Your students will groan with shock and surprise to learn that for every $100 in sales a foodservice operation earns only $4 to $7. But your job is to show them the real world they’re training to excel in.
By Adam Weiner, CFSE
At the June 2011 CAFÉ Leadership Conference roundtable discussion on the 50-minute classroom, one of the concerns raised was that students have no idea of foodservice economics. They have grown up watching “Iron Chef” and “Master Chef,” where expensive ingredients like truffles and caviar are tossed around like water. They have watched “Hell’s Kitchen,” where allegedly experienced chefs mishandle and mis-cook scallops, lobster and lamb, yet still remain eligible for the grand prize of running a restaurant.
The bottom line (if you pardon the double entendre) is that if our students don’t understand foodservice economics, we are dooming them and the places where they work to failure. You don’t need to teach the intricacies of cost accounting. In fact, there are plenty of foodservice-software products that manage those issues. However, you have to make sure your students understand the basic fact that for every $100 in sales, the foodservice business earns $4 to $7 in pre-tax income. I do it in seven steps:
1. Make the Students Think. I start out by asking, “Suppose you burn a premium hamburger, steal a nice sandwich at your break, or give away a pizza to your friends without putting it on the register. How much does the restaurant have to sell to recover the expense?” I get some numbers from the students, and then write these on the corner of the whiteboard. I put a big question mark next to the numbers and circle them.
2. Hit Them with Your Best Shot. I then ask the students, “If a well-run restaurant sells $100 in food, what is its profit before paying taxes?” I write their answers on the board. You will be shocked how many students guess more than $50. I put a line through each wrong number right after I write it on the board. It takes quite a while, but eventually the students start guessing less than $10. When that happens, I stop them and I write $4 to $7 on the board.
3. Explain the Facts of Life. To be honest, at this junction the students will think that I am crazy and/or lying. I write on the board:
Food costs: approx. 32%
Labor costs: approx. 32%
Overhead: approx. 32%
Total costs: approx. 96%
Profit: 4%, or $4.00 per every $100 in sales.
(Note: You need to point out that these numbers have been rounded and approximated for the purpose of teaching basic profitability, and that each institution will have slightly different numbers in each category. However, you can’t let your students think that the variations are great. You must stress that $4 to $7 in profit for $100 in sales covers well over 95% of the foodservice establishments in this country.)
4. Food Costs. When I started in the foodservice business, food costs were almost universally 33%. Now for many places, 28% is high. Teaching food costs is an article in itself, and I will cover that next month.
5. Labor Costs. The most important thing to explain to your students is that they cost the business far more than they are being paid. Remind your students that employers have to make matching Social Security contributions, pay for workers’ compensation insurance, set aside reserves for sick leave, etc. Many areas require health insurance and/or vacation pay. The numbers vary, but all of these add up anywhere from 33% to 50% or more. Show your students how being paid $10.00 per hour actually could cost the employer $15.00 per hour. Then point out that $5,000 in payroll could actually cost $7,500. (If your students aren’t shaking their heads in shock and disbelief, then you haven’t gotten the point across.)
6. Overhead. I teach overhead by pointing at one student and having her state an overhead cost such as insurance, and that student points to another student who repeats the process. While this is going on, I write the items on the board. Your students should be able to come up with at least one overhead item per person, and often two or three. Here is just a partial list: insurance, health permits, local taxes and permits, water, gas, cleaning chemicals, to-go containers, food-packaging materials, pots/pans/and other kitchen items that need frequent replacing, phone bills, gas for delivery vehicles, Internet-connection fees, Internet advertising fees, newspaper advertising fees, electrical bills, towels, uniforms, POS rentals, bank fees, accountant costs, legal fees, etc.
7. Closing the Deal. Now go back to the original question about the burger, sandwich and pizza. How much in sales does it take for the restaurant to recover from the loss of just one of those items? Tell the students that the food costs for each plate was around $4. In other words, the business needs to make $4 in profit to recover the loss. Your students should quickly now see that $100 in sales is needed to recover that $4 loss. They will groan with shock and surprise, but explain to them that this is the real food world, and they have to learn to live in it.
Chef Adam Weiner, CFSE, teaches a 20-week Introduction to Cooking program for JobTrain on the San Francisco Peninsula.