with Value-Added Products
The traditional foodservice manager often focuses on food cost control as one of the most important keys to profit making. And, while it is understood that it is possible to make limited adjustments to staffing to accommodate changes in sales volume, it is also understood that there is an absolute minimum staffing level that is required to be open for business. Usually all work stations need to be staffed just to be able to open the doors - However, it may be time to challenge our thoughts regarding minimum staffing levels by examining what might happen if we substituted value-added products for people.
This substitution process is called 'prime cost' management and it represents a departure from conventional thinking, though prime cost management is better suited to the needs of today's foodservice manager.
By definition, prime cost is the sum of all food costs and labour costs. In order to achieve maximum profitability it is necessary to minimize the sum of these costs. Remember, the sum can be minimized even when one of its components increases. For example food costs may be 33 percent and labour costs may be 32 percent for a total prime cost of 65 percent. Yet when we increase our food costs by using value-added products for a food cost of 35 percent, we may reduce our labour costs to 28 percent and consequently we see a reduction in the prime cost to 63 percent.
OLD Prime Cost
Food Cost 33%
Labour Cost 32%
PRIME COST 65%
NEW Prime Cost
Food Cost 35%
Labour Cost 28%
PRIME COST 63%
Food cost increased by 2 percent, but labour decreased by 4 percent. The net affect is a 2 percent prime cost reduction… and a 2 percent profit improvement!
Implementing this strategy is best done in advance by choosing production jobs that are noticeably labour intensive. Allocate work hours to the labour intensive job function and then substitute value-added products to eliminate a shift, using turnover as an opportunity to implement the change. In other words, be ready the next time you experience turnover in the kitchen and think about replacing the position with products. ¨
Scratch Food Cost
Value-Added Food Cost
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Prep 200 orders of salad greens
Prep 100 orders of each of 2 soups
Grill and cut two cases of raw chicken for Caesar salad
Prep 50 orders of lasagna
Boil, cool and peel 6 dozen eggs
Prep 50 orders of pasta salad
Prep 50 orders of potato salad
$255.80 + Labour Costs*
Assuming that the hourly cost of labour with benefits is $14.00 per hour, labour costs for an 8 hour shift would be *$112.00, which must be added to the scratch food cost for a total prime cost of $367.80. However when using value-added food products, food costs increase by $80.85 per day to $336.65, but because there are no labour costs, the prime cost is still reduced by $31.15 per day. Over the course of the year, this kind of savings could really add up, assuming you operate 360 days a year you could realize cost savings of $11,214.00!
Contributed by Tepper Kalmar Associates, Operational Consulting and Training for the Foodservice Industry, Emeryville, CA. For further information, call 510-655-0936.