I was recently lucky enough to be invited to sit in on a Master Class on “Food Profits, Costings & Cost of Goods Sold” performed by Michael Tonks, the CEO of the award winning Buckley’s Entertainment Centre in Geelong.
In this blog, I will share some insights from the Master Class around discounting and portion control and the impact on running a profitable kitchen.
Michael performs these Master Classes for his chefs & kitchen hands a few times a year to help them keep sharp and on their game.
The Master Class went through various topics critical to running a profitable kitchen. These included:
- Portion control & the multiplier effect; and
- Cost of Goods Sold
The following are some insights from the Master Class around discounting and portion control.
Many businesses use discounting as a tool to drive higher revenues. However, what many don’t understand is the significant impact that discounting can have on the bottom line.
The following are two examples that show the before and after effect of discounting at different levels.
The first scenario shows that to achieve the same level of profit of $700, you need to sell an additional 17 units when a 10% discount is offered. This means that to be in front under the discounting strategy, you need to see an increase in unit sales of in excess of 17%.
The second scenario shows that to achieve the same level of profit of $700, you need to sell an additional 250 units when a 50% discount is offered. Any businesses promoting offers like half price days and buy one get one free, really do need to consider the impact it is having on the bottom line.
What needs to be understood is that whilst the sale price is cut by 50%, input costs do not change.
This means that the profit per unit has been reduced by in excess of 70%. And this is without even contemplating that you may need to roster on additional staff to cope with the extra volume.
Portion control & the multiplier effect
It is common place to hear comments like “what’s the harm of adding a few extra chips or veggies to the plate”. Whilst it may seem harmless, it increases the portion cost on the plate and reduces profit margin.
When you multiply the additional cost by the number of units sold, it can cost a business thousands.
For example, say a business sells 500 units per week. By adding a few additional chips and veggies to the plate, let’s say it increases the food cost on the plate by an additional 10%. Those extra few chips and veggies increase your cost of goods sold and reduce your gross profit by $500 per week or $26,000 per year.
This is why it is imperative that you keep a constant watch on your portion control.
The session also covered the benefits of seeking savings when purchasing food and beverage products. Similar to above, if you can pick up small savings here and there, it can multiply out to a substantial improvement in annual profit.
Anyone who is grappling to produce good profits from their food service business should take the time to consider these issue and to adjust their strategy where necessary. And if you feel that you could use some outside help, attending a Master Class with Michael Tonks is highly recommended.
If you would like more information on these sessions, please contact our team.
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