassocaition.com


k Ham
Pork Commodity Research

Source: American Restaurant Association (ARA), http://www.americanrestaurantassocaition.com


con
Pork Belly, Bac
P Commodity Research

Source: American Restaurant Association (ARA), http://www.americanrestaurantassocaition.com


Wheat Commodity Research

Source: American Restaurant Association (ARA), http://www.americanrestaurantassocaition.com


Industry
Ind str
Failure Rate
Restaurant Failure Rate

The Dick Pope Institute for Tourism Studies, UCF Rosen College of Hospitality, Parsa/Green/Terry
Restaurant Failure Rate

The Dick Pope Institute for Tourism Studies, UCF Rosen College of Hospitality, Parsa/Green/Terry
Restaurant Failure Rate

Controls
“A
“According
d to the
h National
N l Restaurant
R Association
A (2009),
(2009) a
typical restaurant in America earns a net profit under 10%. That
means 90% off revenues are used to deferf the cost off doingg
business. Thus, managers that do not understand the importance
of cost controls are bound to fail in the restaurant business. Two
major
j costst in
i the
th restaurant
t t industry
i d t are foodf d costt andd labor
l b
cost. These two costs together are referred to as prime costs. For
a restaurant to succeed, the pprime costs are expected
p to be less
than 60% of revenues. It is a ‘rule of thumb’ and a good rule to
follow. Most restaurants that have failed often were found to have
prime costs exceeding 60% indicating greater potential to
failure.”
The Dick Pope Institute for Tourism Studies, UCF Rosen College of Hospitality, Parsa/Green/Terry
The Missing Link

Culinary Arts The Numbers


ROI Methodology

Recipe costing is the base for many


other aspects of the operations.
The Reality Is…

• Some restaurant operators


p do not
have any written or documented
recipes.
• Some have recipes that are written
are only for execution, not costing.
• The few that have costing in many
cases do not take a manufacturing
approach.
approach
• Menu pricing in some cases is not
based on proper analysis and data.
data
What is in your control?

 Knowing your costs


What is in your control?

 Knowing your costs


 Establishing your selling
price
Types of Recipes

• Batch or Prep Recipes


• Larger quantities
• Become their own unique
inventory item when produced
• Can be used in other recipes
• Serving or Menu Item Recipes
• Ultimately is what is sold to the
guest or customer
Recipe Writing

Analyze and question the recipe to account


for accuracy and the process. Ask questions!
Recipe Writing

Blended Oil, EVOO, Soy


Recipe Writing

Spanish,
S i h GGreen, etc.
t
Diced? Minced? In house?
Recipe Writing

P
Precooked?
k d?
Recipe Writing

Mi
Minced
d or cloves?
l ?
Recipe Writing

I di d or Kosher?
Iodized K h ?
Recipe Writing

5 6 6x6,
5x6, 6 6 Green,
G Heirloom,
H i l Ch
Cherry R
Roma?
?
Recipe Writing

Th yield
The i ld or end
d result
lt iis required
i d for
f costing!
ti !
Recipe Writing
Weights & Measures

• Portion control thro


through
gh the use
se of
utensils (Tbsp, tsp, dishers,
spoodles etc.)
spoodles, etc )
• Accuracy of weights and measures
is paramount.

1 cup, Basil Leaves 1 cup, Granulated Sugar

0.2 ounce 6.8 ounces


Density: 2.5% Density: 85.0%
Batch Recipes & Yields

• Batch recipes should account for the


proper yield (what the result is)
includingg known waste and the
process (labor)
• When the p purchased product
p has
changed form in any way, a batch
recipe should be created to account
f the
for h cost.
• If you don’t account for the process
andd yields,
i ld your menu llevell costst iin
most cases is understated!
Batch Recipe Example #1

• We p
purchased ‘Basil,, Fresh’ at
$8.50/# or $0.531/oz

BASIL PICKED
Ingredients Quantity UOM Cost Extended
Basil, Fresh 16.0 oz $0.531 $8.500
Yield 11.0 oz

• The new item ‘Basil


Basil Picked’
Picked now
has a correctly stated value of
$0.773/oz or $12.36/#
Batch Recipe Example #2

• We ppurchase ‘P&D 31/40


/ Shrimp’
p
at $5.50/# or $0.344/oz

P&D 31/40
/ SHRIMP THAWED
Ingredients Quantity UOM Cost Extended
P&D 31/40 16.0 Oz $0.344 $5.500
Shrimp, frozen
Yield 14.2 oz

• Th
The new it
item ‘P&D 31/40 ThThawed’d’
now has a correctly stated value of
$0 387/oz or $6
$0.387/oz $6.19/#
19/#
Batch Recipe Example #3

• We p
purchase ‘Lobster Bisque
q Soup’
p
by the bag/8# for $16.95 bag.

LOBSTER BISQUE SOUP YIELDED


Ingredients Quantity UOM Cost Extended
Lobster Bisque 1.0 Bag $16.950 $16.950
Soup
Yield 0.98 gal

• Th
The new it
item ‘L
‘Lobster
b t BiBisque S
Soup
Yielded’ now has a correctly stated
value of $17.30/gallon
$17 30/gallon or $0
$0.136/oz
136/oz
Batch Recipe Example #4

• We p
purchase ‘Bananas’ for
$0.513/#.

BANANAS PEELED
Ingredients Quantity UOM Cost Extended
Bananas 16.0 Oz $0.032 $0.513
Yield 10.5 oz

• Th
The new it
item ‘B
‘Bananas P
Peeled’
l d’ now
has a correctly stated value of
$0 049/oz or $0.782/#
$0.049/oz $0 782/#
Packaging

• Packaging
g g is p part of the raw
material cost, similar to the
ingredients
• Packaging includes:
• Bottles, lids
• Boxes
• Labels
• Wraps
The Costing Problem

Ingredients
Prime Cost

Ingredients Labor
Total Cost

Ingredients Labor

Overhead
Total Cost Breakdown
Labor & Overhead Costs

• Your labor and overhead can be


accounted for in the recipe
• Prep Time, Labor Routing
• Time/motion studies (stopwatch)
• Time (hours) is loaded on every recipe
• Standard Labor (BOH) Rates
• By store
• Includes wages and fringes
Time Motion Studies

• Stopwatch
p time motion study y
• Must be in a live environment
• Must be a controlled test
• Must be the personnel that will
actually
y execute the recipes
p
Batch Recipe Example
Prime Cost
• We p
purchased ‘Basil,, Fresh’ at
$8.50/# or $0.531/oz

BASIL PICKED
Ingredients Quantity UOM Cost Extended
Basil, Fresh 16.0 oz $0.531 $8.500
Labor 0.167 hr 15.66 $2.616
Total $11.116
Yi ld
Yield 11 0 oz
11.0

• The new item ‘Basil Picked’ now


has a correctly stated value of
$1.011/oz or $16.18/#
Direct (BOH) Labor Rate

• The direct ((BOH)) labor rate should


include the base rate plus any
other additional fringes associated
with
h those
h personnell
• Unemployment Insurance
• Workers’ Compensation
Workers
• Social Security & Medical
• Health, dental and vision insurance plans
• 401(k) or other retirement plans
• Vacation & Sick Pay
• Child
Childcare
Overhead Rates
Predetermined Overhead Rate

• Based on budgeted
g expenses
p and
direct labor hours (BOH) by location.

Total Budgeted Overhead


= $0.000/hr.
Direct Labor BOH Hours

Overhead
Rate
Overhead Rates
Predetermined Overhead Rate

• FOH Labor & Fringes


• Advertising & Marketing
• Repair & Maintenance
• Supplies
• Training
• Utilities
• Communications
• Landscaping
• Research & Development
Budgeted
• Occupancy
Direct Labor
• Taxes
Hours
Batch Recipe Example
Total Cost
• We p
purchased ‘Basil,, Fresh’ at
$8.50/# or $0.531/oz
BASIL PICKED
Ingredients Quantity UOM Cost Extended
Basil, Fresh 16.0 oz $0.531 $8.500
Labor 0.167 hr $15.66 $2.616
Overhead 0.167 hr $34.97 $5.840
Total $16.956
Yield 11 0 oz
11.0

• The new item ‘Basil Picked’ now


has a correctly stated value of
$1.542/oz or $24.67/#
Wine Bottle Conversions

Source: chathamhillwinery/blogspot.com
Wine Glass Pour Costs

750ml bottle
Bottle cost $8.99
fl. oz. 25.3613
fl. oz. cost $0.354
Pour cost $2.127
Standard recipe pour = 6.0 fl. oz.
Item Description Qty UOM Unit Cost Extended

Estancia Pinot Noir 6.00 fl. oz. $0.354 $2.127


Direct Labor 0.025 hr. 12.00 0.300
Overhead 0 025
0.025 hr
hr. 34 97
34.97 0 874
0.874

Total Cost $3.301


Source: chathamhillwinery/blogspot.com
Beer Keg Conversions
Draft Beer Pour Cost

½ BBL
Keg cost $89.00
fl. oz. 1,984
fl. oz. cost $0.0449
Pour cost $0.718
Standard recipe pour = 16.0 fl. oz.

Item Description Qty UOM Unit Cost Extended

Sam Adams Lager 6.00 fl. oz. $0.718 $0.718


Direct Labor 0.017 hr. 12.00 0.204
O
Overhead
h d 0 017
0.017 h
hr. 34 97
34.97 0 595
0.595

Total Cost $1.517


Liquor Recipe Cost

FOUR HORSEMEN
Item Description Qty UOM Unit Cost Extended

Johnnie Walker Red 0.25 fl. oz. $0.907 $0.227


Jose Cuervo Gold 0.25 fl. oz. 0.778 0.197
Jim Beam 0.25 fl. oz. 0.562 0.140
Jack Daniels 0.25 fl. oz. 0.739 0.185
Direct Labor 0.034 hr. 12.00 0.408
O
Overhead
h d 0 034
0.034 h
hr. 34 9
34.97 1 189
1.189

Total Cost $2.346


Liquor Recipe Cost

BLACK RUSSIAN
Item Description Qty UOM Unit Cost Extended

Choice of Vodka 1.50 fl. oz. $0.000 $0.000


Kahlua Coffee Liqueur 0.75 fl. oz. 0.778 0.197
Direct Labor 0.025 hr. 12.00 0.300
Overhead 0.025 hr. 34.97 0.874

Base Recipe Cost $1.371


Well Call Premium Super Premium

1-1/2
fl.
fl
oz.

Low Average High


Make Buy
y Decisions

• In order to make valid comparisons,


p , all
costs must be considered
Ingredients
Made
d In House
$0.80
$0.80/#

Outsourced
$3.25/#
Make Buy
y Decisions

• In order to make valid comparisons,


p , all
costs must be considered
Ingredients Labor

$1.00 Made
d In House
$0.80
$5.13/#

Outsourced
$3.25/#

Overhead

$3.33
Efficient Batch Designs
g

• Are the batch or p


prep
p recipes
p
designed for efficiency?

Batch #1 Batch #2
Yields: 28 oz Uses
24 oz of
Batch #1
Efficient Batch Designs
g

• Are the batch or p


prep
p recipes
p
designed for efficiency?

Automatically incurs 4
oz of waste each time

Batch #1 Batch #2
Yields: 28 oz Uses
24 oz of
Batch #1
Sales Mix & Execution

Review of the sales mix with assigned


g
recipes for each station

Station #1 Station #2 Station #3 Station #4 Station #5

Where is the distribution of the sales mix?


Execution vs. Costing

• Recipes
p are written differently
y for
execution than they are for
costing.
• Execution usually states what utensils
to utilize
• Costing involves weights and
measures
Execution vs. Costing

Execution Costing

BALSAMIC MARINADE
Ingredients Qty UOM Qty UOM
Olive Oil Blended 90/10 3.0 cups 24.0 oz
g
Balsamic Vinegar 1.0 cup
p 8.0 oz
Salt and Pepper Mix 0.25 cup 2.025 oz
Chopped Shallots 0.25 cup 1.20 oz
Chopped Parsley 0 25
0.25 cup 0 45
0.45 oz
Yield 38.0 oz
Menu Level Costing
Menu Level Costing

Prime Cost
Menu Level Costing

Total Cost
Where do I start?

Step 1: Purchased Items


Ingredient
Step 2: Batch Recipes level only

Step 3: Serving Recipes

Step 4: Time Standards

Step 5: Labor and Overhead Rates

Step 6: Performance Benchmarking


Systems

• MBE ((Manage
g By
y Excel))

• Systems & Software (do your


research!)
• Features (i.e. recipes, production,
ordering,
• invoicing, menu engineering, etc.)
• Service
• Cost
• Your overall plan (short and long
term)
Our Systems
The
h
Top 10
Takeaways
k
The Top 10 Takeaways

Takeaway #1
Get the competitive
p edge!
g
The restaurant industry is
hi hl competitive
highly titi andd th
the
current economic factors
f
compound that.
The Top 10 Takeaways

Takeaway #2
The business ffailure rate has
historically been very large.
Use both your culinary skills
and data to keep from
becoming a statistic.
The Top 10 Takeaways

Takeaway #3
Recipe
p costingg is vitally
y
important to the success of
the operations
operations. Recipe
costing can be a science.
Everything can be
accounted for.
for
The Top 10 Takeaways

Takeaway #4
Recipes
p should be written with
more accuracy and details.
In order to cost recipes
recipes, the
details are required!
The Top 10 Takeaways

Takeaway #5
When using g portion
p control
tools, capture the density.
Proper weights and measures
is critical to the accuracy of
the recipe and the cost.
The Top 10 Takeaways

Takeaway #6
When writing g a batch prep
p p
recipes, the yield or the end
result is required to
determine the cost as it
moves through the process.
The Top 10 Takeaways

Takeaway #7
Writingg a recipe
p for
f execution
is very different than for
costing Execution is for the
costing.
line personnel. Costing is
for the management.
You need both.
both
The Top 10 Takeaways

Takeaway #8
Beer,, wine and liquor
q recipes
p
should be accounted for.
Liquor recipes need to match
the POS system for costing
and depletion.
The Top 10 Takeaways

Takeaway #9
This is yyour call to action!
Start the process. If you do
nott h
have adequate
d t ti
time or
skills,, get
g some professional
p f
assistance!
The Top 10 Takeaways

Takeaway #10
To ensure success –
The bottom line is
know your costs!
Plan for success!
Be p
proactive,, not reactive!
Reference Books

The Book of Yields: Accuracy in Food Costing & Purchasing


Francis T. Lynch
John Wiley & Sons
ISBN 13: 978
978-0-471-74590-7
0 471 74590 7
ISBN 10: 0-471-745909-1

Chef’s
Ch f’ BBook
k off Formulas,
F l Yi
Yields
ld & Si
Sizes
Arno Schmidt
John Wiley & Sons
ISBN 10: 0-471-22716-1

Note: Neither references


f is truly
y comprehensive.
p You need to p
practice the
costing methods discussed in this presentation.
Cost Control

Audit to
ACCURATE Improve
RECIPE Efficiencies
ffi i i
COSTING

MENU Benchmarking
ENGINEERING (Actual v.
Theoretical)
JIT
Production &
Ordering
(Dynamic
P
Pars))
Results

• Quality
• Consistency
• Efficiency Improvements
• Discipline
• Cash
• Profits

• Waste
• Inventory Levels
• Costs
Articles Booklet

• “Obtaining
Obtaining Accurate Recipe Costs
Costs”
• “Improve Your Menu Engineering”
• “The
The Case For Theoretical Food Costs
Costs”
• “The Advantages of Just-In-Time”
• “Robust
Robust Supply Chain Management
Management”
• “Line Checks That Create Efficiency”
• Traits of Effective Cost Management”
“Traits Management
http://www.ReturnOnIngredients.com
Other Speaking Events

Current 2013 Schedule


• Ohio Dominican University – 2/7
Oh 2/ in CColumbus,
l b O
OH
• Columbus Culinary Institute – 2/12 in Columbus, OH
• North American Pizza & Ice Cream Show – 2/17 in Columbus, OH
• Canadian Restaurant & Foodservice Association – 3/3 in Toronto
Toronto, Ontario
• International Restaurant & Foodservice Show 3/4-3/5 in New York, NY
• Western Illinois University – 3/7 in Macomb, IL
• International Boston Seafood Show 03/10 in Boston, MA
• Nightclub & Bar Expo – 3/19-3/21 in Las Vegas, NV
• Owens Community College – 4/4 in Toledo, OH
• ODU Dominican Scholars Dinner – 4/15 in Columbus, OH
• ACF Maumee
M Ch
Chefs
f A
Association
i i – 5/6 iin Fi
Findlay,
dl OH
• Western Foodservice Expo – 8/18 – 8/20 in Los Angeles, CA
• Florida Restaurant & Lodging Show – 09/22 – 09/24 in Orlando, FL
• World Congress of Nutrition & Health Conference – 10/12
10/12-10/14
10/14 in Dalian,
Dalian
China
• Americas Food & Beverage Conference – 10/28 in Miami Beach, FL
Culinary Schools

This program is offered at no cost to culinary and hospitality


schools programs based on availability and budget.
budget
• Lexington College (Chicago, IL)
• Roosevelt University (Chicago, IL)
• Western Illinois University (Macomb, IL)
• Lake Michigan College (Benton Harbor, MI)
• Central Michigan University (Mt. Pleasant, MI)
• Guilford Technical Community College (Jamestown, NC)
• University of Nevada Las Vegas (Las Vegas
Vegas, NV)
• Midwest Culinary Institute (Cincinnati, OH)
• Columbus Culinary Institute (Columbus, OH)
• Hocking College (Nelsonville, OH)
• Owens Community College (Toledo, OH)

Please email me at Mark@ReturnOnIngredients.com


O call
Or ll me directly
di tl att Cell
C ll 614
614.558.2239
558 2239
Questions & Answers

Mark Kelnhofer, President & CEO


Return On Ingredients
P.O. Box 2387
Westerville, Ohio 43086-2387
614.423.4410
Fax 614.340.7946
Cell 614.558.2239
Mark@ReturnOnIngredients.com
p // g
http://www.ReturnOnIngredients.com
http://www.LinkedIn.com/kelnhofer
Questions & Answers

If you have a questions later, contact me!


mark@returnoningredients.com
k@ t i di t
614 558 2239
614.558.2239

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