If Occupancy Cost is More that 10%....

Occupancy costs are the first bench. Occupancy costs are defined as

  • Rent and or mortgage
  • Electricity bill
  • Water / sewage
  • Propane
  • Insurance

The formula is the total of the occupancy costs divided by the total gross sales = ___%

The benchmark for a well-managed occupancy cost should be no more than 10% of the gross food and beverage (bar) sales, excluding tax.

The corrective action is to increase sales and or reduce expenses.

If occupancy cost is greater than 10% of the gross food and beverage (bar) sales, excluding tax then:

Your operation must either increase sales by X dollars (the amount necessary to increase sales such that occupancy is 10%) OR reduce occupancy costs by X dollars (the amount which is over 10%) OR Some combination of the two.

Prime Costs (Combined Food, Beverage and Labour Costs) exceeds 60% of Gross Food & Beverage Sales....

The rule of managing the combined food, beverage and labour costs (Prime Costs) is to ensure the combined costs do not exceed 60% of the Gross Food & Beverage sales.

The more scratch cooking (home made products) prepared in the kitchen – the higher the labour costs in the kitchen. However, this being said, the more unique the product there are less concerns about comparison to the competitor’s prices. The operator can remove their business from the price war.

If the food quality is excellent and served with consistency, the operator can demand a higher price for their product leading to lower labour costs and lower food costs.

The rule for dividing the labour cost budget is typically 60% of the budget allowance for the Kitchen and 40% for the service. For example – considering 30% total labour budget, the operator would allow an 18% labour cost for the kitchen and the balance of 12% labour cost would be allowed for the service.

This rule will vary by concept and menu complexity.

If your food costs are too high....

The number 1 rule of food Costing is “If you can’t eat it..it’s not food cost”. This should be posted on the site. All too often operators confuse the food cost with cost of goods or COGS.

The other key rule is “If you can’t measure it, you can’t manage it.” All cost categories must be measured separately and shown on the statements to truly reflect the cost issues, by cost category.

For example: To manage the food cost the food consumption alone must be measured against the food sales only. Paper costs must be measured against the gross sales to measure the cost of paper.

The rules in #4 must be posted when the operator clicks on the food cost cell on the break-even sheet. The rules must be posted as footer on the food cost recipe templates.

Managing the menu food cost mix of each restaurant and menu concept will have a different food cost goal. For example:

Restaurant Concept Food cost Goal Labour Cost Goal Prime Cost Total
Pizza / pasta 25 – 30% 25 – 30% 50 - 60%
Diner (meat & potato) 28 – 33% 25 – 30% 53 – 60%
Steak & seafood 36 – 40% 14 – 20% 42 – 60%
Chinese restaurant 24 – 30% 16 – 25% 40 – 55%

Each menu and menu categories will require extreme differences in the food cost allowances by category. The logic will be based on the attached food cost allowance chart built within the background of our system. The example of the scale is enclosed.

The menu food cost mix of the menu should be planned at a theoretical cost of 5% points lower that the food cost budget goal. The food cost mix should show the profit margin after just food cost alone is backed out of the selling price and then a second profit margin shown after the single service (take out containers, forks, pizza boxes etc.) have been backed out.