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How hoteliers can make the efficiencies that will drive down cost of sale?

By 28th September 2016 No Comments

Operators aren’t taking advantage of the cost savings afforded by food deflation, with many seeing invoices creep up despite food prices falling, according to new research undertaken by The Caterer and PSL. James Stagg asks how hoteliers can make the efficiencies that will drive down cost of sale.

Managing your food and beverage spend

Most operators are missing out on cost savings afforded by food deflation by failing to measure and understand the potential to profit from efficiency savings, according to new research.

A survey of over 200 operators conducted by The Caterer in partnership with food purchasing experts PSL has found that though 60% said that they had a means of measuring food margins on a daily basis, only 30% were ahead of their year-to-date gross profit budget.

Though that sounds reasonable, PSL managing director Daniel Wilson says that due to food deflation operators should have seen gross profit rising.

“Most people are on target with gross profit because they’ve set themselves a budget based on last year, which is where they think they should be,” he explains. “It’s the perception that ‘I’ve always operated at this margin, so I’ll always target that’.”

With food deflation running at record levels – about 3% – significant savings are available. That 3% off the cost of ingredients should translate into between 0.5% and 1% added to gross profit levels, Wilson says. “That should happen without changing any menu, any tariff and still throwing the same amount of food away as always.”

According to the survey, 64% of operators are over two percentage points from achieving their year-to-date food budget and 53% said they had seen food costs increase. This indicates many aren’t paying enough attention to food costs in their business.

“The fact is that most people don’t realise what they can be saving,” Wilson says. “When you look at the costs of running a hotel, wages are by far the biggest cost. But the next biggest is food. Yet the expertise on food cost management in hotels is declining because the days of food and beverage managers are gone, and general managers are coming from the rooms revenue side. So the whole food cost knowledge is dwindling.”

Rogerthorpe Manor hotel owner and managing director Richard Metcalfe confirms that many operators aren’t managing food costs properly. “You think you are – though that could be said for all departments in a hotel,” he says.

“Often you think you have a handle on things but until you really sit down and look at things critically, you won’t see where improvements can be made. You can make money on sales price but the best way is to address cost price.”

He’s not alone in thinking that food cost measurement isn’t given the significance it deserves in hospitality businesses. Hythe Imperial hotel general manager Denise Vas says the ignorance can come down to a lack of understanding of the potential combined with a lack of financial acumen in the kitchen.

“Many chefs aren’t looking at menu costing,” she explains. “When I arrived at the Hythe Imperial hotel the food cost was what the gross profit should have been. It was purely down to the chefs not understanding costing. Most head chefs focus solely on the operation of cooking and service and don’t spend the time on the financial side.”

By homing in on food costs, operators will be able to mitigate some of the effects of the National Living Wage that will be introduced next year, Wilson believes. “If operators applied a fraction of the time they spent on labour management to food cost management – and if they don’t have the time, engaging with a procurement firm – they would be amazed what can be achieved.”

Of the few respondents that said they had seen food costs decrease (9%), half of those had been able to increase food gross profit, while most of the rest had maintained their gross profit but improved their food offer.

Metcalfe says that Rogerthorpe Manor was experiencing a gradual decline in gross profit from 2010 to 2012, but since taking a tighter grip on purchasing, with the help of a procurement firm, it has seen it rise again through the buying power of the organisation.

“For us, it’s worth a procurement firm working hard to get a price, and the suppliers to keep us happy,” he adds. “The only thing is we use a local butcher. Not only because it sounds nice on the menu, but because he will offer a service that is over and above. He will go out of his way to provide us with something if we’ve run out, for instance.”

At the Hythe Imperial hotel, Vas has seen gross profit rise 3% in the past year. “It’ll never be flat across the board for the year though, she says. “We’re looking at a full gross profit of 72% for end of year, but it won’t be that every month. In January it might be 67% because it’s low season for us.”

According to Wilson, careful budgeting can create savings without compromising quality or experience for the guest. And though many operators will now be preparing budgets for next year, too few will account for seasonal fluctuations. “Lots of people just flatline, which leads to misleading targets,” he explains. “It means you rob from the customer in the tight months, and still come up with 70% by probably doing something you shouldn’t, like cutting portion sizes.

“In the months where we should be making hay, if you’re running at just 70% you’re allowing inefficiency to take over and the benefit you should be banking is being lost. There’s a big difference between cutting corners and managing costs.”

Though Metcalfe cautions that any budgets should have some flexibility to account for price changes that might occur after a deal for an event, such as a wedding or conference, has been struck. “Having been a chef, I can under-stand what a chef can and can’t do to affect gross profit,” he says. “If we have priced banqueting menus with a 12-16 month shelf life and some-thing goes up, that’s not the kitchen’s fault.

“The days of managing directors demanding that gross profits are 75% are gone. We work really hard to hit 72% before allowances.”

Working hard in many cases means shopping around – something 52% of respondents admit they don’t do. “Most of the places we go into don’t have a price file on site,” Wilson says. If they are on site, they should be being checked against an invoice.”

“It’s like having stock sheets. Stock taking is important, and it has a place, but it’s a bit like filling in a diary – it is just a report. It won’t save any money. People will only save money if the price is following the market.”

That said, the price savings only follow through if the kitchen observes good practice, including ensuring that wastage is minimal. Some 40% of operators said they had a robust waste strategy, while the rest either did not implement a strategy across all areas or have no strategy whatsoever.

“People are worried about hygiene and poisoning people, and rightly so,” Wilson says. “But they don’t stop and ask why there is food in the fridge going out of date. Did they order too much, or have they forecaster wrong with guest numbers, or are dishes not selling?

“If you tot up the amount of bins thrown away with a crude £10 average, you’ll be shocked.”

Essentially, in the pursuit of cost savings, it’s a case of plugging the gaps in procurement and waste. Wilson advises assessing which are the biggest lines bought, asking whether you have multiple quotes and tracking the product when it comes into the business to ensure it is being used correctly.

“Look at what the food cost is and dissect it to see why it’s so high – whether it comes down to suppliers or poor management of waste,” Vas says. “It often boils down to the costing of the menu. Are your breakfast chefs overcooking and are leftovers being used in staff meals? Staff food is a big cost, and to cater for that 1% is built into every dish – so I’ve covered my costs there.”

Metcalfe adds that if you hit the right product at the right price and the right portion, you’ll make profit. “It sounds simple, but with everything else that goes on with running a business, it’s not straightforward.

“We’re going to start sharing the results of what we’re doing with the team, and if the team buys into it, then it’s worthwhile.”

Hythe Imperial hotel gains discounts by going national

Denise Vas has worked with purchasing partner PSL for six years, and brought the firm in to tackle costs as soon as she became general manager at the Hythe Imperial hotel.

“When I came here, the food and beverage costs were horrendous,” she explains. “The head chef had been using lots of local suppliers, which is great, but there can be problems with the health and safety side. For instance, package dates weren’t being properly monitored because we were using a local butcher.”

In addition, Hythe Imperial had been using a number of fish and dairy suppliers rather than just one and getting a better percentage discount.

“When you have large banqueting like we do, a restaurant, two bars and a Champagne bar about to be launched, it’s important you can negotiate,” Vas adds.

“I gave PSL six months’ worth of food invoices and they dissected everything and calculated where the savings would come from. When we worked up some national accounts it contributed towards the discounted prices we were getting.

“They looked at where the overspend was and matched us to suppliers who would fit.”

Since then, Hythe Imperial has seen a drop in food costs of 5%, contributing to a 3% uplift in gross profit. “When you’ve got a large hotel such as this, it’s one of the areas in which you can make a big impact,” Vas says.