Individual outlet costs verses global costs: Pros and Cons

In the hospitality industry, controlling food and beverage costs is a central part of driving profitability and ensuring operational integrity. Many operators believe that tracking each outlet's cost of sales separately — by calculating costs for the bar, the restaurant, banquets, and room service individually — will yield greater insight and accountability. At first glance, this approach feels precise and empowering. However, a closer examination reveals that individual outlet costing is often inefficient, misleading, and a poor use of valuable resources, especially in today's labor-constrained environment.

The core misunderstanding arises from a simple but critical point: requisitions are not what determine the true cost of sales — the cost of sales is determined by a robust, end-to-end calculation. Let’s break this down.

The Cost of Sales Calculation: Beyond Requisitions

A requisition is merely a record of items requested from storage and delivered to a specific outlet. While it indicates what was "sent out," it does not reflect what was actually used or sold. Most importantly, requisitions do not account for critical variables such as:

• Waste: Over-preparation, spoilage in prep areas, or ingredients discarded after service.
• Overproduction: Excess food or beverage prepared "just in case" that never makes it to a guest.
• Spoilage: Items that go bad due to poor rotation or improper storage.
• Theft: Both deliberate and opportunistic losses that requisitions will never capture.
• Spillage and breakage: Especially common in beverage operations, these losses aren't visible on a requisition.
• Unrecorded complimentary items: Meals or drinks given away without proper recording.
• Miscalculations or recipe deviations: Errors during prep that distort theoretical yields.

When these factors are ignored, outlet-level costing quickly becomes a false comfort. Operators may believe they have tight control because the requisition numbers appear to match expected costs, but the true picture of consumption and loss remains hidden.

The True Cost of Sales Equation

Let’s clarify what actually determines cost of sales from an accounting perspective. I know some of you are burning inside right now but the fact is this calculation is whats necessary to balance the books. No amount of finger pointing will help. :):)

The standard formula is:

**Opening Inventory Plus Purchases – Closing Inventory – Legitimate Credits + or - Additional Costs (such as food transferred to bar, bar to food, or other interdepartmental adjustments)

= Cost of Sales**

This equation is the only accurate and reliable method for determining the cost of sales for any operation. Requisitions merely record what has been requested and moved from storage, not what has been used, wasted, spoiled, or even stolen.

The Illusion of Precision

Imagine a large hotel with five different F&B outlets. Each outlet receives daily requisitions from the main kitchen or beverage storeroom. If we attempt to track each outlet's cost of sales separately, the process quickly becomes convoluted:

• Kitchen teams must issue multiple small requisitions rather than focusing on efficient batch prep.
• Finance and storeroom teams are burdened with additional paperwork and reconciliations.
• Variance analyses become fragmented and lose the benefit of consolidated oversight.
• Time and energy are diverted from higher-value control activities, such as analyzing variances at the global level and identifying overarching purchasing or operational inefficiencies.

In contrast, a global food and beverage cost of sales approach consolidates all requisitions, inventory adjustments, and actual usage into a single, comprehensive picture. Variances are analyzed at the macro level, allowing leadership to focus on root causes and systemic improvements rather than chasing inconclusive line-by-line discrepancies.

Why Individual Outlet Costs Waste Valuable Resources

Today’s hospitality teams are stretched thin. Labor shortages are widespread, and every hour spent on administrative tasks is an hour not spent on guest service, training, or proactive operational improvement. Tracking individual outlet costs requires significant manual effort in:

• Segregating and allocating inventory.
• Maintaining multiple detailed cost records.
• Conducting multiple partial inventories.

All of this consumes finance, culinary, and operations bandwidth with minimal payoff. Rather than producing actionable insight, the process often becomes an exercise in generating more reports — reports that rarely change behaviors or outcomes.

Examples from Beverage Controls

Beverage operations illustrate this perfectly. In the uploaded document on back-of-the-house beverage controls, the emphasis is placed on foundational practices like bottle-for-bottle exchanges, colored stickers by outlet, strict par stock levels, and controlled storage access. These practices directly control usage, shrinkage, and loss — the true drivers of cost of sales.

What they do not require is the continuous assignment of each bottle’s cost to each outlet in minute detail. Instead, global beverage cost is tracked holistically, supported by strong operational controls and periodic variance analysis.

This focus ensures that losses and inefficiencies are addressed systemically rather than obscured by micro-level allocations that consume unnecessary manpower and foster false precision.

Conclusion: Focus on What Truly Matters

Requisitions serve an important purpose: controlling the flow of goods and ensuring accountability for what leaves the storeroom. However, they are not the basis for determining true cost of sales. True cost control requires a holistic approach that accounts for all usage and all potential losses — from waste and spoilage to theft and overproduction.

Tracking individual outlet costs often creates a comforting illusion of control while diverting precious resources away from the operational and financial activities that truly move the needle. In today’s hospitality environment, where efficiency and clarity are paramount, consolidating to a global cost of sales approach supported by strong internal controls is the more strategic, practical, and profitable path forward.

Call to Action

If you’re still investing time and effort into separate outlet cost reports, consider refocusing that energy on strengthening your overall control environment. Use robust back-of-the-house systems, regular variance analysis, and tight requisition discipline to drive real, lasting financial leadership in your hotel or restaurant operation.

David Lund – The Hotel Financial Coach

Contact David at (415) 696-9593

Email: david@hotelfinancialcoach.com

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