1. Restaurant Operations Management: Principles and Practices© 2006 Pearson Education, Inc. Ninemeier/HayesUpper Saddle River, NJ 07458 Quality as an Improvement Philosophy: Management of Employee Turnover Rate OH – 16.1 (Food Servers’ Turnover Rate) Current 1 Year5 Years Goal Long-Term Future 50%40%20%10%

2. Restaurant Operations Management: Principles and Practices© 2006 Pearson Education, Inc. Ninemeier/HayesUpper Saddle River, NJ 07458 Effective Restaurant Managers: Can never be content about “how things are now” Must be concerned about ways to make improvements in their operations Must utilize the present situation as the benchmark (starting point) for planning an improvement process OH – 16.2

3. Restaurant Operations Management: Principles and Practices© 2006 Pearson Education, Inc. Ninemeier/HayesUpper Saddle River, NJ 07458 Calculation of Actual Food and Beverage Costs with Adjustments for January, 20XX OH – 16.3 Part A: Food Cost Value of Food Inventory (Beginning of Period, Jan. 1)$ 83,575 Value of Food Purchases (During January) 187,615 Total Value of Food Available (During January)$ 271,190 Value of Food Inventory (End of Period, January)(89,540) Total Unadjusted Cost of Food Used (January)181,650 Add Adjustments to Total Cost of Food Used  Transfers to Beverage6,550 Deduct Adjustments to Total Cost of Food Used  Transfers to Beverage  Transfers to Labor Cost (Employee Meals)  Transfers to Marketing (4,175) (8,900) (3,750)(16,825) Net Cost of Food Used (January) 171,375 Assume January Food Revenue = $508,620 Food Cost % (Unadjusted) = $181,650 = 35.7% $508,620 Food Cost % (Adjusted) = $171,375 = 34.0% $508,620

4. Restaurant Operations Management: Principles and Practices© 2006 Pearson Education, Inc. Ninemeier/HayesUpper Saddle River, NJ 07458 Calculation of Actual Food and Beverage Costs with Adjustments for January, 20XX (continued) OH – 16.4 Part B: Beverage Cost Value of Beverage Inventory (Beginning of Period, Jan. 1) $ 19,550 Value of Beverage Purchases (During January) 38,950 Total Value of Beverages Available (During January) $ 58,500 Value of Beverage Inventory (End of Period, January) (15,715) Total Unadjusted Cost of Beverages Used (Total Period) 42,785 Add Adjustments to Total Cost of Beverage Used  Transfers from Food4,175 Deduct Adjustments to Total Cost of Beverages Used  Transfers to Food  Transfers to Marketing (6,550) (1,275)(7,825) Net Cost of Beverages Used (Total Period) 39,135 Assume January Beverage Revenue = $168,750 Beverage Cost % (Unadjusted) = $ 42,785 = 25.4% $168,750 Beverage Cost % (Adjusted) = $ 39,135 = 23.2% $168,750

5. Restaurant Operations Management: Principles and Practices© 2006 Pearson Education, Inc. Ninemeier/HayesUpper Saddle River, NJ 07458 All About Food and Beverage Transfers OH – 16.5 Impact on Food CostsBeverage Costs Transfers from BeverageIncreaseDecrease Transfers to BeverageDecreaseIncrease Transfers to FoodIncreaseDecrease Transfers from FoodDecreaseIncrease Transfers to Labor CostDecreaseNot Common Practice Transfers to MarketingDecrease

6. Restaurant Operations Management: Principles and Practices© 2006 Pearson Education, Inc. Ninemeier/HayesUpper Saddle River, NJ 07458 Steps in Problem Analysis Process OH – 16.6 Step 1: Step 2: Step 3: Step 4: Set Expectations Assess the “Actuals” Analyze the Variance Determine Whether Problem Exists

7. Restaurant Operations Management: Principles and Practices© 2006 Pearson Education, Inc. Ninemeier/HayesUpper Saddle River, NJ 07458 “It's All in the Numbers” OH – 16.7

8. Restaurant Operations Management: Principles and Practices© 2006 Pearson Education, Inc. Ninemeier/HayesUpper Saddle River, NJ 07458 Revenue Levels Impact Food and Labor Cost Percentages OH – 16.8 Actual Revenue Compared to Budget Food Cost Percentage Labor Cost Percentage GreaterNo ChangeDecrease LowerNo ChangeIncrease

9. Restaurant Operations Management: Principles and Practices© 2006 Pearson Education, Inc. Ninemeier/HayesUpper Saddle River, NJ 07458 Potential Reasons for Revenue Problems OH – 16.9 REVENUE PROBLEMS Potentially Manageable ReasonsPotentially Unmanageable Reasons  Revenue theft by employees  Ineffective marketing/sales tactics  Guest-relations issues  New and significant competition for the same guest market  Operating hours are longer than necessary; incurred labor costs are not offset by sufficient revenue  Significant layoffs within the community reducing the size of the guest market  Economic recession  Significant capital improvement/ remodeling project leading to restaurant downtime  Street/other community improvement project yielding difficult/no access to property  Shortage (lack) of key menu ingredients which require popular items to be temporarily removed from the menu

10. Restaurant Operations Management: Principles and Practices© 2006 Pearson Education, Inc. Ninemeier/HayesUpper Saddle River, NJ 07458 Potential Reasons for Food Cost Problems OH – 16.10 FOOD COST PROBLEMS Potentially Manageable ReasonsPotentially Unmanageable Reasons  Revenue theft [1] [1]  Failure to effectively follow procedures for effective purchasing, storing, issuing and producing food products  Improper/inaccurate procedures to calculate actual food costs [2] [2]  Ineffective selling techniques resulting in sales of higher food cost items  Portion control issues  Significant increases in costs paid for food  Shift of guest preferences to higher- food cost menu selections  Storage losses (for example, refrigerator/freezer breakdown requiring stored food to be destroyed)  Shift to more convenience foods in efforts to reduce labor costs [1][1] The food cost percentage is a function of food costs divided by revenue; therefore, revenue theft yields a higher food cost percentage. The real problem could be theft of revenue rather than excess funds being spent for food. [2][2] See discussion of actual food cost calculations earlier in this chapter.

11. Restaurant Operations Management: Principles and Practices© 2006 Pearson Education, Inc. Ninemeier/HayesUpper Saddle River, NJ 07458 Recap: Food Server Guest Check Averages OH – 16.11

12. Restaurant Operations Management: Principles and Practices© 2006 Pearson Education, Inc. Ninemeier/HayesUpper Saddle River, NJ 07458 Worksheet for Weekly Food Cost OH – 16.12

13. Restaurant Operations Management: Principles and Practices© 2006 Pearson Education, Inc. Ninemeier/HayesUpper Saddle River, NJ 07458 Labor Cost Analysis OH – 16.13 Week of: 7/16/XX DishwashersPay Rate ScheduleActualVariance HoursPayHoursPay (1)(2)(3)(4)(5)(6)(7) Armon$7.5535$264.2538$286.90($22.65) Catalina$7.8530$235.5035$274.75($39.25) Billy$6.9035$241.5037$255.30($13.80) Omar$7.8015$117.0010 $ 78.00$39.00 $858.25 $894.95 ($36.70)

14. Restaurant Operations Management: Principles and Practices© 2006 Pearson Education, Inc. Ninemeier/HayesUpper Saddle River, NJ 07458 Steps in Corrective Action Process OH – 16.14 Step 1: Step 2: Step 3: Utilize a Decision-Making Process Consider Problems Identified by Analysis Prioritize Problems UnmanageableManageable

15. Restaurant Operations Management: Principles and Practices© 2006 Pearson Education, Inc. Ninemeier/HayesUpper Saddle River, NJ 07458 Prioritizing Problems: Assess the Economic Impact OH – 16.15 A. Would you rather increase revenue or decrease variable costs? (Answer: Ideally both!) What about in the example below? Priority: To increase revenue by $2,000 or to decrease variable costs by $2,000. AssumeCurrent Data Increase Revenue by $2,000 Decrease Costs by $2,000 Revenues$ 12,000.00$ 14,000.00$ 12,000.00 Variable Costs (70%)(8,400.00)(9,800.00)(6,400.00) Fixed Costs (20%)(2,400.00) “Profit”$ 1,200.00$ 1,800.00$ 3,200.00 Increasing revenue by $2,000 only yields a $600 increase in profit ($1,800 - $1,200); decreasing variable costs by $2,000 increased profit by $2,000 ($3,200 - $1,200).

16. Restaurant Operations Management: Principles and Practices© 2006 Pearson Education, Inc. Ninemeier/HayesUpper Saddle River, NJ 07458 More on Prioritizing Problems: Assess the Economic Impact OH – 16.16 B. Which of the following costs would you first “manage”? (Answer: Hopefully both at the same time!) If not, which is the priority? BudgetActualDifference Food Cost34%36%(2%) Beverage Cost26%31%(5%) At first examination, it appears “obvious” that beverage costs represent the biggest problem: a 5% variance from expected costs compared to only 1% variance for food costs. However, after we learn more details, our opinion of the largest problem changes FOOD ActualBudgetDifference Food Revenue$450,000.00 Food Cost % 36% 34% Food Cost$162,000.00$153,000.00($ 9,000.00) BEVERAGE ActualBudgetDifference Beverage Revenue$105,000.00 Beverage Cost % 31% 26% Beverage Cost$32,550.00$27,300.00($ 5,250.00) As seen above, a 2% variance in food costs represents $9,000 in higher-than-expected costs (and lower profits). By contrast, a 5% variance in beverage costs results in $5,250 in higher-than-expected costs (and lower profits). Clearly, after any “quick fix” with the beverage operation, the manager's attention must be directed to food control activities.

17. Restaurant Operations Management: Principles and Practices© 2006 Pearson Education, Inc. Ninemeier/HayesUpper Saddle River, NJ 07458 Basics of the Decision-Making (Problem-Solving) Process OH – 16.17 STEPSEXAMPLE Step 1:Define the Problem Step 2:Generate Solution Alternatives Step 3:Evaluate Solution Alternatives Step 4:Select the “Best” Solution Alternative Step 5:Implement the Solution Alternative Step 6:Evaluate the Effectiveness of the Solution Guest check average for food has been declining for each of the last three months  Need to utilize suggestive selling  Need to evaluate menu (components and design) to determine if changes can increase revenues  Errors in equipment/procedures used to calculate data  Theft of revenue by food servers  Guest shoppers did not observe suggestive selling; training needed to implement suggestive selling program  Menu recently re-designed; guest counts are up slightly  An auditor has found no “bookkeeping problems” suggesting employee theft Implement a suggestive selling program Train service staff; implement a contest (all servers with a specified minimum guest check average win complimentary meals and sweatshirts) Determine the extent to which the guest check average increases after the suggestive selling training program has been implemented

18. Restaurant Operations Management: Principles and Practices© 2006 Pearson Education, Inc. Ninemeier/HayesUpper Saddle River, NJ 07458 Some Tactics to Reduce Resistance to Change Involve employees in the decision-making process. Inform employees in advance about changes that will impact them. Select an appropriate time to implement the change. (“Trying something new” during an extremely busy shift is never a good idea!) Share past successes; review related changes that have benefited the employees and the organization. Reward employees for sharing ideas in the decision- making process that benefit the restaurant and the employees. OH – 16.18