Seasonal concession operators can easily improve profit margins if sound business principles of tracking weekly food and beverage costs are aggressively managed. The certified public accounting firm of Laventhol and Horwarth's 1989 Restaurant Industry Operations Report documented, "...as a percentage of sales, the cost of foods are higher for independents (38%) than for corporate chains (34%). This would stand to reason as discount purchasing would be extended to the volume buyers.

Assuming you are an "independent operator," what are the "food costs as a percentage of sales" at your concession, and docs your reporting systems help track and manage your controllable food costs?

Determine the menu's food cost as a percentage of sales

Designing a weekly reporting system to track food costs as a percentage of sales, the concession operator must first determine the menu's cost of goods sold (COGS) for each item sold. The COGS is simply the sum total of all food and non-food items used in the production and service of each menu item sold.

Many concessionaires will feature a hot dog on the menu. Using the hot dog as an example the manager would list the unit costs of all items used in its production and service. The breakdown of cost would be something like this: hot dog ($.50); bun ($.10); a portion control packet of mustard and ketchup ($-14); and the foil wrap to serve the hot dog ($.03). The resulting sum of $.77 is the COGS for the hot dog. These unit costs are examples only, and your actual costs will vary.

Now that the manager has determined the COGS for the hot dog at $.77, the all important food costs as a percentage of sales can be calculated. Dividing the hot dog's $.77 COGS by the current retail price of $l.75 would result in the hot dog's food costs as a percentage of sales of 44 percent.

Calculating the percentage of sales for the hot dog at 44 percent, management's next hurdle to jump becomes pricing. Industry standards would dictate a pricing increase to the percentage of sales for the hot dog (30 percent). Deciding to do so, the manager would

divide the hot dog's COGS of $.77 by the desired food cost as a percentage of sales of 30 percent, resulting in a retail price of $2.02, which would be rounded to $2.

Deciding not to increase the price of the hot dog, management would have to determine if there is enough combined sales volume to produce the cash flow needed to meet the business' expenses and meet the projected gross operating profits. Prior knowledge of the concession's sales numbers for each item sold is essential when determining price and product mix.

Track food and beverage costs through the use
of weekly inventories

The food and beverage industry uses weekly inventories to track actual food costs as a percentage of sales. Unlike daily sales reports and cash register "Z" readings designed to tie out cash receipts with the actual count of items sold on a daily basis, the weekly inventory will accurately determine food costs as a percentage of sales and help identify potential losses of inventory through theft and/or improper food production.

When establishing an inventory procedure management will ensure a viable reporting system and permit it to avoid potential problems by following these simple principles:

Maintain current unit costs for all inventory items

Significant changes in unit costs will effect food costs as a percentage of sales and may require pricing changes to offset gross operating profit losses.

Take inventories on the same day and time of the week ensuring a consistent reference point to calculate ending inventory dollar amounts that will be used to determine the week's food costs as a percentage of sales.

Management should secure inventories by actively receiving deliveries, stocking deliveries and accounting for inventories transferred to the concession units. The incidence of shorted deliveries and missing stock can be substantially reduced when management is involved with the control of inventories.

Concession management, counting the physical inventory on a weekly basis, should have an independent accounting department extend the inventory. This weekly independent review process is designed to avoid possible manipulation of inventory counts by management to cover inventory losses, cash sales losses and mathematical mistakes.

The weekly financial summary report

The accuracy and visibility of the inventory is essential in determining food costs as a percentage of sales. Extending inventory items, multiplying the unit count by the price per unit and then adding the sum total of all extended inventory items, will result in a dollar amount known as the ending inventory.

Significant variances in food costs as a percentage of sales from projected percentages would signal problems in lost or stolen inventory, missing cash receipts and/or in production problems such as improper serving portions. The tracking of food costs as a percentage of sales on a weekly basis therefore becomes a tool to monitor the efficiency of the business and ultimately the efficiency of management.

About the Author
Terry Olten is General Manager and Director of Recreational Facilities for Village IV Organization, a homeowner's association in Woodridge.