An introduction to the concept of Food Cost and it's application in daily restaurant operations.

1. Food Cost An Introduction to the Concept Bhavin Parekh 1

2. Contents Understanding Food Cost The Pizza What does it mean to you and your restaurant? Basic Definition of Food Cost The Math Interpreting the Formula Using Food Cost Applying Food Cost in day to day operations Practical Example 2

3. Objectives To be able to define Food Cost and express the same mathematically. To be able to compute Food Cost %. To be able to interpret Food Cost %. To be able to apply Food Cost % in day to day operations to maximize profits. 3

4. Understanding Food Cost –The Pizza 4

5. Understanding Food Cost – The Pizza – cont’d… 5 1 person gets the whole pizza i.e. 1 person = 100% Pizza 50% 50% 2 persons get half a pizza each. i.e. 2 person = 50% 25% 25% 4 persons get only a quarter pizza each. i.e. 4 person = 25% 25% 25%

6. Understanding Food Cost – The Pizza – cont’d… 6 Assume that your total sale for the day is Rs. 1000/- Rs. 1000 Your product is food. Rs. 300 In order to produce the food to sell, you incurred a cost of Rs. 300. Your net saving at the end of the day will be Rs. 700 (Rs. 1000 – Rs. 300). This can also be referred to as PROFIT. In order to increase your profit, you will have to reduce the food cost, given that the total sale is a constant.

7. Food Cost – A Definition 7 Food Cost is defined as the cost incurred to produce the food to be sold. This is expressed in percentage (%). Hence, Food Cost % is mathematically defined as the ratio of the cost of food to the total sales. It is mathematically expressed as: Food Cost % = Cost of Food x 100 Total Sale

8. Food Cost – An Interpretation The food cost is directly proportional to the cost of food. This implies that the higher the cost of ingredients, the higher will be the Food Cost %. The higher the Food Cost %, the lower is your profit. 8

9. Food Cost – An Interpretation cont’d… The food cost is indirectly proportional to the total sales. This implies that higher the sale, the lower is the cost of Food Cost % and vice versa. What is the impact of Food Cost % on your restaurant’s profit ? 9

10. Food Cost – Understanding impact on Profit 10 The higher the cost of ingredients used to prepare the dish, the higher is the Food Cost %. Pizza The higher the total sale, the lower is the Food Cost % and vice versa. A higher Food Cost % will eat into a larger share of your pizza, leaving you with a smaller piece and vice – versa.

11. Food Cost – Application and Practical Example Baked Beans in Tomato Sauce – Heinz and Maggi. Computing Food Cost %. 11

12. Summary The formula. The independent and dependent variables. The impact of Food Cost % on profit. 12

13. Linking to next class Methods to control food cost % 13