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11/21/2022

Cost control is critical to foodservice success

7 strategies for managing the middle of your income statement and boosting your bottom line.
Jeff Dover
President, fsSTRATEGY
Jeff Dover profile picture

In previous columns, I have discussed convenience store foodservice menu development and pricing foodservice menu items. Foodservice inventory is more perishable than most items you will carry in your store. Food and beverage cost control is critical to your success in the foodservice sales category.

1.Procurement

For most convenience stores, especially independent stores, foodservice items will be provided by a different supplier than traditional convenience store items.  Many use broadline foodservice distributors, who typically price their products using a cost-plus system, often have minimum order sizes and deliver costs as well. The more food you buy, the lower the markup. 

Purchasing decisions should be linked to sales forecasts and continually updated based on actual sales results. If purchasing is not conducted by an owner, ensure a separation of duties so a single manager or staff member is not able to place orders, receive orders, pay invoices and count inventory—essentially enabling them to make additional purchases for themselves or others without anyone becoming aware.

Supplier, and especially broadline distributor, contracts should be tendered annually to determine who is offering the best prices (or discounts and rebates) for the products you order.  Not doing so may result in a distributor getting comfortable with your business and not providing competitive prices and service. 

2.Receiving

When receiving, all items should be counted (or weighed if appropriate) and inspected.  Errors in deliveries almost always benefit the distributor at the expense of the operator. “Blind” receiving is also a good practice to check for accuracy, where counts are done without the invoice or receiving counts/weights so they can be compared to the invoice afterwards, which helps identify errors rather than quickly checkmarking an order sheet. If any items are incorrect, damaged, do not meet standards, were not ordered, not delivered, etc., the driver should be informed to issue a credit note before leaving and the supplier should be contacted immediately. All expected credit notes should be tracked and checked to ensure they have been applied to the account. Similarly, any expected product replacements should be tracked until the replacement is received.  All invoices should be checked against the ordered quantity and price list for accuracy.

Rotating stock is important for all items; however, more so for perishable food and beverage items. 

3.Inventory control

Inventory is a simple but valuable tool in tracking the cost of sales and is the first step in identifying avoidable shrinkage. Inventory should be taken at least monthly and extended with current costs from the most recent invoices to determine the inventory value. The total inventory value is used to calculate the actual food cost/cost of sales monthly.  The formula for cost of sales is the opening inventory value, plus purchases, less the closing inventory value. This should be done, if possible, separately from convenience store items so you can understand the cost of sales for this segment, though some items, such as bottled beverages, cross the line between convenience store items and foodservice items.

Waste and spill sheets are a sound cost control practice. All food items prepared must be tracked: they are either sold, provided as a promotion or lost through waste or spillage. Accurately tracking food and prepared food allows an operator to identify where variances may be occurring. Ensure you are tracking waste (including spoilage, spills and dropped items, menu items remade or sent back, etc.) on waste and spill sheets. Details tracked should include the item, quantity, date and a description of what occurred and who was involved to help identify patterns in people or processes, where training may need to be reinforced. Waste and spill sheets should be costed each period and reviewed by the manager/owner to understand the impact on total cost of sales.

4.Theoretical cost of sales

Cost of sales is the most significant expense for your foodservice products and has the greatest potential for unnecessary waste. Actual cost of sales (calculated when taking physical inventory) should be compared to theoretical cost of sales (calculating what your food or beverage cost should be based on itemized sales, waste sheets and costed recipes). Theoretical cost of sales allows managers to know what their cost of sales should have been for a period based on sales, rather than relying solely on their budgeted or historical cost of sales percentages. Comparing actual and theoretical cost of sales is one of the most valuable management tools to control cost of sales and, unfortunately, is not practiced by a significant proportion of convenience stores providing foodservice items. Before a theoretical cost of sales can be calculated, all recipes must be fully costed and up-to-date.

Costing recipes is time consuming to set up, but easy to maintain by updating current ingredient costs. When costing a recipe, you must determine the yield of ingredients (the percentage of usable product or edible portion/weight from the purchased weight) to ensure accuracy when costing ingredients sold by weight. Costed recipes (with a total cost per portion) should then be multiplied by units sold for each menu item during the period, and totaled for all menu items to determine the total theoretical cost of sales. Theoretical cost of sales should be compared to actual cost of sales monthly. Actual cost of sales should be marginally greater, generally between one to 1.5 points greater, than theoretical cost of sales, reflecting normal waste (this range may vary, depending on the types of ingredients and menu items in you are offering—in a previous column, I discussed selecting menu items that will result in minimal waste). The variance should be compared to costed waste and spill sheets. These variances should be tracked and anything greater than the acceptable range will indicate a potential control issue.

If you implement one practice from this column, I recommend comparing actual cost of sales to theoretical cost of sales each period. This will help identify when you have a cost control issue and provide you with the information required to investigate and resolve the issue. As mentioned, it does take time to set up but much less so on an ongoing basis.  This control practice will improve the profitability of your store’s foodservice operation.

5.Production

The conundrum of your foodservice operation is, if you don’t have product prepared, you may miss out on sales and, if you have too much product prepared, you will have waste.  It is important to forecast sales levels to keep displays attractive without creating excessive waste. 

Forecasting takes practice and convenience store managers get better at it over time.  It is important to track daily sales of each item you prepare:  what time of day they occur, what was happening in the area, what day of the week it was, what time of the year, etc.  This information will allow for production planning, comparing month-over-month and year-over-year sales patterns. A production forecast should be prepared for each menu item daily, including when to prepare the items. Items can only be held so long before they have to be discarded, which generates waste. Another note on production planning:  some stores allow staff to take home extra prepared food that is unsold at the end of the day. While this is a nice benefit, it can lead to staff preparing a batch of food near the end of the shift, when it is not likely to be sold. I recommend against this practice.

Portion sizing when preparing and serving food is important. Staff must be trained on portion sizes for menu items they serve or prepare and be provided with the tools to serve the correct portion size. For example, the correct size ladle for a soup portion. Pictures of portions with serving instructions (e.g., four meatballs) will also help with portion control. One of the best ways to ensure proper portions is to observe staff, identify over or under portioning and provide feedback as appropriate. Again, providing “extra” at the end of the day may seem like great service, but customers will expect such portions going forward. Discounting food at the end of the day may be a better option.

6.Prime item counts

Unless the owners are the only staff members, high-cost items should be counted every shift. Staff should fill out a form showing the amount of the item they started with, how many were left at the end of the shift, how many were sold (start of shift count, plus items prepared during the shift, less end of shift count) and compare it to itemized sales. Variances should be investigated. By tracking such items, staff know they are unable to help themselves, over portion, or give away food. 

7.Labour control

Convenience stores have a built-in advantage over restaurants when it comes to foodservice. Often, foodservices can be provided with little, if any, incremental labour in convenience stores, especially if the foodservice area is proximate to the cash station. However, if extra labour is required, that is likely a good thing, as your foodservice sales are significant enough to justify an extra body. 

Any additional labour should be scheduled carefully, only when it is needed. This could be receiving food orders (which, if frozen or require refrigeration must be put away quickly), preparing food according to forecasts, serving food during peak times, etc.  This extra body may also perform other duties in the store, such as stocking product, cleaning, placing orders, etc. It is important; however, that incremental labour be planned carefully—too little may impact sales (i.e., not having food ready when people are demanding it) while too much will adversely impact profitability. The forecasting discussed above for production planning may also be used for labour planning. Set yourself up to succeed.
 

Good cost control is not rocket science. These practices are simple to implement and very effective. Managing the middle of the income statement will have a dramatically positive effect on the profitability of your foodservice category. 

More Expert posts in this series

  • Menu development

    Strategies for creating the right selection at the right price to drive convenience store profits.
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  • The c-store foodservice advantage

    From supply chain to labour, inflation and COVID-19, the foodservice sector is under increasing pressure, but convenience stores an opportunity to turn those challenges into opportunities.
    Refrigerated foods sold at convenience stores