9 Foodservice

average check per person total food sales for a specific period divided by the guest count(number of covers) for the same time period commercial operations places where the goal is to generate profits from the sales offood and beverages with varying types and levels of serviceincluded. contribution margin calculated by subtracting the actual food cost per menu item fromthe item's menu price FIFO system first-in, first out method of inventory management commonly usedin foodservice operations to insure the careful tracking andprompt use of all ingredients and menu items held in inventory finance folks a category of restaurants owners that tend to start withprofitability goals and then consider which concept and menuitems would be best to achieve these goals food cost percentage is obtained by dividing the cost of food sold by the total foodsales for a specific time period foodies a category of restaurants owners that tend to be operations-oriented; they typically prefer more of a "gut feeling" approachrather than a reliance on data/numbers. noncommercial operations places that provide self-operated foodservice where the primarygoal is not to generate profits - it's to provide food andbeverages in a place where something else considered to be moreimportant is going on purchase specification a detailed description of the required characteristics (i.e.quality, portion size/weight, packaging or preparation) for anyitem to be purchased for use in (or as) a menu item receiving function point at which a foodservice business takes over control of andassumes financial responsibility and safety/sanitation liabilityfor the products it purchases from suppliers/vendors standard recipe a detailed description of the items, quantities, preparationsteps, and portion sizes for each menu item sweat equity

the amount of time and physical work a person performs on aspecific task

Fundamental   (fun'd?-men'tl) adj.

 

a. Of or relating to the foundation or base; elementary:

the fundamental laws of the universe.

b. Forming or serving as an essential component of a

system or structure; central: an example that was fundamental to

the argument.

c. Of great significance or entailing major change: a book

that underwent fundamental revision.

The previous 8 modules have presented a broad view of

business fundamentals such as profit and loss – starting

new ventures and forms of ownership and operating

systems– scorekeeping language and process (accounting) –

creating, communicating and delivering value (marketing)

to customers/guests – and employees (human resources). As

this is an Introduction to Hospitality Business e-text – its

time to more deeply examine these fundamentals in the

context of various segments included in the hospitality

industry. By definition, each of the fundamentals will

apply in each segment, but part of the value of an “intro

to hospitality business approach” is beginning to understand

the subtleties and nuances of each in context.

      For example, how do profit margins vary by segment?

Is starting a new hotel the same as a starting a new

restaurant – which legal forms of ownership tend to be

used most? Does the scorekeeping language and rules for

private clubs differ from that used in casinos?  Do

effective marketing strategies and tactics vary for

casual dining franchise restaurants compared to events

and meetings? What about recruiting, selecting and

training employees – are these dealt with similarly or

differently across segments? 

     There are countless potential questions like those

noted above and realistically they can’t all be

effectively dealt with here. However, what we can do is

use the basic business fundamentals included in the 1st 8

modules as a sort of lens that we can look through to

more closely examine and make sense of contemporary

hospitality business segments -- that’s what we’ll do in

the remaining modules!

     We noted in an earlier

module that it’s both “what ya

know” and “who ya know” that

matters for business success,

so we’ll commence this

foodservice module with some

“what ya need to know”

information and come back to

some “who ya need to know” stuff  a bit later on. We’ll

start with what everybody in the foodservice biz has in

common – a menu1. No matter the concept, theme, location

or service style, what’s on the menu provides

owners/managers with the basis for much of the planning,

organizing, leading, and evaluating they’ll need to do to

meet their

objectives.                                            

    So whether it’s a “taste worth dying for” at an

American burger joint  or a German approach to

foodservice     or a Japanese hot dog stand in Canada or an

(almost) all chocolate restaurant   , or even foodservice

“in the sky”, the menu is at the heart of the operational

process for any foodservice business. When this process

is well managed, the odds that the food biz can satisfy

guests and reach its financial and/or other goals are

greatly increased. We looked at moments of truth (MoTs)

from the guest perspective (with a foodservice example)

in an earlier module; now we’ll look in greater detail at

what foodservice owners/managers must think about and do,

from an HB operations perspective, to

succeed.            

     One way to uncover some of the mysteries of

foodservice success is to think about the essential

questions that must be answered in order to move from an

owner/manager’s dreams and ideas about what to serve to

satiated and happy guests and maybe even some profits.

These essential questions arise simultaneously and the

answers often overlap, but for purposes of making sense

of this, we’ll look at them sequentially. Each question

has implications for controlling expenses, and since many

foodservice businesses often only earn a nickel’s worth

of profit from each dollar of sales, owners/managers must

have good answers or risk going out of business. So let’s

take a closer look at these fundamental menu questions,

starting with, “what items to include”?     

For those interested in a bit of hospitality history,

click here to consider “The Historical Perspective” by

Dr. Carl Borchgrevink of Michigan State University’s

School of Hospitality Business – a nice opportunity to

provide additional context before moving ahead with a

more contemporary point of view.

9.1The range of potential answers to this question will be heavilyinfluenced by many of the marketing factors we’ve considered inearlier modules as well as the owner’s priorities, the businessform or format, scorekeeping/accounting information, and evenhuman resources–related issues.      First, let’s consider the owners’ priorities. In the thirdedition of their book The Menu and the Cycle of Cost Control, Paul McVety,Susan Marshall, and Bradley Ware indentify two differentphilosophical approaches to foodservice business ownership andhow the priorities associated with each approach affect theoperation of the business, including what ends up on the menu. Bydefinition, all owners supply some resources (money, time, etc.),seeking a return on their investment (ROI). McVety and hiscoauthors categorize foodservice owners based on whether theowner is more financially oriented (McVety et al. refer to theseindividuals as Type A) or operations oriented (Type B accordingMcVety et al.) in their business approach. To keep thingsstraight here, we’ll refer to the Type A financially orientedowners as “finance folks” and the Type B operations-oriented ownersas “foodies.” Here’s how the differences break down:     Finance folks are not completely indifferent to what’s on themenu, but they tend to start with profitability goals and thenconsider which concept and menu items would be best to achievethese goals. They may have little foodservice expertise butusually relate more to “the numbers” – therefore their level ofday-to-day involvement in operations may be minimal or sometimeseven nonexistent. Before opening a new foodservice business,finance folks would want to do extensive formal market research

to determine what customers in the target market need and want aswell as what they are willing to pay to get it. Finance folks maynot even personally like or consume the specific menu itemsserved in their business – a steak-loving carnivore could own avegetarian bistro and not be bothered in the least – so long asguests were willing to trade them money for their vegetarian menuitems and the bottom line was profitable, there’d be no worries!      Foodies are not indifferent to the need to pay the bills (atleast they won’t stay in business long if they are!), but theytend to be more personally and even passionately interested inwhat’s on their menu. McVety et al. refer to the amount of time andphysical work a person performs on a specific task as sweatequity1,   and foodies are the owners who literally sweat over thedetails of the menus prepared in their kitchens on a daily basis.While willing to supply a ton of sweat equity to the business,foodies are not usually inclined to do a lot of formal marketingresearch. They tend to believe in their own love of the itemsthey carefully select for the menu (a sort of “gut feeling”approach) and want to share these with guests. For a foodie, thefact that they can make money doing so is significant but reallynot the best or most important thing about being in thefoodservice business.     Tom Colicchio has been winning foodservice awards since the1990’s at a variety of restaurant locations (check outhttp://www.craftrestaurant.com/ to see current examples).Click here  to see and hear Tom discuss some of what he hasexperienced when balancing the finance and foodie perspectives asan entrepreneur in the foodservice business. Click here to checkyour understanding of the finance vs. foodie perspective bycompleting Learning Object 9.1.      The business form/format will also affect what shows up onthe menu of any foodservice business. The menu of an independententrepreneur is limited only by one’s budget and imagination,while a franchisee is more or lesslimited to what the franchisorallows on the menu, andowners/operators of managementcompanies may have to seek theirclient’s input and approval (or not)for any menu additions or changesthey’d like to make.      Understanding the score, thatis, the accounting data/forecastsrelated to what’s on a menu, is

critical no matter what the ownership form or format may be. It’snecessary to understand what it actually costs to include anyspecific items on a foodservice business’s menu, which may thenbe compared with what (potential) guests are willing to pay. Eventhe foodie-type owners who may wait to do this analysis untilafter they’ve already opened will need to understand theirexpenses in relation to their revenues or they’ll likely go outof business fast. Paying close and continuous attention toaccounting data and being willing and able to adjust operationsand menus, especially during times of volatile and dynamic marketconditions, is critical. Check out this link to a recent articleabout new menu ideas born out of challenging financialcircumstances. Sometimes sticking with the tried-n-true is a goodidea, too – for evidence of the wisdom of this approach, clickhere to check out a slide show of some of the oldest foodservicebusinesses located in the United States.     Human resources–related issues, such as the availability andcost of labor in any specific location, may also affect what’s onthe menu at a foodservice business. It’s impossible to presentguests with menu items requiring complicated recipes if thetalent isn’t available to produce them. Recruiting, selecting,training, and compensation issues may all influence what goes onthe menu. (Click here for a review of the HR module.) Foodserviceowners/managers making choices about what to include on the menuas well as those pondering other operations-related questions mayturn to research and consulting organizations such as PeopleReport to learn more about best practices and current HR-relatedcosts in the U.S. foodservice business. (Check out examples ofthe resources available at Peoplereport.com.)

9.2

Remember the peanut butter andjelly sandwich recipe video fromModule 3.4? The use of standardrecipes for all menu items is veryimportant. Standard recipes providea detailed description of theitems, quantities, preparationsteps, and portion sizes for each

menu item, which allows for better expense control, productconsistency, and greater guest satisfaction. Click here to seeexample standard recipes.     When specific menu items have been determined (whether thisis done via extensive market research or by the “gut feelings” ofthe owner or some combination thereof), the decision about how toproduce the items (or the ingredients to prepare them) must bemade. If PBJs are on the menu, should the biz make its own peanutbutter and jelly and bake the bread from scratch? Or buy some orall of these items? Unless a foodservice biz is going to grow itsown vegetables/fruits/grains and/or raise and slaughter its ownmeat/fish/poultry, they’ll have to buy some of the ingredients oritems from someone. That someone could be a local source found ona website like http://www.localharvest.org/ orhttp://www.farmsreach.com/. Or it could be a manufacturer/vendorsuch as Two Chefs on a Roll, which develops and producesspecialized products and menu items, customized for what it callsits “true partners” – those companies for whom they develop menuitems. Or it may be a regional or national manufacturer and/ordistributor such as Sysco or Gordon Food Service, which mayprovide a wide array of services including online ordering,delivery, inventory management assistance, marketing andpromotional resources, and more. No matter who the foodservicebiz may purchase from, purchase specifications should beestablished so that any suppliers/purveyors know exactly what’sneeded. Click here to learn more about the terminology used toensure consistency and enhance quality and safety in the use ofpurchase specifications.

9.3Predicting the future is challenging under any circumstances, butmisjudging when it comes to deciding how many of each menu itemwill be needed at any point in time might prove disastrous.Inaccurate predictions may mean either lost revenues – runningout of an item and losing the sale and creating adisappointed/angry guest or having too much of an item, riskingthe expense of spoilage or waste or having money that could bespent or invested somewhere else tied up in unused inventory. Thedifficulty in forecasting explains in part why new businesses areso vulnerable in their first year (as the owner/manager tries tofigure it all out) and why franchising is relatively popular in

the foodservice segment because the franchisor’s past experiencesprovide forecasting insights to new franchisees they likelywouldn’t have had otherwise.

9.4Closely related to the question of “how many will be needed” isthe “how/where will we keep/control all the stuff ‘til we needit?” question. Unless it’s a grow- your-own sort of foodserviceoperation, it will be necessary to obtain any ingredients or menuitems purchased from a supplier/vendor. The importance of thisstep – the receiving function – is significant. It’s at thispoint that the foodservice business takes over control of theproducts and is liable for their costs. The responsibility forsafety/sanitation shifts from the supplier/vendor to thefoodservice biz (and mess up here and guests could be sickened orworse!). As each ingredient or item arrives  (usually as part ofa larger delivery from a truck traveling to several otherlocations), it’s up to the owner/manager of that foodservicebusiness to ensure it is of the proper quality in the correctquantity at the agreed-upon price (again demonstrating theimportance of standard recipes, purchase specifications, andforecasting).       From a sanitation and cost control standpoint, it’scritical that all items are maintained under proper storageconditions and that access is limited to control against theft.This step in the process can be easily overlooked in thefrequently busy and sometimes hectic environment of anyfoodservice business. Owners/managers can be too busy doingsomething else to properly receive deliveries or may delegate thetask to an untrained or poorly motivated employee, resulting inthe potential for problems with quality, quantity, pricing,sanitation, and/or theft.       It’s also important that storage areas are conveniently

located to food preparation areas, with appropriate environmentalcontrols relative to temperature, humidity, and securitymaintained at all times. The first-in, first out (FIFO) system ofinventory management is common in foodservice operations toinsure the careful tracking and prompt use of all ingredients andmenu items held in inventory. The FIFO system helps control costsand maintains appropriate food safety and sanitation standards sothe owner is more likely to be happy and the guests are lesslikely to experience poor quality or even foodborne illness.

9.5Will they step up to a counter or pull a car up to a drive-through window?  Will they serve themselves off a buffet line orwill the menu item be brought to them by one or more serverswhile they are seated at a table?  Will guests prepare their ownmeals or have front-row seats to be not only fed but alsoentertained? There are many ways to get menu items to guests, butno matter what method of service is utilized, the importance ofmanaging this particular “moment of truth” can’t be overstated. While electronic and technological innovations continue to bedeveloped1,  the frontline  employees have a unique opportunity toenhance (or ruin) the guests’ dining experience. These serviceemployees may “make or break” the guest experience via thesuggestions they make and the attentiveness they provide (or failto provide). Even if something should go wrong, these employeesmay be able to salvage the experience for the guest and therevenue for the business by how well they handle any problems orcomplaints.  For those who recall the old Seinfeld TV show, clickhere to view a compilation video of some service experiences youmay enjoy.

9.6The perfectly prepared menu item served flawlessly will likelydelight the guest who orders and consumes it, but from theowner’s perspective, they still gotta get paid, right? Allfoodservice businesses need to have a system in place thatresults in all menu items produced being documented as sold,actually served to guests and traded for payment. Again, thespecific means for implementing such a system may varysignificantly, and the service style is nearly always related topayment collection. Whether guests pay at a counter before

getting food or pay at the end of a buffet/cafeteria line afterselecting food or pay a server at the table after the food isserved or pay a cashier after the food was served at table or anyother system which might be conceived of – the foodservice bizneeds to get paid!

9.7

According to the National Restaurant Association1,  the

range of median profits before tax for U.S. foodservice

businesses ranges from 3.6% to 9.7% of total revenues. In

other words, these businesses typically earn between

about 4 and 10 cents profit on each dollar of sales they

generate. Where any business falls (in or outside of this

range) is related to many factors. Some the owner/manager

may control (what menu items to offer, prices to charge,

service levels/style to provide, etc.), and others are

beyond control (occupancy costs like lease or rent

charges, prices charged by vendors, etc.). What’s vitally

important is that the owner/manager has a scorekeeping

system in place so that she/he understands what may be

controlled and has the best information available to

assist in making predictions about what they can’t

control so that any required adjustments can be made

quickly. In an effort to control expenses, foodservice

owners/managers typically pay close attention to several

different operating ratios that are related to the menu.

We’ll consider the following here: the average check per

person, the food cost percentage, and the contribution

(gross profit) margin for each menu item.

     Owners/managers typically keep track of how many

guests use their foodservice operations during specific

time frames (e.g., day-parts associated with meals such

as breakfast, lunch, and dinner as well as daily, weekly,

monthly, and annual totals). They use this guest count

data, traditionally referred to as covers2,  to compute the

average check per person. This calculation simply

requires taking the guest count (number of covers) for a

time period and dividing it into the total food sales for

that same time frame.

     Food cost

percentage is computed

by dividing the cost of

food sold by the total

food sales and can be

calculated for the

entire menu for a given

 

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time frame (e.g., one month or one week or even a meal

period) or to analyze results at the level of each

individual menu item. Analysis at the individual menu

item level can be used when deciding what items to

include on the menu and how to price them.

    Food cost percentage per menu item can be considered

along with each item’s contribution toward profits, also

known as its contribution margin (gross profit), to help

owners/managers to make menu adjustments. Contribution

margin is calculated by subtracting the actual food cost

per menu item from the item’s menu price. Click here for

example calculations for contribution margins and food

cost percentage.

9.8

All foodservice businesses have a menu, but how and where

and under what circumstances they serve food can vary

significantly. Because of continuous changes and

developments in the foodservice business over time, the

considerations for sorting and grouping these businesses

can be a bit confusing. However, as noted earlier, the

National Restaurant Association (NRA) does provide

periodic reports and forecasts related to U.S.

foodservice business activities and results (see

www.restaurant.org/research for more details). So, we’ll

continue our overview of the foodservice business by

considering the two main categories

     Noncommercial: places that provide self-operated 

foodservice where the primary goal is not to generate

profits – it’s to provide food and beverages in a place

where something else considered to be more important

(i.e., education, health care, community/government

services or some type of business other than a

restaurant) is going on – but the people there still need

sustenance.

     There are some contracted “commercial” operations in

business and industry (B&I), health care, education, and

other settings – places where management companies have

been hired to provide on-site food (and sometime other)

services and to try to make a profit. –These are outlined

further under the managed services link included in the

commercial subgroups which follow below.

     For purposes of consistency and staying organized

here, we’ll use the NRA’s distinction that noncommercial

operations are those that self-operate and don’t have

profit as a priority. There are several sources of

information for those working or interested in

noncommercial operations, including the Society for

Foodservice Management and the National Association of

College & University Food Services. One of the primary

trade-related publications and websites for this

foodservice category is Food Management.

     Commercial: places where the goal is to generate

profits from the sales of food and beverages with varying

types and levels of service included. This is what most

Americans would probably recognize as the restaurant

business. While there are several large chain operations,

overall the commercial restaurant segment still has a

place for smaller or individual operators as the 50

largest chains generate only about 20% of the annual

segment-wide revenues2.

Click on each of the 7 categories below to explore

Commercial Foodservice operations in more detail:

It is ultimately pretty tough to make too many precise

and meaningful distinctions between foodservice business

categories and subcategories. For example, over the

recent past, many foodservice operations have realized

that by providing (and promoting) take-out and/or home

delivery meals they can more effectively compete across

all of the dining day-parts (i.e., breakfast, lunch, and

dinner), especially with grocery and convenience stores,

which historically hadn’t really been considered “the

competition.” The bottom line is that foodservice

owners/managers of all sorts must pay constant attention

to the needs and wants of the marketplace and economic

conditions, because these circumstances may change

frequently. The fundamentals presented in the 1st 8

modules are ultimately more important to understand than

which arbitrary category any particular business may (or

may not) fit in!

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9.9A couple of foodservice research and consulting organizationshave been mentioned in this module (People Reporthttp://www.peoplereport.com/ and Technomic, which also provides afood industry glossary – www.technomic.com/facts/glossary.html),but there are many others that possess and provide (typically fora fee) tons of  foodservice-related expertise. Another well knowncontemporary provider of consulting services and data forrestaurants is Malcom M. Knapp, Inc.(http://www.malcolmknapp.com/) – click here to view an example ofthe type of reports this firm provides its foodservice and otherclients.  In fact, back in the mid-1950s, these sorts of expertsgot together and formed an association called Foodservice Consultants’International. The membership consists of consultants from around theglobe, and there’s even a student membership category for thoseinterested in learning about consulting while still enrolled inschool. Check outhttp://www.fcsi.org/ tolearn more.      A relatively recentdevelopment is thepartnering of traditionalprint media, educationalinstitutions, andconsultants to combineresources and shareinformation withfoodservice industryowners/managers (and alsoto generate revenues). An example of this may be found athttp://www.monkeydish.com/. The idea behind MonkeyDish (formed byRestaurant Business magazine in conjunction with the CulinaryInstitute of America and Technomic) is to provide a customizablewebsite that foodservice owners/managers can use to find stufflike recipes/trends, marketplace demographic data, video trainingtutorials, and RSS feeds from media sources.        This module also mentioned several suppliers and vendors toboth noncommercial and commercial foodservice organizations –again there are many other organizations involved.  From kitchen

equipment to dining room furniture to computers/technology andcleaning supplies, there are vendors out there for about anythingyou could think of. A convenient way to see examples is providedby a company called FoodService Resource Associates, LLC. Clickon the link to learn more!       Another site of potential interest for anyone who enjoysdining out (even if you’d never ever want to own/operate/or workin a restaurant!) is “The Daily Fork” http://www.dailyfork.com/which is billed as “food news, restaurant reviews, dining tipsand delicious distractions.” From the irreverent to theridiculous to the occasionally sublime, this site has it.