What counts and why?

If you do not have all three of these metrics on your radar screen at the same time, you are flying the profit picture in your food operation with at least one eye closed. All three metrics must work together at the same time to get the best view of the potential profitability of your food sales. Let’s explore these three different measurements and see what we find.

Average Customer Cover

The first part is “average customer cover spend” or ACCS. That is the average amount of food sales per person served. To calculate this, you take the total food sales (only items in the food family) from a given period and divide it by the number of customers served in the same period. In the Uniform System of Accounts for the Lodging Industry 11th Edition we moved away from average cover to the average customer calculation. The difference is in the past we would exclude customer covers for people who did not consume food, now we include all customers served.

Basically, we are now including customers in the average customer calculation who only have a drink, but we do not include the drink revenue in the ACCS calculation. I am not sure it is better but that’s what is in the book says so let’s all do things the same way, please.

This calculation in my opinion is only slightly important. It proves two things: Is my pricing strategy and menu mix effective for getting more spend from each customer? Does the average customer spend going up or down? That is all it tells you. No insights on the cost of sales or profitability. It is the least effective measurement of the three when it comes to understanding profitability.

Food Cost Percentage

The second is food cost, aka, cost of goods sold. From my days as a food and beverage controller, these words are welded into my brain. Opening food inventory (food family), plus food purchases, less closing inventory, less any legitimate credits for things like the cafeteria, promotion or food to bars, plus beverage to food. This is a very meaningful calculation. It is the raw gross profit number from the food operation before labor costs and expenses. It is the beginning of the profit story. This number expressed as a percentage is typically somewhere between 20-30% in hotels with full-service operations. I have seen it as low as the high teens and as high as the mid-30s on an annualized basis.

Normally in a hotel, the food cost percentage depends largely on volume. The volume of banquets is the best card to draw here. Great banquet business with lots of breakfasts, coffee breaks and receptions and you probably have a month with a good food cost.

On the flip side, if have a month with low banquets and restaurants that are busy with lunch and dinner, it is not such a great picture. The food cost is the chef’s responsibility. I say that because in more than one hotel I have been associated with there was confusion on the chef’s part. Some believed accounting was responsible for the food cost. The chef buys the food, cooks the food and ultimately has the greatest influence on the outcome. TAG, you’re it.

Having a good or bad food cost can also be a bit of a smoke and mirrors job. Several factors can influence food cost:

• Purchasing prepared items vs. raw production equals lower labor cost and higher food cost.
• Meal plans, revenue allocations and consumption.
• How well are the meal plan packages controlled and accounted for.
• Room sale inclusions of a food nature that are not consistent with the 11th Edition that favor a pure or reduced food revenue allocation in favor of room revenue.
• Packages that include a food component, like the mighty Bed and Breakfast.
• Food inventory: frequency, policy, and consistency.

To be continued

David Lund – The Hotel Financial Coach

Contact David at (415) 696-9593
Email: david@hotelfinancialcoach.com

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