Kitchen costs are food for thought

One of the common frustrations we encounter when tightening-up the financial performance of restaurants, pubs and cafes is the reluctance of many ‘old school’ Chefs to accurately cost all their dishes. Many of them have never had to do this; and of more concern, many don’t know how to do this.

To be fair, in the past when margins were much healthier than they are now you could get away without doing this, but not in today’s world. Foodservice economics have deteriorated to the point where everything you sell has to make a reasonable margin or you will rapidly find yourself running a charity for the dining public.

If you succumb to the temptation of having ‘loss leaders’ on your menu you need to accept that you are then selling that dish at a loss and also cancelling the profit from another dish before you are back to square one. Interestingly, many chefs don’t realise they are selling food at minimal or no margin.

I see the figures of many hospitality businesses in the course of my consulting work. Many small and medium hospitality businesses have kitchen costs running at disturbingly high levels. To address this we first have to make the people concerned realise that food costs and kitchen wage costs need to be considered together in order to manage profitability.

Consider the artisan chef who purchases produce in the ‘back state’ i.e. buys whole fish and fillets the fish themselves, or buys meat in large pieces and trims and portions it themselves, shells their own peas, makes chips from raw potatoes and grows their own herbs. When they do this they usually show reasonable food costs, but because of the work involved in processing produce to a useable state in their own kitchen, their wage costs will usually be quite high.

Think of it this way, if a chef who gets $80k per year fillets and portions his own fish, the labour content of the resultant portions can easily kill the profit on the ultimate dish. Consider the maths: a chef on $80k has on- costs of around 24%, so they really cost you $100k per year. Assume a 50 hour working week and they are costing you 70 cents a minute. If they spend 10 minutes on a preparation task, they have cost you $7. If they spend part of their time doing prep tasks that can be done by a kitchen hand you are throwing a lot of money away.

Moving on, when a new dish is introduced it should be costed carefully to ensure it is going to produce an acceptable margin. This involves costing all the ingredients, plus the labour cost of preparation. Given that many common ingredients fluctuate wildly in price, there also needs to be some mechanism in each kitchen to ensure that incoming invoices are checked to alert the chef if an ingredient price rise has reduced the margin on a dish. We often find that dishes were costed 6 months ago — because management insisted on it — but those costings are no longer valid because prices have changed and several dishes are no longer profitable.

Another common issue is omitting to remove GST off the selling price of a dish before food costs are calculated. If this is being done without anyone realising, the result will be that the chef will maintain that all dishes are costed properly and can’t understand why the food costs are still high.

All of the previous issues can be compounded by the practice of calculating food costs on purchases rather than on actual stock used that has been ascertained by stocktake and reconciliation. This will invariably result in food costs that fluctuate up and down from month to month as stock levels fluctuate at month end. Unfortunately many businesses still use this system despite chronically high food costs.

All of this is critical to the ultimate profitability of a hospitality business. The chef in a restaurant, café or function business often controls the largest amount of money going through the business when we add kitchen food and wage costs together. The better chefs we deal with know where every cent in their kitchen goes and manage stock and money quite tightly. If your chef doesn’t, you’ve employed an overpaid cook, not a chef.