Fundamental Principles of Restaurant Cost Control

by Pavesic, David V., Ph.D., FMP., CHE.; Magnant, Paul F., M.B.A., CFBE, FMP, CCE, CEC, CHE, CHM

• ISBN13: 9780131145320
• ISBN10: 0131145320
• Edition: 2nd
• Format: Paperback
• Copyright: 2004-08-06
• Publisher: Prentice Hall

Summary

Written by a former restaurateur, in an applied format using a systematic approach, this book presents the practice of restaurant cost controls that complements the management process of planning, organizing, leading and controlling. The book¿s abundance of support materials make it user-friendly and more appealing to users and facilitators.Role of cost control in strategic business plan for systematic planning; role of the menu as a cost control, merchandising and communication tool; importance of menu sales analysis for both food and beverage departments; menu pricing techniques that optimize food cost, gross profit, and revenue; menu design and layout techniques; different types of food cost measurement; converting financial statements into cost control tools; operation and financial analysis of costs and revenues; and labor productivity measures.Appropriate for a wide range of professionals in the foodservice industry such as independent restaurant operators, chefs, and corporate or franchise foodservice managers.

Author Biography

David V. Pavesic. Dr. David V. Pavesic is a second-generation restaurateur. His family owned and operated two Italian restaurants in Chicago from the mid 1940's until 1974. He earned his bachelor of science in business administration from Florida State University and majored in hotel and restaurant management. He received an MBA from Michigan State University, majoring in hotel, restaurant, and institutional management. He received his Ph.D. from Florida State University in higher education administration.

Upon graduation from Michigan State, he served as chairman of the hotel and restaurant program at Metropolitan Junior College in Kansas City, MO. After three years he went to work for Regan's Restaurants, a family-owned chain of six restaurants in the metropolitan Kansas City area as general manager of operations. He later accepted a position as the director of food service at Rollins College in Winter Park, FL. He then founded Angelo's Italian Restaurants, Inc. in Casselberry, FL where he opened two casual dining restaurants. He sold his controlling interest in the restaurant to return to academia as an instructor in the Department of Restaurant Management at Florida State University and earned his doctorate while on the faculty.

He joined Georgia State in 1986 as an associate professor in the Department of Hotel, Restaurant, and Travel Administration. In 1988 he was named program director of the Cecil B. Day School of Hospitality Administration and served until 1996. He is director emeritus, senior professor, and graduate program director.

Dr. Pavesic has served on the industry boards of the Missouri, Kansas, and Georgia Restaurant Associations, the Board of Directors of the Atlanta Convention and Visitors Bureau, American Hotel and Motel Association, and the Council on Hotel, Restaurant and Institutional Education.

He has consulted for independent restaurants, private clubs, and contract food service accounts in the areas of kitchen layout, menu analysis, cost controls, menu design and operational analysis. He has delivered presentations to professional associations like the National Restaurant Association, National Association of Catering Executives, American Hotel and Motel Association, and Club Managers Association of America.

He is one of the most prolific authors in hospitality journals. He ranked 9th out of 108 "most influential hospitality management scholars" from 1989-1999, 10th in the top 37 most cited hospitality faculty from 1997-1999 and 17th out of the top 100 authors in terms of publication in the premier hospitality journals. He has written eight books including Menu Pricing and Strategy with the late Jack Miller, this text and the six Restaurant Manager Handbooks on topics ranging from cost control to menu design.

He has had over 30 articles published in refereed journals, eight chapters in books of other hospitality educators, and given numerous speeches, workshops, and seminars at academic and industry association conferences. He received the Southeast CHRIE research award in 1993. He has developed his Cost/Margin Menu Analysis software for menu sales mix analysis which is in use in both academia and industry. His current research is about to explore restaurant failure rates, hoping to dispel the misconception that restaurants have the highest failure rate of all retail service entities.

He is an avid collector of old restaurant and hotel books and magazines and is developing a historical database of materials. He has been married to his college sweetheart for 37 years and has a daughter and son who have blessed him with four beautiful grandchildren. He currently resides in Woodstock, GA and can be reached at 404-651-3678 or [e-mail].

Paul F. Magnant. Paul F. Magnant is a native of Central Florida and was the Department Chair and Assistant Professor of the Hospitality Department of Johnson & Wales University-Norfolk, Virginia Campus. He has taught at Valencia Community College, Stetson University, and Daytona Beach Community College. He is a Certified Executive Chef and Culinary Educator (C.E.C., C.C.E.), a Certified Food and Beverage Executive and Foodservice Management Professional (C.F.B.E., F.M.P), a Certified Hospitality Educator and HACCP Auditor/Manger (C.H.E., C.H.M.), and Certified Culinary Instructor (CCI). Magnant has nearly two decades of operational experience in the food service sector, including five years as chef-owner/operator of a full service restaurant and four years in sales and distribution with Pepperidge Farm Inc. (a division of Campbell's Soup Co.) where he was awarded the Super Merit Award and Merit Award for being in the top 1 percent of the national sales force. In addition, he has served as the Food and Beverage Director of Sara Hotels Inc. (Gothenburg, Sweden) and held management positions with Sheraton Corporate Hotels (Seattle, WA and New York City), Red Lion Hotels (Costa Mesa, CA) and The Palace Hotel (Walt Disney World, FL).

Currently in the final stages of pursuing his Ph.D. in Urban Services with a concentration on "Food Safety Training and Management" at Old Dominion University, Magnant has already earned his MBA from Nova Southeastern University and a bachelor of science degree in Hospitality Administration and Psychology from Florida State University and is currently working toward obtaining two additional culinary certifications.

He resides in Norfolk, Virginia with his wife of over 12 years, Addie M. Magnant (Ishii), and their daughter Michiko. Magnant has conducted valuable research in the areas of instructional skills for culinary and hospitality students. He is active in the local chapter of the American Culinary Federation as the Educational Committee Director and has conducted consulting and training work for several nationally known foodservice and hospitality organizations. Chef/Professor Magnant along with his wife Addie (who is also a chef), have both distinguished themselves in the classroom by finding methods and techniques for bringing out the best in students.

Table of Contents

Preface	xiii
About the Author	xvii
Abstract	xxi
The Value and Importance of Cost Controls	1	(34)
Every Decision You Make Is a Financial One	2	(2)
Controls are Proactive and Preventative	4	(1)
Controls are Part of the Entire Management Process	5	(3)
Definition of Cost Control	8	(1)
Purpose of Cost Controls	9	(1)
Is Your Physical Presence Sufficient for Control?	10	(1)
Cost Control Versus Cost Reduction	10	(1)
A Systems Approach to Managing Your Costs	11	(4)
Example: Management's Role	15	(4)
Purchasing	19	(1)
Receiving	20	(1)
Storage	20	(1)
Issuing	21	(1)
Prepreparation	21	(1)
Preparation	22	(1)
Portioning and Transfer (Food Leaves Kitchen for Dining Room)	22	(1)
Order Taking/Guest Check	23	(1)
Cash Receipts	23	(1)
Bank Deposits and Accounts Payable	24	(1)
An Ongoing Process	24	(2)
The Importance of Standards	26	(3)
Key Concepts	29	(1)
Key Terms	30	(1)
Discussion Questions	30	(1)
Problems	31	(4)
Cost Ratios	35	(32)
Food Cost Ratio/Percentage	36	(9)
Beverage Cost Ratio	45	(1)
Beverage Sales	45	(1)
Average Check	46	(1)
Seat Turnover	46	(1)
Inventory Turnover	47	(1)
Impact of the Sales Mix	48	(1)
Break-Even Point (BEP)	49	(2)
Contribution Margin	51	(1)
Closing Point	52	(1)
How to Interpret National Restaurant Association Industry Averages	52	(9)
Key Concepts	61	(1)
Key Terms	61	(1)
Discussion Questions	61	(1)
Problems	62	(5)
Food Cost Controls	67	(36)
Food Cost Myths and Misconceptions	69	(1)
Basics of Food Cost Control	69	(2)
The Importance of Standards	71	(3)
Production Control and Leftovers	74	(2)
Portioning Standards	76	(1)
The Four Faces of Food Cost	77	(19)
The Fallacy of Gross Profit: The Impact on the Bottom Line	96	(3)
Key Concepts	99	(1)
Key Terms	99	(1)
Discussion Questions	100	(1)
Problems	100	(3)
Yield Cost Analysis	103	(40)
Fundamental Principles of Food Cost Control	103	(1)
Yield Terminology	104	(1)
Yield Factors	105	(1)
Calculating Plate Cost	105	(1)
Costing Convenience Foods	106	(1)
Costing Items Made From Scratch	107	(2)
Recipe Costing	109	(5)
Costing an Oven-Ready Prime Rib Without Usable Trim	114	(6)
Costing a Prime Rib With Usable Trim	120	(3)
Steak-Cutting Yield Test	123	(2)
Costing a Deluxe Hamburger Platter	125	(1)
Prime Cost and Pre-Cut Products	126	(7)
Key Concepts	133	(1)
Key Terms	133	(1)
Discussion Questions	133	(1)
Problems	134	(9)
Menu Sales Mix Analysis	143	(58)
Fundamental Principles of Menu Design	143	(3)
The Restaurant Concept, Location, and Menu	146	(1)
The Menu Determines Equipment Needs	147	(4)
The Role of the Modern Menu	151	(3)
The Evolving Menu	154	(2)
Goals of an Effective Menu	156	(3)
Types of Menu Formats and Item Listings	159	(3)
Psychology of Menu Design	162	(6)
Cost/Margin Menu Sales Mix Analysis	168	(24)
The Seven P's of Menu Design	192	(1)
Strategies for Primes, Standards, Sleepers, and Problems	193	(2)
Key Concepts	195	(1)
Key Terms	195	(1)
Discussion Questions	195	(1)
Problems	196	(5)
Menu Pricing Methodology and Theory	201	(52)
Fundamental Principles of Menu Pricing	201	(2)
Market and Demand Driven Pricing	203	(1)
Cost Markup	204	(1)
Customer Price-Point Pricing	204	(1)
Determining the Price to Charge	205	(2)
Pricing to Achieve a Specific Food Cost Percentage	207	(1)
Customer Perceptions of the Restaurant and the Pricing Decision	208	(1)
Four ``Costless'' Approaches to Pricing	209	(4)
Indirect Cost Factors in Menu Pricing	213	(5)
Changing Menu Prices	218	(3)
Discount Pricing	221	(6)
Pricing in Private Clubs	227	(1)
Pricing in Nonprofit Operations	227	(1)
Employee Meals	228	(1)
Pricing Catering	229	(1)
The Texas Restaurant Association (TRA) Pricing Method	230	(4)
Prime Cost Pricing Methodology	234	(4)
By-The-Ounce Pricing for Salad and Food Bars	238	(8)
Key Concepts	246	(1)
Key Terms	246	(1)
Discussion Questions	246	(1)
Problems	247	(2)
References	249	(4)
Purchasing	253	(36)
Food Purchasing and Ordering	253	(1)
Parameters of Effective Ordering	254	(2)
The Buyer's Credentials	256	(1)
Types of Buying	257	(1)
Sales Representatives	257	(2)
Purchasing Channels	259	(1)
The Buyer-Seller Relationship	260	(1)
How Purveyors Analyze Food-Service Accounts	261	(1)
How Purveyors Can Improve Buyer Relations	261	(1)
Things Operators Can Do To Improve Vendor Relations	262	(3)
Factors That Influence Purveyor Selection	265	(5)
How Many Purveyors?	270	(1)
Advantages of a Total Supplier	271	(1)
Local Speciality Suppliers	272	(1)
Advantages of Using Local Specialty Suppliers	273	(1)
Determining the Quantity to Order	274	(3)
Competitive Bidding	277	(7)
Key Concepts	284	(1)
Key Terms	285	(1)
Discussion Questions	285	(1)
Problems	285	(4)
Inventory and Storeroom Management; Receiving; and Accounts Payable	289	(32)
Fundamental Principles of Cost Control	289	(1)
The Inventory Process	290	(1)
The Inventory System	291	(3)
Taking Inventory	294	(1)
The Month-End Inventory Process	295	(1)
Organization of the Inventory Book	296	(3)
Order Quantities	299	(1)
Writing the Order	299	(2)
Receiving	301	(3)
Storage	304	(3)
Accounts Payable Procedures	307	(3)
Key Concepts	310	(1)
Key Terms	311	(1)
Discussion Questions	311	(1)
Problems	311	(10)
Beverage Cost Controls	321	(60)
Fundamental Principles of Beverage Cost Control	321	(1)
Factors Impacting Beverage Cost	322	(1)
Markup of Alcoholic Beverages	322	(4)
Monitoring Beverage Cost	326	(1)
Liquor, Beer, and Wine Ordering	327	(1)
Purchasing	328	(3)
Cost/Margin Sales Mix Analysis	331	(4)
Spirits	335	(8)
Beer	343	(2)
Glass Wine	345	(1)
Liqueurs	345	(1)
Bottle Wine	346	(1)
Inventory	347	(3)
Controlling Sales of Beverages	350	(7)
Beverage Frauds	357	(6)
Serving Alcohol Responsibly	363	(2)
Key Concepts	365	(1)
Key Terms	365	(1)
Discussion Questions	365	(1)
Problems	366	(15)
Labor Productivity Analysis	381	(34)
Labor Supply and Demand	383	(1)
Quality of Life Issues	384	(1)
Labor Cost Control	384	(2)
Deficiencies of the Traditional Labor Cost Ratio	386	(6)
Productivity Standards	392	(3)
Scheduling Techniques	395	(8)
The Consequences of the Productivity Push	403	(2)
Wages and Productivity	405	(2)
Supervision and Productivity	407	(5)
Key Concepts	412	(1)
Key Terms	412	(1)
Discussion Questions	412	(1)
Problems	413	(2)
Internal Controls	415	(20)
The Fundamental Principles of Cost Control	415	(1)
Management Information Systems (MIS)	416	(2)
Daily Sales Report	418	(1)
Guest Check Register	419	(3)
Basic Principles for Cash Control	422	(4)
Telltale Signs of Possible Theft	426	(1)
Point-of-Sale Systems for Control	427	(1)
Pay By Check, Not Cash	428	(1)
Management Reports	429	(1)
Key Concepts	430	(1)
Key Terms	430	(1)
Discussion Questions	431	(1)
Problems	431	(4)
Financial Analysis	435	(42)
The Fundamental Principles of Cost Control	435	(2)
Financial Semantics	437	(1)
The Uniform System of Accounts for Restaurants (USAR)	438	(1)
Management Tools for Financial Analysis	439	(1)
Balance Sheet Analysis	439	(1)
Ratios	440	(7)
Turning the Common Income Statement into a Cost Control Tool	447	(6)
The Statement of Cash Flows	453	(9)
The Concept of Closing Point	462	(2)
Integrating Technology into Kitchen Management	464	(4)
Key Concepts	468	(1)
Key Terms	469	(1)
Discussion Questions	469	(1)
Problems	469	(8)
Appendix A The Economic Value of Customer Service	477	(18)
Appendix B Wage and Hour Laws	495	(16)
Appendix C Glossary of Cost Control, Finance, and Culinary Terms	511	(22)
Index	533

Excerpts

The second edition of theFundamental Principles of Restaurant Cost Controlhas been "kicked up a notch" with the addition of Paul F. Magnant as coauthor. Paul was one of my many students in the hospitality management program at Florida State University back in the 1980's. He served as the department head and assistant professor of hospitality management at Johnson and Wales University, Norfolk. We ran into one another at the annual hospitality educator's conference in the summer of 2002. We had not seen or talked in over 15 years.He had come to this conference with the intention of getting me to autograph the bound course packet of articles I put together as a supplemental text for my class on cost controls at FSU. He had kept them for over twenty years and told me he referred to them often when he was in the industry and now as an instructor. He then said the words that when uttered to a college professor will absolutely leave them speechless. Paul said something that went like this. "I just want you to know how much I appreciate what you taught me in your classes. I did not fully appreciate it at the time I was a student, but as a manager and restaurant owner, I finally grasped the practicality of what you said in your lectures and these notes when I put them to use on the job. They restored a financially troubled restaurant to profitability and this success did not go unnoticed by my employer. It helped me earn a significant promotion and several pay raises." He further went on to tell me that he had used these materials to train countless managers and chefs under his guidance throughout the years. Many of them have gone on to very successful careers as restaurant general managers.Hearing comments like this from a former student gives an instructor, whether he or she is teaching management or culinary, a feeling that is best described by words like validation, fulfillment, absolution, and justification. As a restaurateur who turned to teaching, I have been able to walk the talk with my students, colleagues, and consulting clients. It is a myth that "those who can't do, teach." When a graduate of a hospitality or culinary program has a successful industry career, their former teachers take pride in knowing they provided some of the knowledge used for an objective and critical review of operations. Fortunately, we get to take some of the credit for that success and find great satisfaction in the possibility that we might have made a difference. When a former student validates that thought in their own words, it is the most sincere form of flattery to an instructor. Thus was the case with me when Paul expressed those thoughts.Over a cup of coffee, we talked and caught up on what had transpired in the fifteen years since we last spoke. The conversation turned to my cost control book and that I needed to write a second edition. I also mentioned that I wanted to write it primarily for culinary schools and asked for his input because Paul has taught hundreds of students in the area of cost controls. The more we talked, the more I felt that Paul would be an excellent co-author for the second edition. Paul brings his experience as a foodservice manager and entrepreneur into his classes. That, along with having earned his ACF certifications, has added an additional credential and point of view that helps make this version better than the first.Thus we both set out to make the second edition of this text even more practical and helpful to both the student and the instructor. The text contains twelve chapters ranging from general cost controls to financial analysis. We introduce cost control from a "systems perspective." It covers all the important aspects of restaurant cost control stressing food, labor, and beverage cost controls. We have expanded the chapter on Menu Sales Mix Analysis and have included a CD program of Cost/Margin Analysis, developed by Pavesic. It is a most practical and easy to