Everyone always talks about food waste, but we still struggle to define a metric, let alone meet it. In our inaugural Ops Talk advice column, which will rotate with Chris Koetke’s Ask the Chef column in 2016, Deborah Holand helps to demystify this sticky number once and for all.
How does one determine what’s a “right” amount of waste, and how should we factor it into our P&L?
Are you tired of missing your monthly profit & loss (P&L) budget and are dreaming of the day you beat projections? You are not alone. To consistently improve foodservice profit results, we need to be “intentional” about waste control and measure profit dollars.
Here are some tips for measuring waste and creating realistic benchmarks.
1. Review your program space allocation with both slow and peak times in mind. We all know higher sales will reduce excessive waste and labor costs. However, if the space allocation is too large, waste can quickly spin out of control. Even if your program has been in place for years, be diligent about constantly improving merchandising.
2. Create appealing menus that balance high variety with low complexity. Design products that use already-prepared and -portioned ingredients from quality vendors. Also, partner with a local commissary to efficiently produce quality products that can be delivered fresh. The cost of case-ready is higher, but if you factor it in after waste and labor cost, the profit can be more favorable.
3. Budget “theoretical” cost of goods sold (COGS), grounded in reality. Purchase and negotiate all your costs and then build in reasonable waste yields by ingredient and production step. Whether your program is made to order or a grab-and-go prepack display, a good net profit margin target, after base COGS, waste and labor cost, is 25% to 35%. We still have to cover store expenses and stay in business!
4. Measure what you treasure—actual vs. theoretical profit. A key performance indicator (KPI) for managing waste is to track the variance between actual vs. theoretical COGS. Track waste daily and report the dollars as a percent of sales weekly. Don’t wait until the end-of-month P&L publishes to discover all the net profit went down the drain weeks ago.
If you are already hemorrhaging red, it’s time for drastic measures. My recommendation is to start taking weekly inventory until waste is under control again. And when all else fails, go dumpster-diving for dollars with trash-can audits. Finally, when net operating profit falls below 10%, revitalize your program—before it eats you alive.
Deborah Holand is a chief business consultant to the foodservice industry. She specializes in new concept development and revitalization to helps operators create sound solutions to achieve financial results. Got a question for Deborah? Email awestra@winsightmedia.com.
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