FOOD AND BEVERAGE COST CONTROL
a sophisticated control system giving
Introduction
- Operators of food establishments
invest a lot money, time, and effort
into their food business.
- Ever-increasing competition in all
industries demands that more and
more attention is paid to the control of
costs to ensure the survival of each
business unit.
2 Crucial Elements
Revenues - Must be large enough to sustain
operating expenses with extra provision for
profit.
Cost of Operations - must be regulated such
that all expenses conform to the budget so that
the profit margin can be realized.
Revenues – The amount of money you take in
Expenses – The cost of the items required to
operate the business
Profit – The amount of money that remain after
all expenses have been paid
• The food and beverage department in
a hotel, restaurant, or any catering
establishment consists of a closely
linked system-the Kitchen, restaurant,
bar etc.
• The main aim of costing in a food and
beverage establishment is to satisfy
both the customers‟ requirements and
the financial requirements. To achieve
this objective a suitable food and
beverage control system needs to be
developed which must avoid excessive
costs.
• Since in most of the food and beverage
establishment the raw material and
payroll costs are the largest proportion
of costs, the cost system aims to
control these two costs effectively, at
the same time meet the prescribed
standards of profit and quality.
• In a large sized operation – it requires
precise, detailed, up-to-date
information as well as daily, weekly
and periodic reports.
• A small unit operation – Sole
proprietor requires a simple system to
personally control each and every
activity of the operation.
• All the departmental managers and
staff as well as the manager of the
hotel must be well conversant with the
system. A system should have
provision for cost and price percentage
analysis of each item, group of items
and sales outlet. It is much more
enlightening and important to achieve
a comparison of the actual food and
beverage cost with the potential food
costs. The potential revenue and
actual revenue should be identical, but
this is not so in reality. Any differences
show a lack of control and needs
thorough investigation to find and
rectify any loopholes.
Defined as the guidance and regulations of the
cost and revenue for operating catering
activities in hotels, restaurants, and other
catering establishments.
“Control works best when it is used with other
management process, such as planning,
organizing, directing, and evaluating”
- James Keiser
According to Keiser, there are two basic
approaches:
1. Behavioristic Approach
2. Traditional Approach
Directing personnel or keeping an eye on
things or by walking around to see whether he
or she can correct what is not right or what is
cost control breakdowns.
Measurement of performance with that
desired or deemed attainable. This is the
comparison aspect of the management
scheme which is usually considered to have
four parts:
1. Establishing Standards or Goals: It can
be expressed in different ways: budget
figure, a percentage figure, and a
performance figure, such as meals
served per server per hour.
2. Measurement of Performance: It
means measuring performance, and it
is usually a quantitative figure, such as
amount and percentage figure.
3. Comparison and Analysis: Once the
standard or goal has been established
and actual performance is determined,
it is possible to compare the two and a
manager can find out the variance.
4. Corrective Action: Once a significant
variance is determined, the manager
must take corrective action.
Objective of Food and Beverage Control
1. Analysis of Income and Expenditure
- The analysis is solely concerned with
the income and expenditure related to
food & beverage operations. The
analysis of cost includes departmental
food and beverage costs, portion costs
and labor costs. The performance of
each outlet can then be expressed in
terms of the gross profit and net
margin and the net profit.
2. Establishment and Maintenance of
standards
- The basis for the operation of any food
and beverage outlet is the
establishment of a set of standards
which would be particular to an
operation. The management would
have set SOPs (Standard Operational
Procedures) which should be readily
available to all staff for reference.
3. Pricing - Pricing is important to
determine food menu and beverage
list prices in the light of accurate food
and beverage costs and other main
establishment costs; as the average
customer spending power, the prices
charged by competitors and the prices
that the market will accept.
4. Prevention of Waste - In order to
achieve performance standards for an
establishment, targets and set for
revenue, cost levels and profit
margins. To achieve these levels of
performance it is necessary to prevent
wastage of materials caused by such
things as poor preparation, over-
production, failure to use standard
recipes, etc.
5. Prevention of Fraud - It is necessary for
a control system to prevent or at least
restrict the possible areas of fraud by
customers and staff. Typical areas of
fraud by Customers are such things as
deliberately walking out without
paying; unjustifiably claiming that the
food or drink that they had partly or
totally consumed was unpalatable and
indicating that they will not pay for it;
disputing the number of drinks served;
making payments by stolen cheques or
credit cards. Typical areas of fraud by
staff are overcharging or
undercharging for items served and
stealing food, drink or cash.
6. Management Information - A system
of control has an important task to
fulfill in providing accurate up-to-date
information for the preparation of
periodical reports for management.
This information should be sufficient
so as to provide a complete analysis of
the performance of each outlet of an
establishment for comparison with set
standards previously laid down.
FLOW OF FOOD & BEVERAGE CONTROL

Areas of Control Control Measures

Forecasting, budgeting, and standards setting Establishment of sale forecast, budget for each cost
item, desired profit, and other performance targets

Distributing responsibilities and defining Identifying and distributing operational tasks and
accountabilities for results responsibilities

Menu Planning Preparation of menus, standardization, costing, and

pricing of recipes, test of quality and yield

Ordering and purchasing Use of purchase specifications; calculation of

requirements based on accurate allocations and par
stock; test for quality and yield; competitive bidding
Receiving stocks Inspection of stocks against quality standards and
purchase specifications; use of receiving reports

Storage & Inventory Limitation of access, classification of stocks, use of

tags and labels, regular inventory (actual vs.
expected stock balance)
Requisition & Issuance Establishment of par stock requirements; use of
requisition form; use of FIFO system

Production & Service Use of standard recipe, recycling of left-overs,

adherence to standard serving portions, use of
order slip
Audit and Recording of Transactions Audit of sales vs. issued portions, recording of daily
sales, receipts, invoices, purchases, etc.

Corrective Measures Monitoring performance vs. targets, and standards,

analyzing variances, taking corrective action
PROBLEMS IN F & B CONTROL When you position a product or service, you
need to understand
Perishability of the Product
- Place
- The caterer has to ensure that she buys
- Rank
produce in the correct quality and
- Attitude
quantity in relation to estimated
- Outcomes
demand, and that it is correctly stored
and processed. Positioning Statement

Business Volume Unpredictability One sentence that concisely identifies

the target market and what you want
- Sales instability is typical of most
customers to think about your brand Includes:
catering establishments. There is often
a change in the volume of business 1. The target markets
from day to day, and in many 2. The brand names
establishments from hour to hour. 3. The key points of differentiation
4. The product/service category
Menu Mix Unpredictability
5. Why customers believe the positioning
- Cultivate one-to-one customer service claims
with robust ideas
Differentiation
- Maximize timely deliverables for real-
time schemas - To make a product or service stand out
from its competitors in ways that
Food and Beverage Operation Short Cycle
provide unique value to the customer
- The speed at which catering - Identifies a set of characteristics
operations take place, relative to many and benefits that make a product
other industries, allows little time for different and better for a target
many control tasks. audience that:
- It is for this reason that in larger 1. Customers value when they are
catering establishments cost reporting evaluating choices
is done daily or at least weekly basis. 2. Competitors cannot easily copy

Departmentalization

- Many food and beverage operations

have several production and service
departments, offering different
products and operating under
different policies.

POSITIONING

Positioning is a strategic process that

marketers use to determine the place or
“niche” an offering should occupy in a given
market, relative to other customer alternatives
POSITIONING VS DIFFERENTIATION Step 1: Confirm your Understanding of Market
Dynamics
Name Positioning Differentiators
Luxurious Hotel Hotel must be placed A firm understanding of your target market and
Hotel/5 Brands - a at the center of the answers to the following questions:
Star luxury tourism experience
Hotel hotel • In which product, service, or market
might category (also called the “frame of
focus on its reference”) do you plan to use this
elegant positioning?
decor, fine
dining • Which target segment is your focus for
options, the positioning you are developing?
and high-
• What factors do these buyers evaluate
end spa
when they make a purchasing
services to
attract decision?
wealthy, • How do these buyers view your
discerning competitors in the category?
travelers.
Budget Hotel Budget hotel Step 2: Identify your Competitive Advantages
Hotel Brands - differentiation
focus on its strategy is a way of A trait, quality, or capability that allows you to
convenient making your hotel outperform the competition.
location, stand out from the Gives your product, service, or brand an
affordable competition.
advantage over others in purchasing decisions.
prices, and - Care for
basic customers in Comes from any or all of the following:
amenities the minority
to appeal - Give clients • Price
to cost- the chance to • Features
conscious personalize • Benefits
travelers. their
experience Step 3: Choose Competitive Advantages that
- Offer Define your Niche
consistent
products and
services
- Focus on a
Specific Niche

Steps of Positioning Process

1. Confirm your understanding of market

dynamics
2. Identify your competitive advantages
3. Choose competitive advantages that
define your market “niche”
4. Define your positioning strategy
5. Communicate and deliver on the
positioning strategy
COMMON POSITIONING STRATEGIES

POSITIONING AND REPOSITIONING MORE REASONS TO CONSIDER

REPOSITIONING
Positioning
Consumer Trends
- Initially introduced as easy to cook
- Focused on working women • Changing tastes and preferences
• Evolving attitudes and behaviors
Repositioning
• New segments emerging as targets
- Focused shifted to children
Internal Environment
- Focused on health development
• Changes in organizational leadership
REASONS TO CONSIDER REPOSITIONING
and strategy
Competition • Acquisition or development of new
technology
• New competitors entering or leaving
• Introduction of innovation that offers
the market; competitors joining forces
new competitive advantages and
• Competitor’s innovation that
differentiators
threatens to make your offering
obsolete; competitive pricing REPOSITIONING AND MARKET PERCEPTIONS
strategies
The repositioning process evaluates the
Market Environment established position of a product, service, or
brand and focuses on how to alter the
• Economic slow-down or recovery
positioning–and, with positioning, market
• Changes in consumer confidence, the
perceptions–in order to improve
political climate, or social forces like
competitiveness.
the movement around social
responsibility and sustainability
PITFALLS OF REPOSITIONING
• Insufficient research
• A bridge too far: If brands go too far in
a new direction, customers may no
longer believe the claims
• Underestimating “back to basics”
• Overpromising
• Confusing positioning
Positioning Strategy
A positioning strategy also known as a market
or brand positioning strategy is a type
of marketing strategy that focuses on
distinguishing a brand from its competitors.
The goal of a positioning strategy is to influence
consumer perception by effectively
communicating a brand’s competitive
advantage.
IMPLEMENTING A POSITIONING STRATEGY
How can each part of the marketing mix fulfill
the positioning statement?
Product
- Is your product, service, or brand
capable of delivering everything your
positioning statement claims?
- Are any competitors doing it better
than you?
- How should you adjust your offering to
ensure that it lives up to the promises?
Price
- When it comes to pricing, how are you
positioning your offering relative to
competitors?
- If pricing is part of your positioning
strategy, is your offering well aligned
with the price you’re asking customers
to pay?
- What pricing strategies should you
consider in order to compete more
effectively?
Place
- Are any distribution-related themes
like convenience or availability part of
your positioning strategy or
competitive advantage?
- If so, what are you doing to ensure that
you can live up to what you promise?
- How are you communicating your new
positioning approach to distribution
and channel partners, and how does it
impact them?
Promotions
- How are you translating your
positioning strategy into
communications with your target
audiences?
- What behavioral shift are you trying to
create as you launch your new
positioning?
- What types of campaigns will you use
to introduce the new positioning?
- Which communication tools will be
most effective at reaching target
audiences?
- What are you doing to coordinate
marketing messages and activities
across different channels?
Measuring Implementation

• Sales/revenue
• Number of new/returning customers
• Average spending per transaction
• Brand/product awareness or
perceptions
• Favorability toward
product/service/brand
• New leads or inquiries from inside and
outside your target segments
• Web site traffic or social media “buzz”
• Media attention
• Customer Satisfaction
• Return on investment for marketing
campaigns and other activities