Why is food and beverage cost control important in the F&B business?

    Daily, professional food service managers face a wide range of challenges. Because food and beverages are highly volatile, and because we all eat and drink, effectively controlling the cost of sales is always a challenge. Cost control that is meticulous and methodical assists a restaurant operator in setting accurate menu prices, which are critical for operational success and profitability.

    Food and beverage cost control gives you the tools you need to keep track of sales and costs, create systems for monitoring current activities, and forecast future costs. This comprehensive yet user-friendly guide will assist you in understanding and put the techniques into practice.

    Understanding the concept of food and beverage cost control

    Leaders in the F&B industry typically benchmark their performance against previously established standards. This is a key feature of traditional standard costing, a popular management accounting technique that has been in use since the early 1900s. The typical standards are based on percentages of the primary costs, which are F&B and labor costs. 

    As a result, these costs are the primary cost generators in hospitality businesses. Production costs in the F&B industry can be divided into four categories: food costs, beverage costs, labor costs, and manufacturing overhead.

    Production costs in the F&B industry have 4 categories that leaders must understand - food and beverage cost controlProduction costs in the F&B industry have 4 categories that leaders must understand

    In a nutshell, food costs are the actual costs of meat, fruits and vegetables, and other ingredients used to make a menu item. Non-alcoholic beverages are included in the meal’s price.

    Beverage costs are the actual costs of other ingredients and alcoholic beverages used to make drinks for guests, such as juices, carbonated water, and fruit.

    Labor costs are one of the largest expenditures in the hospitality industry, and they include all costs associated with the workforce. Some businesses include administrative costs in their labor costs. In such cases, labor costs are unavoidably the most expensive component of the manufacturing process.

    Manufacturing overhead includes tablecloths, napkins, glassware, knives, pots, and indirect labor. Because this cost category significantly affects the bottom line, managers should flag it with a red flag to ensure an efficient cost-control monitoring process.

    Six stages of food and beverage cost control 

    Food and beverage costs and labor costs are the primary cost generators in the hospitality industry. Leaders should look for ways to improve control and efficiently monitor these costs. There are six stages of food and beverage cost control: purchasing, receiving, storing and issuing, preparation and production, service, and sales control. All the stages are important for cost control.

    Purchasing 

    Purchasing is the first stage where significant cost-cutting measures may implement because every cent saved at this stage affects the bottom line. As a result, successful purchasing should be based on the standards and procedures that determine the quality, quantity, and price of F&B items. Product specifications that facilitate the purchasing process are essential, such as a detailed explanation of a menu item or a material. Suppliers can efficiently provide the required materials because of product specifications.

    Purchasing is the first stage of controlling food and beverage costs - food and beverage cost controlPurchasing is the first stage of controlling food and beverage costs

    Determining the stock level, defined as the amount of material on hand needed to do operations, is another key issue. The systematic application of sales prediction analyses and the compilation of standard recipes should ensure that no material necessary for manufacturing is absent when determining the optimal required stock level. The amount of working stock, as well as an estimate of materials needed until the next re-supply, and the safety stock required to handle any unexpected demand, should all be included in inventory management.

    The service industry is predisposed to fluctuations in delivery periods, even for daily deliveries of some items. If the food and beverage supplies level fall below the required level, meeting client demands may be impossible, resulting in client loss and a decrease in sales revenue. The order quantity that reduces the cost of stock orders and storage is also important.

    Controlling purchasing costs is critical for monitoring overall cost levels and maximizing profit. Various purchasing methods can be used to best accommodate the materials and activities during the F&B production process (i.e., cost plus buying, one-stop shopping, co-op buying, standing orders, stockless purchasing, and bid buying).

    Receiving 

    Receiving is defined as a process that determines whether the goods received match the quality, quantity, and price of the related order. Following the receiver’s approval, the material must secure as soon as possible to avoid the risk of theft or corruption. Workers with specialized training should keep appropriate and accurate records. Observing and controlling the staff is critical at this stage.

    Storing and issuing 

    Proper storage is critical for accountability and maintenance. Labeling items make FIFO and LIFO processes easier and identify specific items that are more important than others. It is also beneficial for employees to understand which items are more important and to provide better control. 

    Storage procedures is an integral part of any food and beverage control system - food and beverage cost controlStorage procedures is an integral part of any food and beverage control system

    Each item in the warehouse should be assigned to a specific location for control. This also improves the warehouse’s hygiene. Putting expensive items further away from the exit effectively reduces the risk of theft. Items should only be delivered after a formal request, and all items received from the warehouse should document with a signature, which is one of the key measures.

    F&B items are typically perishable. The transfer from the warehouse to the ultimate destination should be completed as soon as possible, which is especially critical for refrigerated and frozen items. This encourages leaders to assign the same employee to the tasks of storing and issuing.

    Preparation and production 

    Having standard recipes is critical during the F&B preparation and production stages. A standard recipe contains a list of the materials required for a specific product and how the standard procedures and methods should be carried out. This helps to ensure that standard efficiency and sustainability are maintained and that costs are efficiently monitored.

    The standard recipes are critical during the F&B preparation and production stages - food and beverage cost controlThe standard recipes are critical during the F&B preparation and production stages

    It is impossible to effectively control costs without standard recipes because producing a menu item using different methods and materials results in a cost variation for each production cycle. The standard recipe is an antecedent of the standard cost of a menu item, and standard portion costs can be determined in various ways.

    First, the standard cost should thoroughly understand determining the selling price. Second, standard costs must compare to actual costs, highlighting cost variances to improve operational efficiency. Finally, maintaining menu item quality and controlling portion sizes are difficult but critical processes. These procedures should regularly follow to avoid the risk of deceptive portion sizes, material shifting, or other types of theft that could cause client and sales loss.

    Service 

    One of management’s primary goals is to provide high-quality products and services at a reasonable price. Client loyalty suffers when a customer cannot see the value of their money. A decrease in client loyalty may also imply difficulties in providing liquid assets to meet labor and production costs, which may obstruct the enterprise’s day-to-day operations. As a result, cost and quality should be optimized for client satisfaction so that an excessive focus on cost does not result in quality compromises.

    Sales control 

    Sales control’s primary goal is to increase sales, control revenue, and maximize profit. When a company prices its products correctly and sells them efficiently, it improves its profitability. Implementing standards and standard procedures is the first step in sales and revenue control. The selling price of each menu item generates revenue.

    The selling price of each item on the menu generates revenue - food and beverage cost controlThe selling price of each item on the menu generates revenue

    Menu mix, operating costs, and divisional profit are all factors in sales analysis. A well-designed menu mix is based on operating costs and sales volume, ensuring the enterprise’s long-term viability. Sales analysis allows management to set standards based on sales, production, and labor performance. This is significant because a proper sales analysis aids in maintaining high standards and menu quality.

    Ten top tips for food and beverage cost control

    With the catering industry under increasing pressure as operating costs rise and margins contract, improving control of key costs such as food costs has never been more important.

    Catering managers must ensure that every aspect of the purchasing cycle is carefully managed due to fluctuating food costs and potentially high levels of wastage. Experts recommend that catering organizations review every step of the purchasing cycle to ensure that day-to-day operations maintain profitability.

    Improving the control of key costs is always important - food and beverage cost controlImproving the control of key costs is always important

    Here are ten top tips for keeping your sales costs under control and your gross profit targets met:

    1. Keep control: Agree on rates in advance with the food providers you’ve selected
    2. Standardize: Prepare a standard recipe for each dish sold, with the cost of each ingredient listed
    3. Communicate: Train employees to use standard recipes, ensuring that quantities and predetermined portion sizes are followed
    4. Wise up: Keep track of the number of ingredients used and safe storage space and money by using the same ingredients in multiple dishes
    5. Waste not, want not: Create menus that minimize waste so that ingredients can reuse
    6. Regular updates: Check that standard recipes are updated regularly with the most recent supplier prices
    7. Set targets: Ensure that every item on the menu is priced to achieve at least the desired gross profit, expressed as a percentage or in cash
    8. Mix low cost and high-cost ingredients: Examine the sales mix to determine which menu items are the most popular
    9. Reduce wastage: Calculate the amount of food waste generated during preparation and plate waste to monitor high-risk areas
    10.  Just in time: Keep an eye on your stock levels – high stock levels mean less cash is available while also taking up valuable space in the business.

    Conclusion

    Keeping track of your expenses is critical to the success of your business. When you survey your food and beverage cost control, you will identify your costs and take preventative and corrective action to maintain a healthy profit. Using the guidelines provided here can assist you in controlling beverage and food costs, allowing you to increase your bottom line and enjoy the personal and financial benefits of running a successful F&B. 

    You already have a brilliant beverage concept for a one-of-a-kind beverage formula or a beverage blueprint. However, many concerns arise regarding facilities, time and product cost, scalability & regulations, management & marketing. It’s time to delegate production to a licensed manufacturer. Tan Do Beverage does those jobs best. Contact us right away if you want to see your product succeed.

    Lilian Nguyen
    Hi! I'm Lilian Nguyen. I'm an expert in OEM, ODM, private label beverage industry with 8 years of experience. I believe that it is crucial for companies to focus on the benefits which the product provides to their target customer and what does it mean to the community. When i am not working, i run a blog on making healthy snacks & drinks and join in a hiking club. I'm an expert in the beverage industry invited by Tan Do Beverage to work. I'm in charge of publishing articles, research articles on the beverage industry or anything healthy to help readers have a better view of what they are looking to do, prepare to do or are doing related to the beverage industry. Email: lilian.nguyen@tdfood.com.vn

    Leave a Reply

    Your email address will not be published.