Food cost %

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An introduction to the concept of Food Cost and it's application in daily restaurant operations.

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Food cost %

  1. 1. Food Cost<br />An Introduction to the Concept<br />Bhavin Parekh<br />1<br />
  2. 2. Contents<br />Understanding Food Cost<br />The Pizza<br />What does it mean to you and your restaurant?<br />Basic Definition of Food Cost<br />The Math<br />Interpreting the Formula<br />Using Food Cost <br />Applying Food Cost in day to day operations<br />Practical Example<br />2<br />
  3. 3. Objectives<br />To be able to define Food Cost and express the same mathematically.<br />To be able to compute Food Cost %.<br />To be able to interpret Food Cost %.<br />To be able to apply Food Cost % in day to day operations to maximize profits.<br />3<br />
  4. 4. Understanding Food Cost –The Pizza<br />4<br />
  5. 5. Understanding Food Cost – The Pizza – cont’d…<br />5<br />1 person gets the whole pizza i.e. 1 person = 100%<br />Pizza<br />50%<br />50%<br />2 persons get half a pizza each. i.e. 2 person = 50%<br />25%<br />25%<br />4 persons get only a quarter pizza each. i.e. 4 person = 25%<br />25%<br />25%<br />
  6. 6. Understanding Food Cost – The Pizza – cont’d…<br />6<br />Assume that your total sale for the day is Rs. 1000/-<br />Rs. 1000<br />Your product is food.<br />Rs. 300<br />In order to produce the food to sell, you incurred a cost of Rs. 300.<br />Your net saving at the end of the day will be Rs. 700 (Rs. 1000 – Rs. 300). This can also be referred to as PROFIT.<br />In order to increase your profit, you will have to reduce the food cost, given that the total sale is a constant.<br />
  7. 7. Food Cost – A Definition<br />7<br />Food Cost is defined as the cost incurred to produce the food to be sold.<br />This is expressed in percentage (%).<br />Hence, Food Cost % is mathematically defined as the ratio of the cost of food to the total sales. <br />It is mathematically expressed as:<br />Food Cost % = Cost of Food x 100<br /> Total Sale <br />
  8. 8. Food Cost – An Interpretation<br />The food cost is directly proportional to the cost of food.<br />This implies that the higher the cost of ingredients, the higher will be the Food Cost %.<br />The higher the Food Cost %, the lower is your profit.<br />8<br />
  9. 9. Food Cost – An Interpretation cont’d…<br />The food cost is indirectly proportional to the total sales.<br />This implies that higher the sale, the lower is the cost of Food Cost % and vice versa.<br />What is the impact of Food Cost % on your restaurant’s profit ?<br />9<br />
  10. 10. Food Cost – Understanding impact on Profit<br />10<br />The higher the cost of ingredients used to prepare the dish, the higher is the Food Cost %.<br />Pizza<br />The higher the total sale, the lower is the Food Cost % and vice versa.<br />A higher Food Cost % will eat into a larger share of your pizza, leaving you with a smaller piece and vice – versa.<br />
  11. 11. Food Cost – Application and Practical Example<br />Baked Beans in Tomato Sauce – Heinz and Maggi.<br />Computing Food Cost %.<br />11<br />
  12. 12. Summary<br />The formula.<br />The independent and dependent variables.<br />The impact of Food Cost % on profit.<br />12<br />
  13. 13. Linking to next class<br />Methods to control food cost %<br />13<br />

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