Food/Bev Costing Question (but not really)

[coolcheech]

I searched the forums (and elsewhere), and keep seeing the numbers 30%, 33%, 35% to hit as your food costs. UNLESS, the item with the 48% food cost is bringing you in $15/plate profit then the item with the 27% food cost that's bringing you in $8/plate profit.

That being said ... once you've settled in on your place, your overhead costs, payroll costs, cost of products, what is the math to figure out how much you actually need to sell of your product, and at what price, in order to stay in business? If you only sell one item and the food cost is 25% and you're making $100 profit on each sale, that's great according to the textbooks, but if your overhead exceeds what you're bringing in then you're still SOL.

I know the customers/market will pretty much determine the going rate of a product, and it's up to your advertising in order to get them coming into the door. But let's assume that we're in a perfect world and your prices are fair and you've got a steady flow of traffic.
How can I figure out at what price do I have to sell each product in order to cover my operating expenses? (I'm looking at this from more of a retail grocers point of view, so I'm thinking about thousands of product options, not 25 menu options.)

Thanks,
Christian

I feel like this should be easy to figure out, and I'm just looking right past the obvious answer.

 

[italchef]

From a retail product point of view i'm not very experienced but from a restaurant/banquet point of view there are a few points.
Restaurant menus and prices should be looked at from a food cost point and also a contribution margin point as you said. There is a pretty complex formula that you can use to determine how your menu is operating as a whole. Basically it looks at the popularity of your different items, how much they contribute, and overall profitability. It helps explain why a business that is busy can get into trouble or worse, and steps that can be taken to correct problems not easily visible.
Your first step is to get a good idea of your actual food cost. Taking proper and regular inventories, updating the costs of the various products etc. From there you go into menu costing and pricing. I wouldn't say that anything costed over 35% is ok as long as you're getting a higher margin. It's all relative. Get your costs as low as possible and go from there. It's true that some items are more profitable than others, but perhaps the items that cost you more but make you less aren't necessarily the ones that you want. You might me selling a lot of pasta with a low CM but that lobster plate is with a high CM is sucking you dry.
I don't know if this helps you at all. Perhaps you could offer some more information to clarify.
Mick

 

[ed buchanan]

As a grocer you know that many departments and products are a lot mor profitable then others. You make a little on milk and can grocery. But you are 100% markup on soaps and detergents. Your deli and meat depts. are high markup. Bakery 40%. Catering 200%. Gourmet items also hi mark up
The answer is everything is based on your volume and how you purchase. Most of your overheads are known set factors Rent, garbage removal, insurance, utilities these are fixed cost that do not vary monthly or vary little.. Labor is not fixed and cost of product not fixed. It is difficult to figure. If you sell more meat and deli your cost % will be down if this weeks volume is down your % will be down. On a snowy bad day cut down on cashiers and overall labor. Its a rough business.

 

[coolcheech]

Thanks for the reply italchef and ED.

I'm not a grocer ... yet.

Right now I have a lot of experience in retail/wholesale, albeit in the home furnishing industry ... and it's not working for me.

I've always loved cooking and the adventure of trying new foods, and I came very, very, very close to leaving my job and going to culinary school about 5 months ago. After weighing all the pros and cons, I gave up on it. To me, I just felt like all the passion in the world isn't going to pay a mortgage, support a family, pay for health insurance, and all those other wonderful things that make up the "American Dream." To be frank, the work to reward ratio scared me away. If I was 20 years old making $30K/year, it would have been a much different story.

So I've decided to use my knowledge of retail, coupled with my love of foods and craft beers, to open up a craft beer and gourmet sandwich/meats/cheeses shop. I'm in the process of gathering information to see if I can make this pipe dream a reality, which is why I'm asking these questions.

Sorry for the background story, I didn't mean to write a novel. Controlling my rambling isn't one of my strong points.

But anyway, I'm looking to be systematic, and have at least an idea of where I'm heading financially before I jump into anything blindly.
What I'm finding, through research and through experience, is that my product prices are going to be similar to my competitions, and the way to make a profit is to be savvy with my fixed cost negotiations. Lower rent, lower payroll, will equal more money in my pocket. At least in the beginning.

Am I making sense?

 

[nferroni]

To Mick & Ed,

I have a few questions..how do i get the percentage of the food cost? is there any formulas that i could use to figure out the food cost on a basic level, just to start..are there any programs or downloads that teach step by step onto learning about food costs?

Thank you

confused cook

Vinny

 

[petemccracken]

Food cost ($) divided by Sales Price ($) times 100 = Food Cost percentage

Now, "food cost" is ALL the cost of food that goes into a menu item, some establishments add a "Q" factor to cover things like salt, pepper, splash of olive oil, dash of mustard, etc.