While there is no immediate regulation demanding implementation for new business procedures does this mean you wait for what is to come? The writing for change is on the wall so should you implement new ideas now or wait until you are told to do so?
Jim Lopolito says, implementing a necessities strategy with thoughtful considerations and conscious marketing ahead of regulation means you are doing something practical and smart.
Within our current environment, businesses will be asked to implement new procedures in order to meet the safety and concerns of the general public. Some systems will be regulated government demands, while others will be sensible to the expectations of your clientele and just a good idea. Waiting only means you will be behind those that think ahead.
How do you know for sure if you should implement a procedure? Before implementing change, you may want to consider whether the idea or method you are considering meets some important protocols. If you are just running with an idea you think sounds practical but not well thought out, you may only be wasting everyone's time.
Here are a few steps to follow in making the judgment either way.
Does the idea fill the 5 needs to implement?
1) Rationale: Is the idea or method required or necessary and address a problem? If yes, go to 2. If not, spend time with something that is required or necessary.
2) Feasible: Does your solution fully address the "risk to persons" or offer a solution theoretical? If yes, go to 3. If not, how can you adjust it to fully meet the risk or solution expectation?
3) Achievable: Can you currently provide this from your business just on the bases of in-house considerations within the standards, occupancy, staffing capabilities, space restraints, equipment on hand, etc., or will you have to make changes? If achievable, go to 4. If changes necessary, consider what this will entail before going forward.
4) Deliverable: Can you provide, without failure, unwavering delivery with over-performance each instance to expectations? If yes, go to 5. If no, reconsider your approach or look at alternatives that will achieve this consideration.
5) Government-regulated: Does it meet or exceed any Government Regulations. If yes, implement it. If not, is it required to meet regulations and if not, should you still implement for the common good? If it does not meet regulation, reconsider alternative methods to meet these guidelines.
If you are unable to fill the demand of the 5 steps, you may be paying more attention to something that is unnecessary and may go nowhere. Instead, concentrate on what gets you to where you need to be and not to have more in the way to do.
Jim Lopolito, President, Lopolito Hospitality Consultants, Corp.
An in-depth look into what you cannot control and what you should control. In this material, I embrace diverse methodologies in expense behaviors.
The proficiency required to understand and control expenses is not as simple as it may seem. Revenue and expense, purchasing and inventory management, profit and loss, and many other factors are all tied together with an enduring management oversight behavior supported by knowledge and understanding of the industry. Becoming stagnant or comfortable in this arena is a dangerous cloud to hang over you.
The likelihood, however, is that you do not have control over your expenses. Not really anyway. To help your restaurant management team cope with this challenge, what follows may offer a better understanding of exactly what this means with an encouraging ability to improve.
Consider this methodology: "You need to know where your numbers are going before you get there."We all know that the controlling of restaurant expenses is a mix of; observing daily activities, market price research, purchasing effectiveness, having cost control procedures in place, effective use of restaurant POS system reports, and many other factors. However, at the heart of this understanding is a misunderstood and almost impossible ability to achieve the goal of full control. You may not have a full understanding of controlling expenses without the consideration and inclusion of what is not in your control.
Here is a menu pricing control consideration: One effective method in controlling fluctuation in market costs would be to adjust each effected recipe cost and corresponding menu price as they occur accordingly. While this solution offers balance on profit concerns, imagine the work involved or how your customers would feel if you changed menu prices every time your costs changed. However, even if you actually performed this function, this attempt is skewed and diluted because your menu sales mix changes each day.
Control Over Expenses Is A Perceived Outcome
The control of restaurant expenses is a delusional byproduct of the sanities of management in their perceived ability to perform this function.What this means is relatively straightforward. If you believe you have a handle on your restaurant expenses, you may actually not.
In understanding expenses, you must determine or realize what you cannot control, and then do your best with processes and procedures toward what you do have control over. This is important because there are expenses in the business that are a byproduct of operations that are out of your control, and if you are not aware of how this impacts upon your business, you may be misinterpreting your reporting.
For instance, your menu is a fixed piece of business material as it does not generally change every day. You purchase a fish on your menu for $5 a pound today and the initial set menu price is $15, or 33% food cost based on only these two factors. Tomorrow the same fish cost you $6 a pound at a 40% food cost, but you do not change your menu price so you are losing 7% for each sale in this transaction because the original pricing for the menu was based on the $5 per pound. Do you monitor these occurrences and account for this loss in your reports? Most likely you do not. You might just follow a pattern that often occurs in the industry where you tell the chef that they have to do a better job in lowering the food cost. Oftentimes, this is difficult because the chef is ordering what is on the menu, and does not control market prices.
Here are five examples where you do not have full control of expenses.
· Daily Vendor Pricing Fluctuations: The pricing and product quality and quantities from vendors change regularly. Control over these fluctuations may include how much you order and from which vendor, but if you must purchase the product because it is on your menu, you do not have much choice over the price. However, in addition to the selection of the item and pricing there can also be a difference in quality or counts/weights on the items in the selection process, thus also affecting the finished product costs.
· Daily Vendor Pricing Fluctuations: Track purchase price fluctuations on all products as a variance report. This can be performed daily or during inventory procedures, whereas, FIFO accounting can be used to offer a variance of amounts ordered against price differences during the month. The differences can be averaged, if necessary, in month to month price variations to assist with decisions and adjust recipe costs and menu prices.
· Daily Menu Mix: Even with suggestive selling, the overall selection process is by the guest. This selection in turn moves the outcome of your profit and loss for the day. The daily menu mix also affects other factors like usage and spoilage, so the ability to maintain some control is through effective ordering procedures, effective selling techniques, and effective preparation and menu product usage, however, to purchase and prepare the exact amount in controlling these factors is extremely difficult to manage.
· Daily Menu Mix: Each day will offer a different revenue and profit outcome, and one reason for this is because you do not sell the same amounts of the same items every day. If you know the differences in profit from each item (known as contribution margin) you can track your efficiency and use this to train staff on selling the higher profit items. This is also very useful as part of menu engineering and the placement of items on the menu itself.
· Daily Loss of Product: While everyone tries to control breakage, loss of product, drops on the floor, spoilage, theft, and other similar loss of product factors, the control of these costs is essentially fate. Security of product can assist with some of these values; however, the best you can do is to be careful and proactive in addressing these circumstances and to record their value on profits.
· Daily Loss of Product: You must track breakage, loss of product, drops on the floor, spoilage, theft, and other similar loss. You may be surprised at how these add up to loss of profits, and you should document this information in your reports.
· Daily Returns and Adjustments: The control on returns and adjustments is basically in the hands of your guests. You can do your best to put out a good product, but not everyone is going to like what you produce. There are many factors like; returns, misfires, unknown free meals provided by employees, or spillage, and these examples all have additional expenses and are not controlled by the business. Recoding them is your best defense on understanding how this is affecting profits.
· Daily Returns and Adjustments: Each item on the menu should have a recipe and cost. End of day reports should include; voids, comps, discounts, refunds, and any other report that you use to offer additional expense for the day. Every item should have a cost factor attached to it and you should track the amount you lost in revenue as a result of the lost or free offered product. If you comp a drink with a cost of $2, you didn’t just lose the $2. You also lose the difference in revenue from the lost sale from what you comp.
· Laws Affecting Costs: Businesses are unable to control the wage laws and this is just one area of government control where you have no control. Taxes, labor laws and other factors must all be considered. You can try everything in your power to reduce salaries and cut these costs, but in the end, you have to place the people in positions to get the job done, and pay the price dictated by government influence.
· Laws Affecting Costs: No business can control the new wage laws and you can only do your best to adjust how you perform operational practices to achieve your best performance.
You can only do your best to control costs that are within your ability, but in the end the total control you have is really out of your hands.
Controlling The Expenses You Can Control
Controlling expenses begins with having a practice in place to regulate the outcome of your processes. Proactive procedures help with outcomes ahead, whereas, reactive procedures leave you behind. Without effective procedures and monitoring your outcome becomes ambiguous.
Without knowledge-based behavior that supports future business performance with positive influencing of your results, you are just reacting to daily activities.
The practice of expense control falls under the methodology and implementation of an Expenditure Behavior Management “EBM” process to influence your progress and results. EBM is an awareness driven decision-making practice in controlling business expenditures with an understanding of how the decisions you make today affect current and future operations as a whole. EBM methodology uses a proactive approach to addressing expenses.
Just because you pay attention to your expenses does not mean you are doing everything you can. Everyday decisions can generate a constant toward loss from procedures in the business that has become overlooked or have become common behavioral practices. For instance, the common practice in evaluating end-of-month reports with implementing next month's cost controls or spending adjustments are old school and an afterthought process. This method fails in having current cost controls considerations in place, therefore continuing to perform this monthly ritual will only result in forever gone profits, or an Expense Loss condition.
Expense Loss is the variance between money that is currently unsystematically expensed on product, services, or equipment and the achievable amount of expense reduction that is possible or interpreted through a review and fiscally applied methods of spending behavior and forward-thinking decisions. Having the knowledge of the variance between amounts you are spending now and the amount you could reduce this by, or procedures implemented that affect a cost reduction if you implemented them differently, is paramount.
The Cost Side and the Lost Side of Spending Behavior.
There are two considerations when understanding expense behavior. These are the Cost Side and Lost Side to spending behavior:
A common viewpoint by managers in the spending decision process is the “cost side spending behavior” mentality. The Cost Side Spending Behavior is: What will this cost me in making this decision?
When observing expenditures the cost side viewpoint most often presents a one-time decision that did not include forward considerations or continuous monitoring practices and is counterproductive to an effective EBM process. You become complacent into the thought that you made the decision on an amount of money to spend that feels right. There is no need to revisit this, especially if you are comfortable with your decision and the same expense is expected to come up again.
In these situations, you and your managers may no longer question the cost of the item or service provided by a vendor no matter how much further reduction may be available in the marketplace, (knowingly or unknowingly) or how much you may be losing in Expense Loss by following this cost side methodology. Everyone is on board with the cost from the vendor and no further determinations are necessary. This behavior may continue until revenue drops below costs and a red flag goes up. Cost side spending behavior is a reactive based behavior pattern.
In contrast there is the “lost side spending behavior.” The Lost Side Spending Behavior is: The specific amount determined or interpreted as overspent and gone from your profits signaling a proactive sequence the next time this expense occurs.
The end determination is to evaluate what your additional profits can be when considering alternatives to your decisions, and is a segment in the Expense Loss and EBM methodology. The goal is to get you to look closely at the amounts lost from purchasing and procedural decisions and add them up. Look at your operations as a whole in service standards, cleanliness and appearance, purchases, receiving procedures, inventory management, or anything else your company deals with in its entirety. View how each decision you make in each of the categories of your business may be participating to generating profits, or not, and where the Expense Loss condition exists in each category.
Looking at expenses with a lost side mentality keeps you informed and attentive to future decisions that will not follow the same outcome. Lost side spending behavior is a preemptive knowledge-based behavior pattern.
Keep in mind that a procedural decision may include you having no procedure in place for a particular situation and how this lack of attention may be affecting expenses.
Examples of Expense Loss
· At the bar: Consider that a ¼ ounce over pour on one drink from a $30 bottle of alcohol is 22 cents each occurrence. Over an annual basis of 10,000 drinks poured with a ¼ ounce over pour creates a $2,200 loss. Now add in the 2500 ounces lost in this scenario that could have made 406 more drinks using a 1.5 ounce pour at $8 a drink, (406 x $8) or $3,248, and you have a total Expense Loss of $5,448 for the year. Using this example you can understand that understanding expenses at the bar is essential, but you also need to know Potential Pouring Costs PPC, Actual Pouring Costs APC, recipe creation and costing, and understand spillage, theft, and other occurrences at the bar.
At the bar, you can make a table to compare your Bottle Cost with Price Per Ounce and Loss to better understand the situation. Here is an example diagram that does not account for loss of revenue that results from over-pouring, which is the additional thing to consider.
· In the kitchen: Waste management, over prepping, and not accounting for yields are just a few of the costly expenses associated with BOH operations. There are purchasing procedures, receiving procedures, and inventory management that are different than FOH operations, and to misunderstand these procedures is extremely costly to a business. Many operations concentrate on FOH revenue and sales and neglect the effectiveness of proper procedures that can reduce costs and add significant profits in the process. ·
· Reporting: Another factor in expense is when a restaurant relies on food cost percentages as the determining factor of how well the chef is attending to expenses, whereas, this alone should not be relied upon. The gauge should be a combination of:
1) Food costs percentages.
2) Daily menu mix.
3) Contribution margin considerations.
After you consider these factors collectively to associate the actual outcome of the day, share them with your team. Knowing contribution margins, for instance, tells you what to sell for the highest profit, and if service staff does not have this information, the chef cannot be fully to blame.
The management of restaurant expenses is not an easy process to fully understand or control. The incorporation of so many factors contributes to your success or to your failure. There can be many reasons that contribute to poor results in a business and to fully understand expenses and how to control them as the leading contributor to restaurant success.
Do your due diligence, and train your restaurant staff about restaurant expenses as much as possible. Having a grasp on expenses can add significantly to your profits, and the more likely that you will succeed.
The damaging impact of COVID-19 upon the food industry is here and the aftermath may be a long road of corrections. There could be an upside with the replenishment of fish in our seas and better air quality, but joblessness and business closures are far from a good story. We will also have to expect wasted foods from farms and fisheries, and the decline in food available causing rising prices.
While current standings indicate pre-market food prices sharply falling, I would not expect this to continue or be an after effect for the end consumer. In fact, I believe we should all get ready to pay more sooner than later.
According to the American Farm Bureau Federation, Price forecasts for most agricultural products are bleak. In the past month, dairy prices have dropped 26-36%, corn futures have dropped by 14%, soybean futures are down 8% and cotton futures have plummeted 31%. Hog futures are down by 31%. Despite a rise in retail prices in some areas, the prices paid to cattle ranchers have fallen 25%. 1
Farming, shipping, manufacturing, and other supply chain routing needs are not being met because demand is significantly down. With schools closed, restaurants diminished and other foodservice almost nonexistent, the quantity usage value from increased home shopping stockpiling is not equivalent or even close to the demand required to support typically available supplies.
The common food chain is Farm to Farm Production and then to First Line Handlers or Manufacturers. From here we go to Wholesale and Logistics to Retail Food and Food Service Sectors and then to the Consumer. While there is some Farm to Service Sector, this is comparatively minimal. All of these avenues and services have been disrupted, and the residual effects will be brutal upon the hospitality Industry.
An avenue that has helped but certainly not the solution. Hundreds of people have been going to Galilee to buy seafood right off the boat. As of Thursday, March 26th, the catch of the day by commercial fishermen in the Port of Galilee were sold out.
However, "Restaurants are closed, seafood markets are closed, so they're basically telling their fishermen stay tied to the dock until things change," said Fred Mattera, with the Commercial Fisheries Center of Rhode Island. 2
The industry is suffering, and this will continue long after we return to any routine if this word is even possible. With food sitting dormant ready to pick in fields and fishing boats tied to their docks, how do you prepare for what is about to transpire in the industry?
There are a few considerations to ponder:
1) Do not expect a spending spree just because an “all clear” is signaled. I predict a slow start to spending by all, thus further implying a negative impact upon food purchases and supplies or the return to normal.
2) Supply chain disruptions, from the farms and fishing trawlers to beyond in the sequence of manufacturing and delivery with many unknowns. Be prepared for shortages and quality issues.
3) While current analysis shows price drops in agricultural products, the disruption has a predictable effect upon prices and food inflation should be expected. While the American Farm Bureau Federation forecasts indicate price drops, March 25, 2020, Consumer Price Index (CPI) All Food has remained steady at 1.5 to 2.5. However, I say be prepared and expect an increase in your expenses.
4) Will the current backlog of foods and increased prices create a commodity in a frozen product? I say yes.
Nick Muto, a fisherman out of Saquatucket in Harwich, MA, who catches monkfish and skate is amongst the many who have had to reduce their fishing effort. Muto was clear about the scale of the problem at this point. “It’s bigger than people going to the store and buying a piece of fish at this point – you’re talking about millions of pounds of fish and now there has become a backlog of product…we’re approaching critical mass here very quickly,” said Muto. There is only so much freezer space available for holding product, and we may soon be in a situation where we’re wasting a valuable source of protein. 3
If you are a club, restaurant, caterer, or other foodservice entity and you expect to fully reopen, good for you, However, if right now all you are doing is providing pickup and delivery or trying to stay afloat with other methods, you must also begin preparing your business for what is to come.
1) If you are planning to operate the same way you always did, think again or get ready for possible disappointment. Do not assume just because your business was good that it will resume to normal. Routine is not what I would anticipate right away.
2) Be prepared to slowly rev up operations and not be fully staffed from the start. I know that you want to get everyone back to work, but allow this to advance as business grows over the weeks, or plan as if you are a new restaurant opening.
3) Reorganize your marketing. You must be ready to advertise that you are open and ready for business. Do not stop the delivery and pickup process in place. I anticipate this may continue for some time as we get accustomed to our well-being.
4) Consider reducing your menu items, preparation needs, and keep inventories reduced to essentials. This will support better cash flows and support efforts in rapidly changing supply, quality issues, and pricing fluctuations. If you plan accordingly this process will save you money and keep cash reserves higher. Even if most products are available from the start I believe there will be interruptions along the way from product loss that has not affected the market yet. Also, be prepared to purchase more frozen than normal or the need to adjust recipes.
5) Estimate inventory levels carefully to utilize in stock foods first. Any product that has remained in-hand that can be utilized does not require a cash outlay.
6) You need to become efficient. All of your item recipes will have to be cost reevaluated. If you assume that small changes in prices do not largely affect menu price you are misinformed and you can lose a lot of money. Purchases must be carefully evaluated for portion costs and savings. There has never been a more important time to be efficient in purchases, inventory, preparation, yield management, and recipe cost evaluations.
And then there is the ultimate thought of restructuring your business entirely. Here is an opportunity for you to become something you need to be, as a result of not overcoming the impact COVID-19 dealt you. This transition could become a commissary or "Ghost Kitchen," a reduction in your services like becoming a buffet restaurant from tablecloth service, or a different store entirely. Now is the time to consider where you were and how much time and investment you had previously, or how much money you were making, or not.
Begin to evaluate your business as soon as possible. The longer you wait the less prepared you will be in the coming weeks to reopen efficiently. Whatever you do, don’t just wait to see what is going to occur. Plan, be ready, survive, assist others, stay healthy, maintain, and be prepared for when it is time to reopen.
Jim is currently providing free consulting sessions in April 2020 during COVID-19.
By Jim Lopolito, President of Lopolito Hospitality Consultants, Corp. (LHC), a leading New York-based consulting firm that provides forward-thinking reviews and solutions nationwide to businesses in the hospitality industry. Advisory services are available to restaurants, country clubs, caterers, and other foodservice businesses with solutions to Concept, Design, Renovation, Operational Development, Training, Property and Facility Oversight, Golf and Pool Operations. The company also offers Executive Search and Interim Management Services.
The Paycheck Protection Program was touted as protection to your business. Although there is a small percentage of these loans that actually reached restaurants and similar food service businesses, there are downfalls to prepare for with the program.
The current unemployment benefits program is supporting both regular benefit income, along with a $600 added supplement. This supplement, for as long as this continues, will act to discourage a return to employment influence.
Employees are far less likely to be encouraged to return to employment under these pay programs.Use the following thoughts in preparation for your company’s near future planning.
With or without receiving the PPP loan funds, businesses will run into a brick wall hiring back employees. In most cases, you will be offering to pay less than the unemployment benefits staff is receiving by not working. Unemployment benefits with the extra $600 per week are considerably higher than most foodservice personnel are currently earning. With PPP and the 8 weeks spend guideline it will be difficult to bring back all employees during this timeframe, therefore you will be required to pay back the loans in two years. This will further burden your businesses' cash flow.
With this consideration;
1) As long as the unemployment benefits include the extra $600 per week hospitality companies will have difficulty in getting staff to return if offering usual wages.
2) Companies that attempt to use 75% of the PPP loan mandate to pay wages will encounter two scenarios.
a) Staff will not return to work because they are earning more with unemployment, therefore the company will fall short of the 100% hire back requirement.
b) Companies that do achieve the 100% hire back requirement will complete the 8 weeks and not have enough business to support keeping 100% staff on payroll, therefore laying them off again.
3) Companies will begin considering alternate methods of payroll if they need staff, therefore supplementing the unemployment income.
Other factors to consider;
Overall, if you are not planning your business scenarios for the coming months you will find yourself cut short of your potential along with a higher risk of failure ahead of you.
THE STORIES OF HOSPITALITY