Hospitality Financial Leadership - Global Food Cost vs Tracking Individual Outlet – Pros and Cons
By David Lund, The Hotel Financial Coach
What is really important to realize is the food cost calculation in your hotel will always come back to the cost of goods formula. Any attempt to track and individualize the outlet food cost that I have ever seen is a big waste of time. It is a waste of time because it always comes back to the fact that the food cost is calculated by adding the opening inventory to the purchases and then subtracting the closing inventory - as well as any legitimate credits at month end - to calculate the food cost. This is never done in hotels by outlet simply because it is completely inefficient to do so.
What I see time and time again is people trying to track individual outlet costs using the direct issues and purchases to the outlets. However, there is always a catch so to speak at the end of the month. The catch is we have to use the cost of sales adjustment to book the correct inventory value, and when we do, we have an additional cost that must be charged to an outlet. Invariably we end up back where we started with a global food cost.
The other reason why we will always have a global cost is the hotel has a main kitchen where much of the basic food is prepared. Items like pastry, salads and sauces are just some examples of food that is almost always prepared in the central kitchen and then distributed to the outlets. On top of that the same kitchen typically provides room service and quite often for practical purposes the all-day outlet and bar are serviced by the main kitchen. There is also an extension for the banqueting kitchen from the main kitchen and often they are one and the same.
So why do some hotels waste their time and effort requisitioning and tracking the food in a perpetual way only to have to fall back to the global cost at month end?
You might think I have an axe to grind here and you may be right. But I want to make sure people understand the reality of the situation. Especially given the fact that hotels are forever looking for ways to be more efficient. I have seen hotels that have several bodies dedicated to the task of tracking the food costs and I know it is all for not. In my time on the inside I worked in two very large hotel F&B operations and one even had a system where we actually attempted to do individual outlet food costs.
What a waste of time. Especially when it dawned on me what was really going on. We were four people in the F&B control office and each month we diligently tracked and posted all the requisitions from the storerooms to the outlets. At the end of the month we would send the accounting department the figures. I actually thought that was the end of the story but it was not. What the accountant did each month was toss our requisition figures in the trash and he would only look at the closing inventory once all the purchases were booked. It was not until a few years later when I was taking some accounting classes that I figured out what he was doing and why.
What hotels should be doing is creating a process that indicates to the operations people that the amount of food requested by the individual outlets is done with a requisition and then the food is issued by the main kitchen or storeroom and then accepted by the outlet staff. A careful analysis of these requisitions from time to time will provide an indication of the direct costs and this is useful information but it is never complete or 100 percent of the food the outlet consumes.
This requisitioning and issuing process is useful in that it creates an illusion for the non-financial people to buy into. An illusion that the food is tracked and all accounted for.
If you are working in a hotel that is trying to track individual outlet food costs—good for you. But I am willing to bet you the cost of a visit to your hotel by me that it is not the end of the food cost story or calculation in your hotel. You may want to take this up with the individual who produces your financial statement for an eye-opening experience and you might also want to ask yourself if all the work being done to track the food is really worth the effort.
The best process I have seen is to calculate the global food cost and allocate it based on food sales mix to the outlets. Do not bother handicapping the steak house vs. banquets because we all know when we have a great month in banquets, we have a great hotel food cost. The opposite is also true. When we suck wind in banquets our hotel food cost takes it on the chin.
Now that I have cleared the air about food cost calculations in the hotel world, I feel better.
David Lund is The Hotel Financial Coach, an international hospitality financial leadership expert. He has held positions as a Regional Financial Controller, Corporate Director and Hotel Manager with an international brand for over 30 years. He authored an award-winning workshop on hospitality financial leadership and has delivered it to hundreds of hotel managers.More from David Lund