Foodservice 101: The Basics

Foodservice managers use several key performance indicators (KPIs) to measure success or identify areas that need improvement. These metrics should be tracked and managed, no matter the sophistication of an operation.

KEY PERFORMANCE METRICS

The primary KPIs, according to our How To Crew experts, are: total units sold and unit growth by product type/menu item, revenue, gross and net margins, food and beverage costs, spoilage/waste, labor costs per hour and gross profit per hour. Ideally, if the data is available, compare KPIs to prior-year performance. If that data is unavailable, compare the metrics to other similar locations for the same time period.

It's also important to look at menu item performance in the context of the total category. For instance, how many breakfast sandwiches with sausage sold vs. the entire breakfast sandwich category, or how many Italian subs sold vs. the entire sub sandwich category, etc.

Always use data to determine successful programs or items — never assume and never pull a program after only a few short days or weeks if spoilage is high, for example. Operators need to execute new items consistently every day and only after several months can a valid decision be made if it's successful or not, one industry expert said.

The imperative is to work very hard at developing a foodservice culture in the company and not let spoilage drive business decisions. The key is to drive sales and manage expenses, including labor, cost of goods and spoilage.

FINANCIAL CONSIDERATIONS

Managing foodservice — and all convenience store categories, for that matter — is made simpler and more accurate if stores are scanning, but at the beginner level if scanning is not financially feasible, price lookup (PLU) keys assigned to food products might suffice for a short while. Without scanning, food preparation and production can be tracked manually with build-up sheets, and spoilage must be hand counted.

This manual system is rife with the potential for human error and inaccuracies that can lead managers to make wrong decisions. As the foodservice business grows and becomes more complex, scanning is an invaluable management tool because of the data it yields in real time and can be an early detector of menu/program weaknesses.

Other vital management tools are cost accounting, and foodservice management and reporting systems. Cost accounting allows operators to create many different recipes/ menu items for each food SKU. For example, cheddar cheese is one food item, but it may be used as an ingredient in 10 menu items in varying amounts and sold at different retail prices. A cost accounting system enables operators to easily "explode" a menu item recipe to break down the cost of every single ingredient to determine the item's food cost. A retail accounting system — which only shows an item's cost and retail value — is grossly insufficient for foodservice management needs.

Cost accounting also makes it easier to track actual spoilage of individual food items (ingredients), as well as finished menu items/ products (sandwiches, pizzas, etc.). Cost accounting makes it much easier to track promotions, combos and menu changes, too.

The challenge for convenience store operators with foodservice is they must use two accounting systems — cost accounting to manage foodservice and retail accounting for the rest of the store. The challenge in most organizations, according to the experts, is to get upper management, which is fully entrenched in retail accounting, to understand and appreciate the value and importance of cost/foodservice accounting.

The primary goal of cost accounting — in its simplest form — is to better manage and maximize foodservice inventory dollar usage. Foodservice management and reporting systems that stem from cost accounting systems yield management actionable data.

Investment in scanning and cost accounting systems are important financial considerations that operators should contemplate and plan for. Multi-store operators serious about their foodservice business should not delay in making these investments, according to the experts, because they will provide the data to help operators establish best practices and yield better foodservice management decisions.

Cost accounting and retail accounting can live symbiotically in one business and in one building. The task is made much simpler when a foodservice culture is firmly entrenched in the organization from top executive management to the store level, industry experts said.

HOT TIPS

• Tracking units sold daily by store is one of the most important metrics to evaluate menu item performance.
• Other important metrics are revenue, gross and net margins, food and beverage costs, spoilage/waste, labor costs per hour and gross profit per hour.
• Invest early in technologies such as scanning and cost accounting systems that will yield solid business metrics/KPIs to help better manage the foodservice business.
• Work hard from the outset to establish a strong foodservice culture in the organization so that the vision is understood and supported at all levels of the organization and in all departments.