| Overcoming High Food Costs

In this episode of The Restaurant Realty in 10 host, Michael Carro, sits down with Greg Hazard, a long time restaurant entrepreneur who specializes in keeping restaurant financials in top condition. Today Greg is sharing practical advice on how you can reduce food costs in your restaurant. Greg discusses: 

• Monitoring Food Waste
• Manager and Employee Meals
• Portion Control
• Theft 
• Accurate Inventory

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Transcript

Michael Carro : 0:01

Welcome to The Restaurant Realty in 10. Ten minutes of uncensored straight talk for restaurant entrepreneurs. Twice weekly The Restaurant Realty in 10 dives into restaurant operations, facilities, real estate, and investments. Welcome to The Restaurant Realty in 10. I'm your host, Michael Carro. And in this podcast, we're going to focus on the p&l and specifically food cost. So I've invited Greg Hazzard a long-time restaurant operator who's been in the business over 40 years to come in and talk about how he's managed restaurants, and specifically gotten their food costs in line. I've worked with Greg over the past 17 years, and Greg has a great deal of experience in the QSR segment, quick service restaurant. He was also a full service restaurant owner in the Pacific Northwest. And he's also owned and operated fast casual restaurants. So we are talking with somebody with experience in all facets of the restaurant industry. Greg, welcome to the show.

Greg Hazzard : 0:56

Thank you, Michael.

Michael Carro : 0:57

So let's dive right into food costs. That is one of his most significant line items on any restaurants p&l, why don't you start off with what you see in most restaurants.

Greg Hazzard : 1:07

Most restaurants, what you'll find is that the food cost is an approximation, they don't really have a theoretical food cost, or they're not using comparative analysis. And let me break that down comparative analysis is you don't know what your theoretical food cost is. Or it might be impossible to have a theoretical food cost. Because guests add portions will earn a QSR restaurant, you are making a menu item. And it's made almost exactly the same every time so you can get a theoretical food cost. But what I'll find in most restaurants is they'll be off of their theoretical food costs somewhere in the range of three to 4%, simply because they're not aware of it. And anytime you find that you're out that far, you've got about 300 basis points that you can improve your food costs by and if you can get yourself down inside 100 basis points from your theoretical food costs. That will be the items that you simply can't track.

Michael Carro : 1:55

Greg, if you can break that down into specific categories, what would they be? And then let's go back and dive into each one.

Greg Hazzard : 2:03

Okay, there's basically six categories that I look at. One is waste. And there's two components of waste. It's prep waste, and retail waste. And then there's manager meals, employee meals, portion control, theft, and receiving of inventory. So let's go into waste first. If you're not recording anyways, the first thing you need to do is create a, what we call a waste bucket. And it's usually a leftover five gallon plastic bucket from pickles or sauce or something like that. And all your prep waste in the back of the kitchen would go into that. So that's if an employee dropped something on the floor, okay, that's the waste that would go into that bucket and be counted later at the end of the shift. Or any other kind of waste, you got bad lettuce and you're actually past the time that it should have gone back to the purveyor. And so you have to put it in the waste bucket and count it.

Greg Hazzard : 2:44

And then there's retail waste and so you want to keep that separate from your prep waste because you want to find out where are you really having the problem? Is it in your kitchen prepping? Or is it in the guest dissatisfaction arena.

Michael Carro : 2:54

And the guest sends it back and you maybe refund the meal or you're replaced the meal but now that entire meal that the guest sent back is now going into the waste bucket.

Greg Hazzard : 3:04

That's correct, because we want to account for it still

Michael Carro : 3:05

Exactly.

Greg Hazzard : 3:06

And then the next category is manager meals. And a lot of times you'll find the managers figure their meals free anyways, why bother entering it? Well, you've just lost track of that accounting for whatever that product was that they ate.

Michael Carro : 3:17

So it's not to say change the protocols, you still want your managers to eat free and your employees to have a discount. But the key is to always ring everything into the register.

Greg Hazzard : 3:27

That's correct. If somebody's sitting down with food, eating them they show you some kind of receipt, even if it's 100% comp receipt, and that should be rung in before they ever eat. Otherwise, they'll all bring it up later, but they'll forget. Same thing with employee meals. Most restaurants have a 50% discount off employee meals. And sometimes a manager will reward an employee with a free meal because they did something above and beyond. All those things need to be accounted.

Michael Carro : 3:49

Now the strategy that you employ in your restaurants and you mentioned it is when an employee has their discounted or free meal. They sit down with their receipt that is visible to the managers on duty. So anybody, a manager, or an owner that's walking through if they see an employee, that employee should have a receipt in front of them.

Greg Hazzard : 4:10

That is correct. The other rule we put in place is no meals are for to go. Always eat on site.

Michael Carro : 4:16

Perfect, perfect.

Greg Hazzard : 4:17

Then the next category is portion control. And portion control is that if your recipe calls for half ounce of mayonnaise, you better only put a half ounce of mayonnaise on same thing with any other condiment or any other produce. If it's two slices of tomato, it's two slices of tomato. There's no variance, one slice of cheese, it's one slice of cheese. So your portion control is the other area where you can really see food costs leak out if you're not on top of it.

Michael Carro : 4:38

So creating a good product build and using those product builds for your employees through their training is also how you get to a consistent food cost or what we're talking about is that ideal food cost.

Greg Hazzard : 4:51

Correct. And what we do in our restaurants is we have these build cards which has a picture of the product when it's finished along with the build and in the order you want the different ingredients to go on to the product or into the bowl or into the bun

Greg Hazzard : 5:04

And the next area that we always hate to talk about is theft. And I'm going to tell you that in my experience, anytime I find an employee willing to take anything that you caught them is only the tip of the iceberg. They've been stealing for so long and gotten away with it, they got sloppy. As managers, we are creatures of habit. And we generally do this because it works for us every day where we do the same routine and we get better and better and better at it. But one thing that employees are aware of is our routine, you may go to the bank every day at 10am. Well, once your employees realize that and they see you leave while you're gone, they're handing out you know a block of cheese or case of burger meats or whatever. And you're not the wiser for it because you weren't there. So you got to you really want to take a look at your routines and see if you're setting yourself up for getting taken by an employee who's aware of that routine. So it's just anything you do that you do on the clock on a regular basis. Just change it up and see what happens. Just be aware of what your routine is setting you up for.

Michael Carro : 6:00

Greg, isn't it also true that if people steal money isn't that another factor that makes your food cost percent also look bad.

Greg Hazzard : 6:08

If you're not managing your voids and comps every day, those two combined depending on your structure, but just general rule, your void should be less than a percent. If you have more than 1% of your sales in voids, you either have theft, or you have a poorly trained cashier, which both areas need to be addressed. Comps can be a little bit higher, they might be you know, highest four and 5% a day of your sales. It depends on the programs you're in, if there's a discount for outside services, like third-party delivery, or a catering service or something like that your comps can be a little bit higher, maybe four or 5%, like I said, and that's not a problem because it's a sales leader. It's a sales loss leader you're given a little bit of way to drive sales in that category. So that's where you have to really watch your voids and comps and make sure you're accounting for those every day. As soon as the void is occurring. A manager has to be alerted. They got to come over they got to see the guests. They have to have this situation explained to them. And then the employee and the manager sign off on that void and the re-ring, and they're all clipped together. So you can remember that later because as we're busy in our day, you'll take out that void now and five hours later, when you're ringing that cashier out from her drawer you go, what was that void about? But if you have the notes written down, you're good to go.

Michael Carro : 7:16

Alright, perfect. So, I think we're down to your last category, which is inventory, you want to talk about that?

Greg Hazzard : 7:21

Oh, sure would. Inventory starts right at the truck. And what I mean by the truck is whoever your food service provider is, you have to make sure that it's either you your highly trusted manager or highly trusted employee, that's checking off that truck driver and making sure that everything on that invoice gets in the back door and in the freezer, dry storage or refrigerator wherever it's going. The reason why is that most truck drivers have mom and pop shops up and down their route. If you're not watching what you're receiving. They're selling it to the next restaurant on the line because they can't show back up at the warehouse with that product or they'll be in trouble by the warehouse that they forgot to deliver something so they're going to get rid of it off their truck. So even if they forget to deliver it to you, they're going to get rid of it somewhere down the line, so they don't have to take it back the warehouse.

Greg Hazzard : 8:05

And then the other thing is besides checking in inventory, of course, accurate inventories are King. If you have different people taking your inventories each week, you're going to have a different food cost each week, and it's going to be like a bouncing ball, you're not going to have the consistency unless you have a training class with all the people you have doing your inventory, and get everybody on the same page on exactly how they're taking inventory of everything in your restaurant. There's a lot of different philosophies on doing inventories. You could do closed box inventory, open box inventory, count what's on the tables, if you have condiments out there, don't count what's on the tables. It's just whatever you get to you have to be consistent week to week so you understand that the numbers that you're looking at are valid and they're going to give you the results that you can analyze and then take action on.

Michael Carro : 8:51

Greg aren't there some restaurants that have key item inventories that maybe very high in protein or something that is unique to their restaurant, that's makes a big portion.

Greg Hazzard : 9:00

Generally the the key items make up 80% of your inventory and the rest is ancillary, like straws and napkins and stuff that really doesn't matter. But it's your proteins and your dairy products that make up the most of your food costs.

Michael Carro : 9:13

Okay, and so some restaurants will do even daily inventories on those, especially if they have a problem, but I heard you mentioned weekly inventories. Whereas I think a lot of restaurants do monthly inventories, talk about weekly and daily versus monthly.

Greg Hazzard : 9:28

Well, I'll give you the long story on that it started out where a businessman had a cigar box then at the end of the year if you had money leftover he'd made money. And then a wiser person came along said you know if we check this every month, we might find ourselves making more money. And then another ingenious person came up with we check this stuff once a week we make even more. Now let's check it every day and so every every generation kept getting better and better at analyzing their p&l down to a daily basis. And and you're right, Michael, on the key items those high cost items daily inventory is necessary. As a regular practice it'd be perfect as a emergency practice if you have a problem, it's required.

Michael Carro : 10:08

Well Greg, thank you so much. We look forward to another episode with you. That's The Restaurant Realty for lending to The Restaurant Realty. And if you're interested in restaurants whether operations facilities buying leasing more investment, The Restaurant Realty in 10 is for you. Please subscribe to this podcast and you can also visit TheRestaurantRealty.com for show notes, topics and additional information