Recap: 7 Simple Systems to Control Your Food Costs & Explode Your Profits
If you missed our free webinar “7 Simple Systems to Control Your Food Costs & Explode Your Profits” hosted by the founder of TheRestaurantExpert.com, David Scott Peters, don’t worry. Not only is it archived on our site, we’ve broken down the finer points in this recap. If you didn’t miss the webinar but would like to share the valuable information David Scott Peters discussed, this recap will work just fine for you as well.
The first thing to keep in mind as a bar or nightclub owner, operator or manager is that the systems are not solely beneficial to restaurants. Yes, the name is TheRestaurantExpert.com but the systems also work for the liquor side of things.
“The realization is there’s no difference in any restaurant when it comes to the same systems. So, our company is called TheRestaurantExpert.com and we apply to bars, restaurants, nightclubs, caterers…everybody,” says David.
Operators need to realize that they can’t put their employees first and put themselves last. Doing so places the business in danger and also keeps operators from being paid what they’re deserved.
“If you don’t take care of you, your business isn’t there for your customers or employees,” says David.
Profitability is a Responsibility
Once you’ve accepted that you come first, you must understand that operating at a profit isn’t just a financial benefit, it’s a responsibility. Operators are responsible to their investors, their families, their employees, and the communities they serve. This isn’t solely about lining your pockets. If you have investors, you need to pay them back. Your employees are counting you for their financial wellbeing, as is your family. And let’s not forget that your community relies on you to be open and operating; they’ve invested in you with their time and dollars and expect you to be there for them.
Proactive, Not Reactive
You can stare at P&Ls all day but understand this: Profit and Loss statements are the past and we can’t change the past. To survive in this business you need to be proactive, not reactive.
It’s much more effective to take last 12 months of numbers, go line by line, and make changes to your business. Look at everything, shave points where you can, and create targets for your managers. Now take you P&Ls, put it next to targets you made, and see if your managers are on track. If they’re not, take a deep breath, realize that your budget is a living, breathing document, and adjust it for the next 11 months.
Operating according to an “industry standard” is, in David’s eyes, a trap. Don’t count on or run your business according to an industry standard. Is your business standard? Not, it is not.
First, Prime Cost used to be called Controlled Cost. Second, purchases divided by goods sold is not an accurate determination of your cost. In order for you to truly find accurate costs, you must take inventory on a routine basis.
Third, when determining labor costs (which are part of Prime Cost), include taxes, benefits, and insurance. Without knowing these costs – and determining them accurately – you can’t lower your Prime Cost and you won’t fully benefit from putting systems in place. The goal here is simple: David wants you to be able to walk out the door and have your business operating without you there because you have systems in place.
Gross vs Net
Gross sales are the ring at the register before discounts are taken out, not including sales tax. Net sales are the ring at the register minus discounts, not including sales tax. In David’s opinion, gross sales are the best way to determine Prime Cost. Be careful when using your POS system to determine your gross sales. David has found that most POS systems that say they’re displaying gross sales are actually displaying net sales, requiring you to do more digging.
This is going to be work - hard work. After you’ve done the heavy lifting, the systems you put in place will become second nature but at first, it’s going to be difficult. That being said, it’s also going to be beneficial.
Want to lower your Prime Cost? The more liquor you sell, the higher the volume of liquor sales. The higher your volume of liquor sales goes, the lower your Prime Cost. David Scott Peters, without cheating guests but rather by putting systems in place and running efficiently, has bars in Times Square running at between 38% and 44% Prime Cost.
“There’s no system too big or too small,” David explains. “A system can as simple as counting out a bar drawer the same way every single time. For instance, in a bar situation it’s all too often that each manager has a different way to get that bar drawer back to $300 each night. There’s an inconsistency and it makes it difficult for you to check on what they’re doing and not missing money.”
Selling more liquor doesn’t mean filling your shelves with bottles. This is where an inventory system comes into play. Count everything in your bar for value in every single area – that is inventory. Counting just what you need to place an order is not inventory. If you really want this system to work, do inventory weekly instead of monthly.
Only have enough inventory for 3 to 4 business days. This system leads to cleaner shelves, more money in bank, and better health inspections. An inventory turn, according to David, is filling your shelves, emptying them, and refilling them. If you want to reduce theft, waste and spoilage, have higher inventory turns. As you can see, this type of inventory system curtails both stealing and theft.
Recipe Costing Cards
In David’s vast experience, there are 2 things that most bars and restaurants never have in place: a budget and recipe costing cards. And there are 2 things, says David, that recipe costing cards let you know: if a dish or cocktail will make money and if you’re going to make money.
Recipe costing cards also ensure consistency. If you show a guest that you’re inconsistent, they may never return. A restaurant that in David’s opinion “sucks” but is turning a profit and keeping its doors open is sucking consistently.
Now, there’s a reason that so many venues don’t have recipe costing cards in place: it’s hard work and it isn’t very fun. Expect your costing cards to take about 40 man hours. You can do this yourself or you can do this how David would do it: post something in the employee area that says you’re looking for someone to do a special project.
An effective costing card system means conducting a yield test. If a recipe calls for the use of an ingredient that is only 50% usable, that needs to be calculated; an accurate costing card includes the usable quantity of an ingredient. This means that some recipes may change seasonally, necessitating additional costing cards.
“I don’t give anything away for free,” says David.
Anything that is given away for “free” is included in the beginning inventory. Run your PLU report and put that cost onto every ticket. Treat those items as a spice or consumable factor on costing cards. For example, if your tacos go out on paper 100% of the time, buy that paper as a food item and include that cost in your costing card. However, if you sell pizzas but only put them in a box 50% of the time, that is not a food item.
“Recipe costing cards are critical,” David says.
You’ll have the opportunity to attend David Scott Peters’ workshop, “Pro Workshop 5: The Operational Systems You Need to Dramatically Reduce Your Labor Cost,” and his breakout session, “Survival Tools: Costing Cards to the Rescue,” at the 2016 Nightclub & Bar Show in Las Vegas. Both will help you reduce costs and explode your profits. Register now and use code SAVE30BARNEWS to receive a discount of $30 off your Conference Pass.