Hospitality Management - Monitoring Catering Revenue and Costs - Assignment Example

MONITORING CATERING REVENUE AND COSTS Introduction This paper aims to chalk out the plan of action for Billy Blue Brasserie in order to successfully combat challenges faced due to the recession bug striking the catering and restaurant business in general, both worldwide and specifically, in Australia. As Executive Chef/Manager of Billy Blue Brasserie, I would like to first prepare a market and business analysis of the current scenario and how it affects our industry. The paper will also touch upon the various aspects of running a restaurant such as purchasing systems, storage and control of food items, Management and implementation of stock records, Development of food control and production schedules, Development of well-planned workflows and staff schedules, Application of menu engineering techniques to track daily sales and maximize profitability, Preparation and analysis of income statements, budgets and financial records and suggest appropriate software/hardware and computer systems to increase profitability. Impact of Recession According to the market intelligence provider Key Note, in its recent study on the impact of recession on the catering industry, casual dining outlets are definitely impacted in a great way. “Fast-food chains may also gain from the credit crunch by attracting consumers that are trading down from the casual-dining outlets”(Catering Market Report, Key Note Report, 2009, p 5). The same report has predicted that restaurant sales will decline in comparison to figures in 2008, and catering sales through licensed clubs will remain static. According to Key Note, “ an increased focus on value meals by operators such as the pub-restaurant chains” is the future trend. In Australia, the restaurant and catering industry employs hundreds of thousands of people and has thus far attracted over 40,000 business owners. Raising capital is proving to be a huge challenge with banks becoming extremely strict on their lending policies. Also, the average meal at any restaurant is nearly thrice that of a home cooked meal, yet growth is anticipated in this sector. Factors that could continue to draw people towards restaurants and dining outside are convenience, enjoyment and quality food. The current fear is that rising costs outweigh rising sales figures. According to the President, Restaurant and Catering Queensland, Summers (2009), "We're not just talking about a downturn in economy here, we're talking about the labour rates are changing, the industrial instruments that we're working under are about to take a dramatic change, come January next year there's going to be a sharp increase in wage rates in our industry - some 30 per cent.” Hence it is clear that spiraling food costs, real estate expenditure and wages are proving to be huge obstacles. Let us look at the areas that we need to focus on. Establishment and Implementing Purchasing Systems One must also look into the Purchasing System. It is essential that procedures are laid down and followed by Billy Blue Brasserie towards the following objectives: to decide the quantity and quality of an item that is needed, to get the best possible price and to be updated on the sources of supply. The system needs to utilize EOQ (Economic Order Quantity), Quantity discount, MRP (Material Requirement Planning) and Optimal Reorder Point. A good purchasing system will significantly reduce the workload associated with managing the purchasing process and thereby bring about tangible benefits to the company. This allows you to automate, measure and control the procurement needs of a restaurant. Storage and Control of Food Items The receipt and storage of food in any restaurant needs to be streamlined in order to ensure that it is safe for human consumption, clean, wholesome and free from spoilage. All food must be prepared, processed, handled, packaged and stored in an extremely sanitary manner. It is imperative that all products are stored on platforms or shelves 6 inches from the floor so as to allow cleaning of the floor surface. All storerooms must be well aired and ventilated and free of dampness, pests and bugs. There must be a clear demarcation between the food storage area and the area where cleaning products and chemical products such as insecticides and pesticides, detergents etc are stored. Refrigeration also needs to be monitored wherein all foods must be labeled and dated. In order to ensure adequate cooling, containers must be spaced apart so as to allow air to circulate around them. All food must be covered in order to minimize contamination. This applies to walk-in coolers as well. Meat and poultry items must be stored at the bottom of the shelves so as to prevent any possible leakage into other foods. It is essential that restaurants follow the FIFO (First In First Out) system. All refrigerated, ready-to-eat food that is prepared and held for more than 24 hours must be clearly marked with the date of preparation. It has to be thrown if it is not served or sold within ten calendar days. It is proposed that the following steps be taken at Billy Blue Catering. Quality and Quantity of all incoming products to be verified by the manager/employee assigned the responsibility Cost of all products to be checked upon arrival and invoice amount to be verified Track all purchases – On receipt of the order, invoice amount to be updated in P&L statement Date & Store Supplies – maintain a clean and safe storage area, rotate all food items and label perishable foods. A shelf-life chart like the one below may be used. FOOD ITEM PANTRY (70° F) Refrigerator (33 to 40° F) Freezer (0° F) CHECKED BY Fresh ground beef, turkey, veal, lamb 1-2 days 3-4 months Fresh beef steak 3-5 days 6-12 months Fresh Pork Chops 3-5 days 4-6 months Fresh Poultry, Whole 1-2 days 12 months Fresh Poultry, parts 1-2 days 9 months Giblets 1-2 days 3-4 months Canned Meat 1 year 3-4 days once opened Bacon 7 days 1 month COURTESY: FoodServiceWarehouse.com, 2009 Management and Implementation of Stock Records The accurate management of restaurant inventory and stock spells the difference between its success and failure. If a reliable forecasting model is in place, expenditure can be brought down drastically and waste can be controlled through the effective use of products on hand. Secure storage and lock-up procedures need to also be in place to avoid theft. Inventory Management Systems can be Manual/ Limited Integration, Mixed POS (Point of Sale) or Partial Integration or Fully Integrated. Billy Blue Brasserie must take the necessary steps to combat theft, spoilage, waste, breakage, kickbacks, improper rotation, cooking errors unrecorded sales, over-portioning and short weights. It is proposed that food costs need to be calculated once a week as per the example below COURTESY: RestaurantOwner.Com, 2006 Food Control and Production Schedules It is absolutely essential that food control and production schedules are mapped and adhered to strictly in order to avoid contamination from microbes, touch and chemicals. Hence all food preparation surfaces need to be cleaned and sanitized before use. Fruits and Vegetables require a different treatment from meats and poultry and cross contamination must be avoided at all cost. If these steps are closely monitored, it will drastically improve the quality of food served by Billy Blue Brasserie. I propose that a chart similar to the one below is drawn up and followed by all employees at Billy Blue Brasserie. Menu Item Frozen Storage Thaw Hold Cold Cut/ Assemble Cook Hold Hot Cool Hot Food or ingredients Reheat Package Eg: Soups X X X Clam Chowder X X X X X Potato Salad X X X X COURTESY: Whatcom.wa.us, 2008 Workflows and Staff Schedules Allocating workflow and work schedules to the restaurant staff is important and hours are typically allotted based on the sales forecasted for the time. A paper schedule is effective but it does take a great deal of time and also means that the manager needs to update the information by re-entering it to the payroll system. A manager will also loose time every day checking on workforce availability and the need to reassign tasks, if this is the case. Tasks need to be assigned on an hourly basis, daily basis (cleaning etc), weekly basis (inventory management) and monthly basis (payroll etc.). I strongly propose that Billy Blue Brasserie starts working on integrating attendance systems with payroll, checking employee productivity and ensuring that the workforce is not draining the restaurant of its resources. An example of a weekly work schedule is as under: COURTESY: MagneticConcepts.com 2008 Menu Engineering Techniques Menu engineering refers to the sales history, cost price of ingredients for the menu items and selling price. It helps determine what items are profitable and popular by analyzing their profit margins. Each food item may be categorized as Stars (popular and profitable), Plow Horses (popular but not as profitable), Puzzles (not popular but highly profitable), and Dogs (neither popular or profitable). Category Menu Item No Sold Menu Mix % Item Sold Price Item Food Cost Item Contribution Margin Total Item Revenue Total Food Cost Total Contribution Margin Category viz. Stars, Plow Horse, Puzzles, Dogs Courtesy: Barrington Software Incorporated, 2008 Rapp (2006, quoted in Schwartz, 2006 p 31) says, “A menu is like a real estate development, Knowing where to place things, how they should look, what their perceived value needs to be and how to attract customers to the right products are critical aspects of successful real estate development and successful menu engineering implementation. That's why operators use specialists to help them get the most benefit from their investment in time, money and effort.” Financials Strong financial management is the key to running a successful restaurant. Especially given the tough financial times that we are facing it is imperative to manage the restaurant efficiently. It is important that we have a good accounting and bookkeeping service provider in place and that we have a 4-week accounting period. We must assess to what extent the service capacity of Billy Blue Brasserie is being employed and make sure that this is optimized. Let us look at the existing P&L statement of Billy Blue Brasserie. The areas that are highlighted in red, are the ones that I believe costs can be reduced. Billy Blue Brasserie Category Yearly Income: Food $ 697,680.00 Beverage $ 348,840.00 Total Income $ 1,046,520.00 100% Variable Costs: Food costs $ 209,304.00 30% of food sales (this can be further brought down by implementing an efficient purchasing system) Beverage $ 104,652.00 30% of beverage sales Total Variable costs: $ 313,956.00 30% of total sales Gross Profit– Income– Variables 70% Semi Variable costs Flowers $ 5,100.00 (The number of flowers per table can be reduced. While plastic flowers are an option, the only issue is that it will not go with the basic need of a restaurant – that of freshness!) Wages: $ 397,677.60 38% Super- 9% $ 35,790.98 (with work schedules being made more specific, we can work at reducing the number of employees working at the restaurant during non-peak hours. This will bring the costs down) Workers Comp- 3.22% $ 12,805.22 Fixed Costs Accountancy fees $ 10,000.00 Advertising and Marketing $ 20,000.00 (Instead of spending on advertising, we could explore the option of PR. Journalists can be asked to review the restaurant, thus giving us free publicity. In addition, promotions can be theme-based and this could also be covered by local newspapers and radio stations as news thus giving the necessary mileage. Assoc- memberships $ 1,000.00 (Can be stopped till the economy improves) Bank Fees $ 3,000.00 Cleaning $ 6,000.00 Electricity $ 12,000.00 Education/trade magazines $ 2,000.00 (Can be stopped till the economy improves) Gas $ 12,000.00 Govt fees $ 220.00 Insurance $ 10.000.00 Linen $ 30,000.00 Motor Vehicle $ 5,000.00 (Needs to be monitored closely to cut costs) Printing and Stationery $ 5,000.00 Repairs and Maintenance $ 10,000.00 Rent $60,000.00 (May be renegotiated given the current recession. Its likely the owner of the premises will not get another tenant during the economic slowdown) Staff amenities $ 5,000.00 (Needs to be monitored closely to cut costs) Telephone/mobile/internet $ 5,000.00 (Needs to be monitored closely to cut costs) Travelling expenses $ 5,000.00 (Needs to be monitored closely to cut costs) Loan repayment- 10% interest only $ 40,000.00 (10 year term on $400,000) Total fixed costs: $ 241,220.00 Net profit or loss: $ 39,970.20 % $ 3.82 The above figures are calculated on: 40 customers per day 5 days lunch trade @ $ 40.00pp $ 408,000.00 5 days Bev sales @ $ 20.00pp $204,000.00 Minus GST on sales $ 61,200.00 40 customers per night 3 nights dinner trade @ $60.00pp $ 367,200.00 3 nights Bev trade @ $30.00pp $ 183,600.00 Minus GST on sales $ 55,080.00 51 weeks trading per year 1 week holidays Opening Hours: Mon/Tues 12:00-3pm Wed-Fri 12:00-3pm 6pm-10pm Software/Hardware Systems Going forward, we could explore the following software/hardware systems to automate the process and improve efficiency. There are major software providers that allow catering companies to conduct the food service business successfully. For instance, CostGuard® software helps control costs, save time and maximize profit. The software allows you to calculate and reduce food and liquor costs, recalculate recipes and menus, controls your inventory, nutrition, sales management, accounting systems and interfaces with suppliers, to name a few. Cost Genie is a restaurant inventory and costing software program that allows for a more streamlined and efficient restaurant business. BirchStreet is a company that provides e-procurement and purchasing software and services. This kind of e-purchasing software will improve cost savings capabilities and control monitoring of food procurement. It allows for proactive cost management analytics through price tracking. Review of Food Control and Production Systems Set in Place The positive news that we at Billy Blue Brasserie need to capitalize on is the fact that consumers will always require food and increasing efficiency, stricter budgeting and accurate planning will help us chalk out a recession-resistant game plan. The reality is that people will not necessarily compromise eating out altogether, they will just be a lot smarter in how they will be doing the same. Promotions, excellent customer service, well-set menus and discounts will be the way forward. Customers need to be given the option of walking away from a meal with more than just a full belly! They will want value for money and a wonderful experience. Focusing on areas such as reduction of inventory through automated processes, menu engineering, employee work schedules etc. will keep the restaurants cash tills ringing. It is imperative that in order to survive the economic downturn costs are cut. An effective and periodic inventory system, audit reports, using the right size plates/bowls/spatulas/ladles and scales are important. In addition, I sincerely believe that a great deal of saving is possible by watching waste, reusing leftovers and restricting portion size. REFERENCES ABC News, (May 21, 2009) ‘Qld Hospitality Feeling Pinch of Recession’ http://www.costguard.com/features.htm#catering, (July 8, 2009) http://www.co.whatcom.wa.us/health/pdf/foodprepchart.pdf, July 8, 2009 http://www.fastcasual.com/article.php?id=8214 (July 8, 2001) http://www.foodservicewarehouse.com/equipment/c3040.aspx, July 8, 2009 http://www.restaurantowner.com/public/377.cfm (July 8, 2009) Key Note Market Research, (2008) ‘Catering Market Report’ Riell Howard, (2007) ‘How To Cut Food Costs’, [Online] Available Schwartz, Bill (2006), ‘Menu Engineering: A Scientific Approach to Improve Menu Profitability’ Read More