We Don't Know Our Costs

My boss at Sodexho always said "We don't know our costs." whenever the food cost percentage was too high. Generally, the remote site feeding business should be very predictable. Patrons live onsite and have zero options outside the dining room at the camp. If a room is occupied for a night, we'd expect the resident to show for breakfast, lunch and dinner. Straight forward revenue calculation involves the number of people in camp multiplied by the rate per person per day.

Problems in this business segment occur at mature projects after contract renewal. Since the competition is fierce, operators look for every possible advantage. When responding to the RFP, the bidders try to gain a cost advantage over their competitors.

If the camp is close to a urban area (close would typically mean a short flight), many of the residents leave on the weekend. Playing the game involves predicting the probability the Friday evening meal will NOT be attended. In addition, Sunday dinner attendees provide a full manday of revenue. Even weekend travelers provide an operator with revenue if they eat Sunday dinner (though no bed was made and breakfast and lunch were not consumed). Sounds like a bonus for the caterer.

Many times, the initial bid prices have this favorable activity built into the price matrix. Now the bonus turns into a risky game. Bad weather, overtime pay opportunities and special events may keep residents onsite over the weekend even though the prices reflect more checkouts.

Some of the best operators provide a fantastic Sunday night meal and advertise the menu during the week. All efforts are focused on a big turnout. When the residents do not leave as expected, Sunday costs per manday can be very high.

A few years ago, Darden's stock went lower due to a major turnout at their all-you-can-eat seafood buffets. Higher patron counts actually hurt their bottom line.

I have found many of my clients pushing menu items with ideal food cost percentages over 50% (some over 100%). It's tough to make a decent profit when you're not charging enough for your popular menu items. When my clients were wrong on the low side, they tended to be wrong on the most popular items. Savvy patrons recognize a value and order these lost leaders more frequently. Do you know your costs?