Hospitality Financial Leadership - Food Cost and the 80/20 Rule
October 23, 2017 11:22am
By David Lund
We have all heard of the 80/20 rule. But I am willing to bet most of you have not heard it in conjunction with the words "food cost."
A good friend of mine who was an executive chef explained it to me and I am going to share it with you.
So first off, the 80/20 rule states that 80 percent of any result comes from 20 percent of the activity. In food cost, what Chef taught me is the 80 percent of the food cost comes from only 20 items. That's right—the top 20!
What he explained was so simple and powerful. Identify the top 20 food items your hotel buys using the dollar value of those items. It takes a bit of work but once you have your list it is impressive. In the hotel we worked in, the gross food purchases were over $10 million.
We did the test and we identified the top 20. Here is our list: Bacon, sausage, cream, butter, OJ, dinner rolls, beef tenderloin, shrimp 16-20, individual yogurt, tomatoes, eggs, ground beef, halibut, chicken breasts, French fries, smoked salmon, coffee, lettuce, rib eye and brie cheese. Sure enough the 80/20 rule was right. We had over $7 million worth of these items purchased in one year.
His way of managing the costs of these items is magic. Each month on a rotating basis, everyone focuses on one of the top 20 items. The sous chefs, purchasing department, stores, catering, conference services, outlet managers and purchasing service all focus on that one item. When the entire team focuses on one food item and how to improve on buying it, storing it, cooking it and serving it, positive things almost always happen.
So, every 20 months, he turns over the list. This keeps everyone on their toes, including the suppliers. When they get in on the game, they come up with new and innovative products. Everyone knows the food item of the month and it is like a mini competition to find savings. He sends our suppliers a note each month with the annual quantity of the “monthly focus item” we purchase with a request to have the suppliers look for a better product. Suppliers love to help and really respond, especially when they know other suppliers are receiving the same request.
Some months ago he told me, with the changes he made one month, the hotel will save $100K next year.
Once you see the volume of your top 20 and find ways to innovate, your savings are multiplied by huge volumes.
Some of the ideas come from the strangest places. Catering suggested the tenderloin be tested. The director of catering bought AA at home and did not think the AAA was worth the difference. Would a grade less be just as good? They brought in samples and did a blind tasting and, Voila! 60,000 lbs. of tenderloin just went from $12.99 a pound to $10.69. You do the math.
Another month it was orange juice. The idea was: Why can't we get it in a bigger portion that the 2-liter containers? Sure enough the supplier came back with a 4-liter container from the same supplier. The switch equated to savings of over $30K.
Be careful not to make this a math exercise. A lower price is good but the quality and consistency needs to be there. Let the chef decide and also allow a higher priced product if they feel the product is superior and desirable.
Your vendors need to work for you
Continually ask them to seek out new and better items from their suppliers. That is their job to keep you happy and buying. Know your top 20 and pull your team together to innovate. Find out what your competitors are using. Pick up the phone and call three of your competitors. Have the chef call the other chefs. Ask them what coffee they are using for banquets. I bet you will find a better more cost-effective alternative. Call your supplier and have them send in samples. Do the blind taste test. Always be looking to your top 20.
The other side of this is your vendors work in reverse. They know what you buy in volume, and they look to increase your spending not to decrease it. That is their game so be better at the game than they are. They know who has their ducks in a row.
80/20 does not mean you ignore the 20 percent. You continually look for better pricing and quality. Just do not lose sight of where the big opportunities are.
Tags: david lund,
hospitality financial leadership,
food and beverage,
food & beverage
David Lund is The Hotel Financial Coach, an international hospitality financial leadership pioneer. He has held positions as a Regional Financial Controller, Corporate Director and Hotel Manager with Fairmont Hotels for over 30 years.
He authored an award-winning workshop on Hospitality Financial Leadership and has delivered it to hundreds of hotel managers and leaders. David coach’s hospitality executives and delivers his Financial Leadership Workshops throughout the world, helping hotels, owners and brands increase profits and build financially engaged leadership teams.
David speaks at hospitality company meetings, associations and he has had several financial leadership articles published in hotel trade magazines and he is the author of two books on Hospitality Financial Leadership. David is a Certified Hotel Accounting Executive through HFTP and a Certified Professional Coach with CTI.
Contact: David Lund
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