From problem child to profit-maker: Grab your chances in Food and Beverage
Work hard for small margins. That is the reality for most Food & Beverage departments. Compared to Room Division, you incur more staff costs to achieve the same revenue. And there are purchasing costs on top of that. One advantage: you can turn two knobs for a more positive result. If these buttons are set to “green”, a profit margin of 10% (for the entire hotel) is within reach.
In this third blog I will focus on Food & Beverage: the most labour-intensive department within the hotel. Everything revolves around serving food and drinks here, from the minibar to the restaurant and room hire.
Food & Beverage is a real “problem child” for many hotels. But it can be different; I know from experience. If you manage the most important KPI’s well, there is money to be made! Check the following example. Imagine you have a revenue of € 200,000. Is it possible to reduce purchasing from 30% to 29%? Then you immediately save € 2,000 bottom line.
I always compare the F&B department with the cost structure of a restaurant, to calculate the correct cost ratio. Assuming 100% turnover, owners would ideally like to see the following numbers.
Revenue | 100% | 200,000
Purchasing | 30% | 60,000
Gross margin | 70% | 140,000
Staff costs | 30% | 60,000
Misc. costs | 15% | 30,000
Rent | 15% | 3,000
Profit | 10% | 20,000
If the hotel works with these cost percentages, you can achieve a profit of 10%. That is comparable to half of an average income (± € 36,500). Do you want to be above average? In that case, purchasing and staff costs must be reduced to 25%. Converted, you will be about 10% higher.
Let's translate the result to the hotel's F&B department. If you want to achieve a total profit margin of 10%, a departmental result of 35% is necessary. (100% turnover-30% purchasing-30% staff costs-5% other costs).
Let’s start with revenue. By default, this consists of the quantity multiplied by the selling price. This sales price is determined in two ways. You have an average cost percentage of 30% per product. The sales price is calculated on this basis. Then you round up or down in comparison with the competition. Do you buy an ice cream for 25 cents, and do you use a purchase percentage of 25%? The sales price is € 1.09 (25/0.25 plus 9% VAT).
My tip: always look closely at the “bestsellers”!
You must determine the right selling price for dishes and drinks that are popular with guests. You should be achieving a margin that is above average.
Consideration point: With food, also take into consideration loss and waste. Always check periodically whether prices are still correct. Your margin may have decreased due to a price increase in the purchase.
Now it's time to look at costs. Purchasing is important! This also consists of quantity and price. There are substantial differences between food and drinks. I will therefore go through them separately with you in this blog.
A preliminary calculation is the first step towards a good margin. At Statler BI, we use five different purchasing percentages for drinks. The percentage is compared to the revenue:
• Coffee Tea; usually 15-20%
• Soft drinks; usually 15-20%
• Beer; due to specialty beers, now usually towards 30%
• Wine; between 25-30%
• Strong liquors; around 30%
Based on these percentages, you then calculate the sales price excluding VAT. I’ll pick a random example. With a purchase price of € 0.50 excl. VAT and a purchase percentage of 25%, the sales price excl. VAT becomes € 0.50/0.25 = € 2.00. The VAT is then +9% or +21%. Are these sales prices comparable to your competitors? Then the foundation of the margin is laid.
Practical advice: start negotiating the purchase price with suppliers or purchasing organizations. That increases your margin. And it means a potentially lower selling price for your guests.
It is wise to calculate these five separate purchase percentages monthly. The management can (in retrospect) quickly determine whether the pre-calculation is being achieved, or whether something is (literally) leaking somewhere. With deviating percentages, you can - thanks to various checks - zoom in on these deviations. If the percentage is correct, you do not need to pay extra attention to it. In a separate blog, I will talk more about these controls!
A pre-calculation is also important for the food. You can calculate both à la carte menus and buffets.
For à la carte dishes (per dish) the recipe is linked to the price. How do you do that? For example, by taking the main ingredient meat or fish as a starting point, along with an amount for the garnish. Of course, you can also calculate an entire dish, but that is a more intensive job. There is also handy software, such as Horeko Kitchen Manager or inOne Business.
For buffets such as breakfast, lunch, or for groups, you work a little differently. The purchase price is determined by the amount you place on the buffet for 30, 50, or 100 people. You then compare this total purchase against the selling price.
Too little too late
The product group “food” suffers from a disadvantage. Only one purchase percentage for the kitchen is available. In the case of deviations, it is very difficult to trace the cause from the administration. If a purchase percentage is reported ten days after the end of the month, it is too little, too late. Both for the chef and for the administration.
Therefore, continue to monitor the purchase of the kitchen.
This can be done very easy! Compare the value of the delivery notes to the turnover. Daily, this does not give the desired result, because it is pre-purchased. However, by viewing several days cumulatively, a good overview is created during the month. You can take immediate action on it. With Statler BI, it is possible to publish this number in the Daily report. It therefore becomes part of the daily management and management reporting.
It comes as no surprise, of course. Staffing is the second major cost for the Food & Beverage department. They consist of the hourly wage and the number of hours. These two factors determine the percentage of staff costs. You can (adjust) both independently of each other.
The basis for the hourly wage in the hospitality industry is the collective labour agreement and reference positions. How can you classify a function? Based on a reference position and the associated pay scale. Of course, you are free to pay more! Note that the margin will come under immediate pressure. In that case, you have to tinker with the price side of the turnover. So: make more margin on purchasing.
Your policy determines the hourly wage. Have you committed to medium term? Then you cannot switch in the short term, if necessary/desirable.
Number of hours
Fixed contract hours determine the basis of your deployed hours. I advocate the following. Align the contract hours for the worst season, and make sure you use flexible hours during the other seasons. This prevents unnecessary labour costs in the low season.
Hours can be aligned to revenue per hour, day, month, or season. For the optimal margin, you look at the revenue that must be generated for each hour worked. In other words: revenue is divided by hours. Based on hourly wages paid, you calculate the revenue that must be achieved per hour.
Just a short explanation. I first choose my starting points: an average hourly wage of € 15 (including all staff costs) and a percentage of staff costs of 30%. Then you should ideally achieve an hourly turnover of €50 (€15/30%).
By comparing all hours worked daily with the turnover from a time registration system, you can manage each day and cumulatively on that € 50, -. By adding productivity to the Daily report, the number also becomes part of the daily management reporting and control.
Why is it good to report daily? Awareness arises within your team. And together you choose a clear goal. Saving hours at the beginning and end of shifts sometimes makes all the difference. You will see on an annual basis that you will save lots of money!
Statler BI integrates data from different systems. That means complete and clear reports. In the Daily report you will find Food & Beverage costs and productivity. Two factors that management and employees can exert the most influence on in daily, weekly, and monthly reports. And that yields a lot; a motivated team and good results.
Stefan van Heerwaarden
Owner Statler BI