Case Study: Managing Food Costs

Samantha’s (the name has been masked, as the company was recently sold to a new owner) was a local food service company with retail cafes in the financial district of Boston. They catered to the lunch-time crowd with salads, soups and sandwiches. After 10 years in business they had garnered a reputation of high quality food, albeit slightly expensive compared to the competition.

The Challenge

Over the span of 6 months, food costs climbed over ½ percent, from a precariously high 36.5% to 37.1%.  With revenues over $2,000,000, that ½ percent translated into $10,000 of lost profit. And trying to get to get the food cost to a more manageable 32% would bring an astounding $102,000 straight to the bottom line.

The Process

In order to find opportunities to reduce food cost, we examined the entire operation:

1. We determined theoretical food cost for the entire menu by reviewing invoices, recipes and portion sizes.
2. We analyzed food handling procedures
3. We evaluated the value proposition of Samantha’s to its customers.
4. We analyzed the competition’s pricing structure.

Each process, yielded valuable information which provided opportunities to reduce food cost:

1. Based on sales mix and volume we determined that in a best case scenario, food cost should be 35.5%;
2. By exploring food handling procedures, we accounted for 2% shrink.  In addition, cooks were serving customers portions up to 11% higher than recipes dictated.
3. The value proposition of high portions of high quality food at responsible prices contributed significantly and directly to high food costs.

The Outcome

By understanding all the contributing factors to high food cost we had many opportunities to reduce it:

1. Modified recipes to yield better food cost.
2. Negotiated prices with vendors
3. Improved training so that portion sizes match set recipes.
4. Reduced overall portion size.
5. Modified prices to match the competition.

By tackling the problem from many angles, food cost decreased 2% points almost immediately, with indications that food cost would decrease even further.