File Name : Recipe for Restaurant Profits Length : 0:07:32 minutes
Speakers : Steve Zagor, Brian Buckley Verbatim : Yes
Time codes : No
Special Comment :
[0:00:00] [Audio Starts]
Steve Zagor: What is the number one thing that you need to know to make money in the
restaurant business? I�ll give you a hint. It�s probably the thing that you can easily
control the best. It happens to be food cost and labor cost. Or as we know in the industry,
it�s called prime cost. Prime cost is food cost, which is the cost of ingredients, and
labor cost which is the cost of labor and salaries. That�s all it is.
And let�s break that down just a little bit. Let�s talk about food cost because
we�ve got lots of food here in our lab. And, then, we�re going to talk a little
bit about labor cost. So, we kind of understand how they blend together. Food cost is a percent.
It�s strictly the ingredient cost divided by the selling price. So, if you think about
an item that cost you $2.00 to get to the guest or the customer and you�re charging
$6.00 for it, it�s two divided by six which is 1/3 which is 33%. That�s what food cost
is. So, it�s a very simple calculation. There�s
nothing else put into that number. There�s not the cost of takeout containers. There�s
not the cost of electricity. It�s a very pure number. Is it as easy as it sounds? I�ve
invited Brian Buckley with me and Brian Buckley is a world-renowned expert in the area of
food cost. He teaches at the Institute of Culinary Education and he�s done many consulting
engagements working with restaurants and food businesses on how to design their food cost.
So, Brian, welcome. Brian Buckley: Hi class, how are you? To keep
things simple we�re going to start with a banana and why a banana? Because, it�s
a perfect example of how we have to think about food. We have to think of it in two
ways. We have to think of it as the amount of food that we purchase and the price that
we get to use. This is a one pound banana and, now, in order
to make our banana cream pie we have to peel it obviously, because, we cannot use the banana
peel. And we will weigh the edible portion as well and we find that it is eight ounces,
exactly half, so, that would be I believe 50% yield?
Steve Zagor: So, what Brian is saying, he�s using the term called yield. Yield is the
percentage of usable product left to serve after everything, trimmings, loss, everything.
So, in this particular case Brian is telling that banana has a 50% yield. That means half
of it we�re throwing away and half of it we can eat. Fifty cents a pound is what our
banana cost. So, if we have eight ounces of our one pound of banana left, that�s half.
So, we got what�s called a 50% yield. I mean yield is what you actually have left
to eat from what you buy. Now, what does that mean? Let�s think of
that for a moment. We paid $0.50 a pound for that banana, so, but we can only use half
of it. So, what are we going to do with our cost? We�re really going to double the cost,
because half of it we�re throwing out. The real cost of our banana is $0.50 divided by
50%. So, this banana is really costing you a dollar.
Brian Buckley: Well, we also have to think about what we call the intangibles. Are we
serving it on a nice plate, is the waiter wearing a tuxedo or a T-shirt? Are we going
to have a beautiful designer restaurant to serve it in or is it just going to be just
a roadside stand. All those intangibles have something to do with the price. But, we always
have to start with the fundamental that is know what it cost me so that I can decide
what it costs the customer. Steve Zagor: So what he�s saying if this
is a white tablecloth restaurant and a very expensive place then we could probably get
more. Even though that hamburger is still costing us the same we could probably add
some selling price on it. But, in the real world of restaurants, what do a lot of restaurants
do to get their selling price? Brian Buckley: Well, they make it up, Steve.
Frankly, they go around and look at menu a and menu b and menu c and they sort of find
some acceptable price in the middle. I used to do it until I learned better and it�s
just the wrong thing to do. Steve Zagor: A lot of very, very well-known
restaurateurs around the United States do exactly that. They don�t really have recipes,
they don�t really understand what the cost of a product is and they just come up with
a selling price based upon throwing darts against the wall and figuring out, here�s
what the neighbors are doing this is what I can do. But that�s not really the best
way of doing it. It�s really leaving money on the table.
So, now we talked about food cost. Let�s talk about labor cost. The labor cost is simply
the cost of salaries and wages plus it would be the cost of all the other hourly people
and you add all those up. You add what you�re paying on a weekly or monthly basis, depending
on when you�re calculating it. And, you come up with a total cost of labor.
But, there�s one more thing to put in and it�s called benefits. Some of the benefits
are the little things that are taken out of your check. The federal government mandated
benefits, like unemployment comp and workmen's comp, et cetera. Other benefits might be insurance
or paid holidays, the paid vacations. So there�s a whole slew of benefits that still go into
that labor number. And, we�ve got to add those in to get our real prime cost.
So, let�s do an example. Our food cost of an example restaurant, let�s say our overall
food cost is 30%. That means all of our ingredients for all of our restaurants divided by the
sale of 30%. And, let�s come up with our labor cost, let�s say that we take all of
our salaries and our wages and we divide those by sales and we come up with 27%. And, we
have benefits, and of course, all of those wonderful things that we all like, the paid
vacations and paid holidays. And, benefits is probably, right now in the New York area
it�s probably around 20% of payroll, which would come out if we put it on the same sheet
as a percentage of sales, is about five to six percent of sales.
So, if I add these all up, I get 57 and six is 63%. That is the prime cost for our mythical
restaurant. Now, what does that mean? This is the very important piece of the puzzle
that I want everybody to understand. If you want to make money in the food business, your
ceiling in most cases is 65%. That way there is adequate room for rent. That way there
is adequate room for all of the other expenses that are not contained in these product costs
and labor. So, if you can do that. If you can get 65%
or lower, lower is even better. Fifty percent would be great. But, not a lot of businesses
can do that, it�s keeping the numbers low. It�s getting that number exactly where,
because, think about it. We still haven�t added in all of the other expenses. We haven�t
added them in rent. We haven�t added them in cleaning supplies, as we haven�t added
them in credit card discounts if you take credit cards.
I hope you can use this to your benefit to make more money and to be more successful
than you have been in the past. [0:07:32]
[Audio Ends].