Number One Cause - Revisited

I received an email from a reader with some excellent points. His focus is on menu item pricing and he makes a great argument for solving food cost percentage issues before they materialize:

Joe:

Great article, sort of. One problem though, you have only identified the problem, not solved it.

Food Cost's initial controlling point is Menu Item Pricing. It took me years to come to grips with this. Being afraid to "raise" prices is the most overrated fear a restaurant operator may have. Raising prices allows an operator to pay the staff better, make capital improvements and ultimately create a cleaner, better run and more profitable entity. Are customers as sensitive to pricing as we make them out to be? What is the threshold, is $9.99 too much for that salmon dip with pita chips? Obviously each market is different, but customers are MUCH more tolerant today of higher prices(Starbucks is getting nearly $5 for a cup of coffee. God bless them, because they set the table for it to be okay.).

At the end of the day is it really worth being in business if you can't charge enough to cover your overhead and make a profit?

My company has confidence in its menu item choices, thus allowing us to charge the maximum. If a company is still struggling to "make food cost" after being in operation for six months, and a comprehensive breakdown on each menu item cost was performed (prior to opening) giving the concept a food cost spread % that when plugged into a proforma provides a theoretical profit, then step 2 (Management/Operations) must be initiated to discover the culprit. My theory though is, most restaurants never understand Step 1! I have an entire manual written on Step 2.

John M. Stout
Founder/President/CEO
Bagel Bagel Franchise Systems, Inc.

Hopefully, we'll get some more feedback on this angle. Proper ordering requires a well designed recipe model and accurate forecasts. Many operators run without standard recipes or pro formas. It's a big mistake.

Last May, I ran a series of articles which "decomposed" the entire food cost percentage calculation. In the article, I stated:

Too much attention is placed on inventory accuracy. Most people miss the finer points of determining their food cost percentage. Clearly, the sales figure which dominates the formula should take center stage. A very close second is the purchases figure.

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