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Food & Beverage Cost Control, 5th edition

Food & Beverage Cost Control, 5th edition
Dopson, Hayes, & Miller
@2011 John Wiley & Sons

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Chap 6 Presentation Transcript

  • 1. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Chapter 6 Managing Food and Beverage Pricing
  • 2. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Main Ideas • Menu Formats • Factors Affecting Menu Pricing • Assigning Menu Prices • Special Pricing Situations • Technology Tools
  • 3. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Menu Formats • Menus – standard, daily or cycle. • Menu “tip-ons,” - smaller menu segments clipped on to more permanent menus. • The standard menu is fixed day after day. • The daily menu changes every day. • A cycle menu is a menu in effect for a specific time period. The length of the cycle refers to the length of time the menu is in effect. • Daily or weekly menu specials provide variety, low- cost raw ingredients, carryover utilization, or test- market potential for new menu items.
  • 4. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 6.1 Sample Cycle Menu Rotation Day Cycle 1 - 7 A 8 - 14 B 15 - 21 C 22 - 28 D 29 - 35 A 36 - 42 B 43 - 49 C 50 - 56 D 57 - 63 A
  • 5. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Factors Affecting Menu Pricing • Total revenue is generated by the following formula: • As price increases, the number of items sold will generally decrease. Price x Number Sold = Total Revenue
  • 6. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 6.2 Alternative Results of Price Increases Old Price New Price Number Served Total Revenue Revenue Result $1.00 200 $200.00 $1.25 250 $312.50 Increase $1.25 200 $250.00 Increase $1.25 160 $200.00 No Change $1.25 150 $187.50 Decrease
  • 7. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Factors Affecting Menu Pricing 1. Local competition 2. Service levels 3. Guest type – price sensitivity 4. Product quality 5. Portion size 6. Ambience 7. Meal Period 8. Location 9. Sales mix
  • 8. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Factors Affecting Menu Pricing • Sales mix refers to the specific menu items selected by guests. • Sales mix will most heavily influence the menu pricing decision • Price blending refers to the process of pricing products, with very different individual cost percentages, in groups with the intent of achieving a favorable overall cost situation.
  • 9. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 6.3 Unblended Price Structure Texas Red’s Burgers Item Item Cost Desired Food Cost Proposed Selling Price Hamburger $1.50 40% $3.75 French Fries 0.32 40 0.80 Soft Drinks (12oz.) 0.18 40 0.45 Total 2.00 40 5.00 Figure 6.4 Blended Price Structure Texas Red’s Burgers Item Item Cost Proposed Food Cost % Proposed Selling Price Hamburger $1.50 60.2% $2.49 French Fries 0.32 21.5 1.49 Soft Drinks (12oz.) 0.18 16.5 1.09 Total 2.00 39.4 5.07
  • 10. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 6.5 Sample Sales Mix Data Texas Red’s Burgers Total Sales: $ 449.25 Guests Served: 100 Total Food Cost: $ 180.20 Food Cost %: 40.1% Item Number Sold Item Cost Total Food Cost Selling Price Total Sales Food Cost % Hamburger 92 $1.50 $138.00 $2.49 $229.08 60.2% French Fries 79 0.32 25.28 1.49 117.71 21.5 Soft Drink (12 oz.) 94 0.18 16.92 1.09 102.46 16.5 Total 180.20 449.25 40.1
  • 11. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Assigning Menu Prices • Product Cost Percentage/Pricing Factor • Contribution Margin
  • 12. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 6.6 Pricing-Factor Table Desired Product Cost % Factor 20 5.000 23 4.348 25 4.000 28 3.571 30 3.333 33⅓ 3.000 35 2.857 38 2.632 40 2.500 43 2.326 45 2.222
  • 13. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Assigning Menu Prices • The formula for computing food cost percentage is as follows: • This formula can be worded somewhat differently for a single menu item without changing its accuracy. Consider that: Cost of Food Sold Food Sales = Food Cost % Costs of a Specific Food Item Sold Food Sales of that Item = Food Cost % of That Item
  • 14. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Assigning Menu Prices Product Cost Percentage • The principles of algebra allow you to rearrange the formula as follows: Cost of a Specific Food Item Sold Food Cost % of That Item = Food Sales (Selling Price) of That Item
  • 15. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Assigning Menu Prices Pricing Factor • A cost factor or multiplier can be assigned to each desired food cost percentage as follows: • The pricing factor when multiplied by any product cost will yield a selling price that is based on the product cost. The formula is as follows: 1.00 Desired Product Cost % = Pricing Factor Pricing Factor x Product Cost = Menu Price
  • 16. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Assigning Menu Prices Contribution Margin • Contribution margin is defined as the amount that remains after the product cost of the menu item is subtracted from the item’s selling price. Contribution margin is computed as follows: Selling Price – Product Cost = Contribution Margin
  • 17. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Assigning Menu Prices • When this approach is used, the formula for determining selling price is: • Goal is setting a good price/value relationship in the mind of the customer. • The selling price selected must provide for predetermined operational profit. Product Cost + Contribution Margin Desired = Selling Price
  • 18. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Assigning Menu Prices • The Leadership in Energy and Environmental Design (LEED) rating system developed by the U.S. Green Building Council (USGBC), evaluates facilities on a variety of standards. • The rating system considers sustainability, water use efficiency, energy usage, air quality, construction and materials, and innovation.
  • 19. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Special Pricing Situations • Coupons are a popular way to vary menu price. 1. Buy one, get one free, or 2. Some form of restriction is placed on the coupon. • Coupons have the effect of reducing sales revenue from each guest in the hope that the total number of guests increases to the point that the total sales revenue increases.
  • 20. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Special Pricing Situations • Value Pricing refers to the practice of reducing prices on selected menu items in the belief that total guest counts will increase to the point that total sales revenue also increases. • Bundling refers to the practice of selecting specific menu items and pricing them as a group in such a manner that the single menu price of the group is lower than if the items in the group were purchased individually.
  • 21. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Special Pricing Situations • The difficulty in establishing a set price for either a salad bar or buffet is that total portion cost can vary greatly from one guest to the next. • The secret to keeping selling price low for a salad bar or buffet is to apply the ABC method. A items should comprise no more than 20% of the total product available; B items, no more than 30%; and C items, 50%.
  • 22. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Special Pricing Situations • Use the following formula to determine buffet product cost per guest: Total Buffet Product Cost Guests Served = Buffet Product Cost per Guest
  • 23. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 6.7 Salad Bar or Buffet Product Usage Unit Name: Lotus Gardens Date: 1/1 (Dinner) Item Category Beginning Amount Additions Ending Amount Total Usage Unit Cost Total Cost Sweet & Sour Pork A 6 lb. 44 lb. 13 lb. 37 lb. $4.40/lb. $162.80 Bean Sprouts B 3 lb. 17 lb. 2 lb. 18 lb. 1.60/lb. 28.80 Egg Rolls B 40 each 85 each 17 each 108 each 0.56 each 60.48 Fried Rice C 10 lb. 21.5 lb. 8.5 lb. 23 lb. 0.60/lb. 13.80 Steamed Rice C 10 lb. 30 lb. 6.5 lb. 33.5 lb. 0.40/lb. 13.40 Wonton Soup C 2 gal. 6 gal. 1.5 gal. 6.5 gal. 4.00/gal. 26.00 Total Product Cost 305.28 Total Product Cost: $305.28 Guests Served: 125 Cost per Guest: $2.44
  • 24. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Special Pricing Situations Bottled Wine • How you decide to price the bottled wine offerings on your menu will definitely affect your guest’s perception of the price/value relationship offered by your operation. • The price spread is defined as the range between the lowest and highest priced menu item. • Try to reduce the price spread.
  • 25. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Special Pricing Situations Beverages at Receptions and Parties • Pricing beverages for open bar events can be difficult, since each customer group can be expected to behave somewhat differently when attending an open bar or hosted bar function. • Sales histories – can calculate average consumption • Then use the formula: Product Cost + Contribution Margin Desired = Selling Price
  • 26. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 6.8 Beverage Consumption Report Event: Gulley Wedding Date: 1/1/ Unit Name: The Carlton Hotel Beverage Type Beginning Amount Additions Ending Amount Total Usage Unit Cost Total Cost Liquor A B C D E F G Beer A B C D E Wine A B C D Other: Champagne: A. Sparkling B. Sparkling Pink 8 bottles 8 bottles 24 24 9 11 23 21 6.00/btl 9.00/btl $ 138.00 189.00 Total Product Cost 327.00 Total Product Cost: $327.00 Guests Served: 97 Cost per Guest: $3.37 Remarks: Mild group; very orderly; no problems.
  • 27. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Technology Tools • The mathematical computations required to evaluate the effectiveness of individual menu items and to establish their prices can be complex, but there are a wide range of software products available that can help you: 1. Develop menus and cost recipes. 2. Design and print menu “specials” for meal periods or happy hours. 3. Compute and analyze item contribution margin.
  • 28. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Technology Tools 4. Compute and analyze item and overall food cost percentage. 5. Price banquet menus and bars based on known product costs. 6. Evaluate the profitability of individual menu items. 7. Estimate future item demand based on past purchase patterns. 8. Assign individual menu item prices based on management-supplied parameters.
  • 29. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Summary • Menu Formats • Factors Affecting Menu Pricing • Assigning Menu Prices • Special Pricing Situations • Technology Tools