The Menu

and the
Financial Plan

Elements of Menu as an Internal Cost Control Tool

Food cost
Labor cost
Overhead cost

Steps in controlling food cost:

Forecasting
Ordering
receiving
Storing
Handling
Service
payment

Menu example

The cooks in those restaurants know exactly how

much of each ingredient to put in every dish.
Another way to practice portion control is to
purchase pre-portioned items, such as steaks,
burger patties, chicken breasts, and pizza dough.
They may be more expensive, but can save you
money in labor and food waste.

Portion Control

Determines profitability
Lower food cost = higher profits
Properly price the menu
Optimize the menu

Food Cost

1. Use an accurate scale to check in orders.

2. Do a mini inventory before placing any orders.
3. Rotate your stock: First In, First Out.
4. Pre-portion during prep when possible. Use a scale.
5. Have the correct ladles and scoops on the line at service.
6. Find ways to turn scraps from the prep of one menu item into
prep for another.
7. Use accurate recipes to help with ordering.
8. Know your cost for a particular dish before you write the
menu price for it.
9. Accept a lower margin on higher-priced items if its
profitable to do so.
10. Frequently spot check portions for accuracy.

Top 10 Ways to Improve Your

Food Costs

Food Cost % = (Beginning Inventory + Purchases Ending

Inventory) / Food Sales
Example
Data: $10,000 beginning inventory, $2,000 in purchases,
$10,500 ending inventory, $5,000 in sales.
Formula: FC% = (BI + P - EI) / S
(10,000 + 2,000 = 12,000) - 10,500 = 1,500
1,500/5,000 =.30 or 30% food cost

Food Cost Formula

Recipe Costing

Improper purchasing
Poor inventory control
Inaccurate forecasting
Waste
Lack of portion control
Poor receiving procedures
Failure to follow standardized recipes
Lack of good promotion and service

Factors can cause high food costs

Labor cost is a major factor in menu planning for

both commercial and noncommercial operations.
Finding the right quantity and quality of employees
at the right cost is a challenge to all foodservice
managers.
The labor factor can prove less of a constraint if
good hiring procedures are used and thorough
training programs are implemented. Employees
that feel valued are more likely to feel loyalty to an
operation.

Obtaining Labor Costs

If labor is $665 and sales are $2,500,

the labor cost is 26.6 percent of sales
($665 $2,500 = 0.266 100 = 26.6
percent).

Example

Labor costs are usually controlled by

allocating a specific amount of labor
per unit produced, per number of meals
per day, per hour, per covers served, or
per dollar sales.

CONTROLLING LABOR COSTS

 Any menu requires an initial

capital of investment. The menu
will
dictate
the
facilities,
equipment, dcor, inventory, and
space needs.

 A well-planned menu can help

eliminate
or
alleviate
many
capital costs.

Capital Investment

 Return on assets- the most common

measure of how well a business is
performing is to calculate the ratio of net
profit to total assets.
Net profit- the profit left over after
operations,
interests,
other
nonoperating expenses, and business taxes
have been paid.

Measuring Profitability

For example:
If assets are $500,000.00 and
$25,000.00 is the profit, the ratio of
profit to assets is 5%.
$25,000.00 $500,000.00 = 0.05

 The ROI is the amount of money

obtained as a profit in relation to the
actual amount invested by the owners
of the firm.

Return on Investment

Example:
If the owner of a business has invested
$200,000.00 in it, and it makes a profit
of $20,000.00, then the ROI is 10%
($20,000.00 $200,000.00= 0.10)

 It is the excess of dollars available after

cash paid out for operating costs and
represents money coming from all
sources in the operation. The sources of
cash include sales revenue, but may
also include additional cash put into the
operation by investors, or the net
proceeds from additional loans secured
during the period.

Cash Flow

 Represents the number of sales dollars

remaining after all operating expenses,
interest, taxes and preferred stock
dividends
(but
not
common
stock
dividends) have been deducted from a
companys total revenue.
Formula:
Total Revenue Total Expenses = Net Profit

Net Profit

Income Statement for Company XYZ, Inc.

For the year ended December 31, 2013
Total Revenue

$100,000.00

Cost of Goods Sold

($20,000.00)

Gross Profit

$80,000.00

Operating Expenses
Salaries

$10,000.00

Rent

$10,000.00

Utilities

$5,000.00

Depreciation

$5,000.00

Total Operating Expenses

($30,000.00)

Interest Expense

($10,000.00)

Taxes

($10,000.00)

Net Profit

$30,000.00

 The profit & loss statement summarizes the

revenues and expenses generated by the company
over the entire reporting period. The profit & loss
statement is also known as the income statement,
statement of earnings, statement of operations, or
statement of income.
Revenues are used to pay expenses, interest
payments on debt, and taxes owed to the
government.

Profit and Loss statement

analysis

Profit & Loss Statement for Company XYZ, Inc.

for the year ended December 31, 2013
Total Revenue
$100,000
Cost of Goods Sold
($ 20,000)
Gross Profit
$ 80,000
Operating Expenses
Salaries
$10,000
Rent
$10,000
Utilities
$ 5,000
Depreciation
$ 5,000
Total Operating Expenses
($ 30,000)
Operating Profit (EBIT)
$ 50,000
Interest Expense
($ 10,000)
Income before taxes (EBT) $ 40,000
Taxes
($ 10,000)
Net Income
$ 30,000
Number of Shares Outstanding
$ 30,000
Earnings Per Share (EPS)
$1.00

Income Statement

Balance Sheet

 Elements of Success
1. Have a distinctive concept that has been well
researched.
2. Ensure that all decisions make
long- term
economic sense.
3. Adapt desirable technologies, especially for
record keeping and tracking customers.
4.Educate
managers
through
continuing
education at trade shows and workshops. An
environment that fosters professional growth has
better productivity.

Menu strategies and Financial

success

5. Effectively and regularly communicate

values and objectives to employees.
6. Maintain a clear vision, mission, and
operation strategies, but be willing to
amend strategies as the situation changes.
7. Create a cost-conscious culture, which
includes stringent record keeping.
8. Focus on one concentrated theme and
develop it well.
9. Be willing to make a substantial time
commitment both to the restaurant and to
family.

10. Create and build positive organization

culture through consistent management.
11. Maintain managerial flexibility.
12. Choose the location carefully,
although having a good location seems to
be more a moderating variable than a
mediating (casual) variable in restaurant
viability.

 Elements of Failure
1. Lack od documented strategy; only
informal or oral communication of mission and
vision; lack of organizational culture fostering
success characteristics.
2. Inability or unwillingness to establish
and formalize operational standards; seat- of-thepants management.
3. Frequent critical incidents; managing
operations by putting out fires appears to be a
common practice.
4. Focusing on one aspect of the business
at the expense of others.
5. Poor choice of location.

6. Lack of match between restaurant concept

and location.
7. Lack of sufficient start-up capital or
operational capital.
8. Lack of business experience or knowledge of
restaurant operations.
9. Poor communication with consumers. 10.
Negative consumer perception of value; price
and product must match.

11. Inability to maintain operational standard,

leading to too many service gaps. Poor sanitary
standards are almost guaranteed to kill a
restaurant.
12. For ethnic restaurants, loss of authenticity;
for all restaurants, loss of conceptual integrity.
13. Becoming everything to everyone; failure of
differentiation or distinctiveness.
14.Underestimating
the
competition.
A
contemporary restaurant located near an
established restaurant adjacent to a golf club
failed when it could not draw the golfers from
their traditional haunts

15. Lack of owner commitment due to family

demands, such as illness or emotional
problems. 16. Lack of operational performance
evaluation systems. In one instance, new
owners did not know how to calculate food cost
and relied on employees to maintain proper
inventory controls.
17. Frequent changes in management and
diverse views of the mission, vision, and
objectives.
18. Tardy establishment of vision and mission
statements of the business; failure to integrate
vision and mission into the operation; lack of
commitment in management or employee
ranks.

19. Failure to maintain management flexibility

and innovation.
20. Non-controllable, external factors, such as
fires, changing demographic trends, legislation,
economy, and social and cultural changes.
21. Entrepreneurial incompetence; inability to
operate as or recruit professional managers.

Studies.

The
Relationship
between
NonFinancial Performance and Financial
Performance
Using
Balanced
Scorecard Framework: A Research in
Cafe and Restaurant Sector
Author: Devie, Josua Tarigan, and Deborah
Christine Widjaja
Published in: International Journal of Innovation,
Management and Technology
Date of Publication: October 2012

Purpose of the study:

To be able to explore more deeply the
relationship between each of the non-financial and
the financial performance.
Methodology:
The data collection is done by distributing
questionnaires to 794 employees and customers in
55 restaurants and cafs in Surabaya-Indonesia
which adopt the table service concept. The Partial
Least Square for Multivariate Analysis is employed
for processing the data.

Results:
In analyzing the influence of job satisfaction of
employees on restaurant and caf profitability in
Surabaya, several analysis tools are employed in
Partial Least Square (PLS), such as: the outer
model which comprises of convergent validity,
composite reliability and also inner model. From
the convergent validity, the result of the analysis
shows that the validity and reliability levels are
good in which all the questionnaire items have
loading value above 0,5.

Conclusion:
Based on the data analysis, it can be concluded that out
of six hypotheses, there are two hypotheses which are not
proven (H5 and H6) because the relationship is not
significant even though it is positive. Conceptually in BSC,
it is proven that the relationship among variables or
perspectives are positive. However, the level of significance
between Service quality and Profitability, and Customer
Satisfaction and Profitability are proven to be not
significant. This is because some of the restaurants and
cafs in the research are still building the quality to satisfy
the customers. Nevertheless, the effort in building the
quality give an impact to the cost increase that lessen the
profitability.

Does using an a la carte or combo set menu

affect the performance of a teppanyaki-style
restaurant?
Author: Chin-Yi, Fang; Pao-Yu (Jessie) Peng;
Wei-Ta (Woody) Pan
Published in: International Journal of
Contemporary Hospitality Management
Date of Publication: 2013

Purpose of the study:

compare the proficiency levels of the different meal
categories of the la carte and combo-set menus
using the MTR via the metafrontier approach
present an innovative metafrontier-to-DEA (MDEA)
technique that incorporates multiple outputs and
multiple inputs - including the item revenue, gross
profit, food costs, time-driven labor costs, and other
operating expenses (OOEs) - to evaluate the
performance of heterogeneous menu items;
conduct a simulation analysis to provide evidence of
the superiority of MDEA

Methodology
Six months of point of sale (POS) data are
obtained from a teppanyaki-style restaurant. The
proposed inputs are categorized into total food costs,
total labor cost, the number of processes, and the
other operating expenses. Two outputs (total revenue
and gross profit) are used to assess the efficiency of
the menu items. The metatechnology ratio (MTR) is
used to differentiate the proficiency level of the
heterogeneous meal categories and to create four
quadrants based on the efficiency index and financial
performance.

Results:
The metatechnology ratio (MTR) is lower for the
combo set category than for the la carte category. Four
quadrants are obtained based on the efficiency and
financial performance to provide further menu
suggestions. The metafrontier-to-data-envelopment
analysis(MDEA) yields menu suggestions that could
enhance the overall efficiency and profitability of the
menu items. A simulation using these two models is
conducted and shows that the restaurant profitability
would be 22 percent greater using the MDEA than using
the menu engineering model.

Conclusion:
Further slack-based analyses reveals that food costs constitute
the first major reason and that other operating expenses (OOEs) are
the second reason underlying the inefficiency of certain menu items.
This finding indicates that the restaurateur should reexamine the
portions of food ingredients to reduce food costs and increase the
overall efficiency and profitability in the analyzed teppanyaki -style
restaurant. A "greening restaurant" strategy for this restaurant would
be an alternative to reduce OOEs and to characterize the restaurant
as a socially responsible hospitality company. A simulation study
for the traditional ME and this MDEA indicates that the profitability
of the restaurant is 22.33 percent higher when using the MDEA
menu efficiency method to change the menu strategy compared
with the use of the traditional ME method.

Recommendation
Future research can first extend this MDEA model to franchised
teppanyaki -style restaurants and other types of restaurants with
available operating information. Second, this paper uses financial
and sales information to assess menu-item efficiency. However, a
chef's involvement in menu presentation and the interaction
between customers and chefs would be the essential components of
a teppanyaki -style restaurant. A future study could include an
examination of the involvement of chefs, brand identification and
customer satisfaction levels as the model inputs and outputs to
simultaneously cover financial, marketing, and service evaluations.
Meanwhile, in conjunction with the development of a green
restaurant, future research could include energy resources as an
essential variable and assess the energy efficiency of different
menu categories in different types of restaurants.