Essential Food Cost Control
How to modify your formula for hotel F&B outlets.
Most hotel food cost control revolves around a transfer model. Inventory is counted monthly in every venue including one or more restaurants, banquets, room service, mini-bars, and possibly vending machines. Goods are typically received centrally, and movement to various profit centers is tracked on transfer sheets. It is very likely the buffets and banquets contribute a huge percentage of total sales volume (often over 50 percent). I'd like to shine a light on the time and effort expended completing these transfer sheets including the cost calculations involved.
Let's start with the basic food cost percentage formula:
FC% = (BI+P-EI)/S
FC%: Food Cost Percentage
BI: Beginning Food Inventory
EI: Ending Food Inventory
S: Food Sales
To handle hotel operations, the formula for each outlet or activity should be modified as follows:
FC% = (BI+P+XFRIN-XFROUT-EI)/S
XFRIN: Transfers In
XFROUT: Transfers Out
It is absolutely necessary to use the same dates for sales and purchase activity. You need to take the inventory after all sales activity has ceased (either late at night or early in the morning). There should be no deliveries during your inventory.
Most hotel food cost reports use FIFO for valuing the inventory.
At the heart of the cost formula you will find the simple food cost calculation: FC=(BI+P+XFRIN-XFROUT-EI). Twisting this formula slightly, we find food cost equal to our purchases plus net transfers plus the change in inventory value:
With a month between inventories, the purchases and transfers will be more dominant than the inventory change.
Let's examine the formula in finer detail. The total food cost is equal to the sum of the individual item food costs. If you have 800 items to count, the food cost formula could be expressed as follows:
So for each item in your inventory, you add beginning inventory, purchases and transfers in and subtract transfers out and ending inventory. Your total food cost figure is the sum of all these numbers.
If you run these numbers on a spreadsheet, I recommend you sort the matrix in descending order using the net cost column. Count the inventory every day for the top 25 items on the page. Calculate the cost of these 25 items each day. I believe you will find the cost of these 25 items (as a percent of sales) will provide you with answers to many of your food cost issues. You may want to increase the number of items tracked to 50 if you have a very diverse menu.
Have a serious debate regarding the inclusion of minor items on transfer sheets. Toothpicks, pre-portioned condiments, spices and many other low cost items could be controlled tightly without expending the time and effort needed to complete transfer sheet entries. Take the time saved and start tracking pans of food sent to buffet stations.
Editor's Note: This straightforward, insightful column by Joe Dunbar is as spot-on as it was when first published in Hotel F&B in 2007. It has become one of our most-read features and is updated regularly.