Lecture 6Outline of Last Lecture I. Pricing your Services and productsa. How to maximize profitabilityb. Pricing formula broken down Outline of Current Lecture I. Calculating Food Costa. Equation breakdown and exampleb. Maintaining consistent food costII. Availability of Producta. Variability of priceb. Portion controlCurrent LectureI. Calculating Food Cost – total cost of a food item; does not include utilities, labor or suppliesa. MUST know food cost for food and beverage items they serve so that they may correctly price them for customersi. Menu items should never be marked up by industry norm (3-5 times their cost) in order to help cover overhead and profitb. Equation: Cost per unit = (as purchased cost) – (number of units) i. Ex: To cost an apple pie – figure out cost of each ingredient; bought 5 pounds of flour for$1.00 and need 8 ounces for pie crust, your cost per unit:1. Flour = ($1.00) / (5 lbs.) = $0.20 per pound2. Flour alone in the apple pie = $0.10 then you figure the unit cost of each of otheringredientsc. Wines/sprits often marked up 100% or more, especially “by the glass” d. Maintaining consistent food cost is difficulti. Random pricing, waste, theft, poor supervision all increase food cost/jeopardize profitsii. Monitor food cost on monthly basis normallyiii. Process:1. Taking physical inventory of product on last day of each month2. Price that inventory3. Add this number to total food purchases for following monthHTM 2514 1st Edition4. Another inventory taken on last day of that month, then figure is the subtracted from previous figure = cost of food sold for that month5. This cost is divided by total sales for that month, determining food cost % for thatperiod of time6. Example:a. Opening Inventory (December 31,2006) + Purchases (January 2007) – Closing Inventory (January 31, 2007) = Cost of Food Sold (January 2007)b. Then take this figure Cost of Food Sold (January 2007) / Total Sales (January 2007) = Food Cost %i. Food cost % represents relationship of cost to sales7. Even lowest food costs do not guarantee successII. Availability of Product – when pricing a menu for proposal event planner should have up-to-date knowledge of cost and availability of ingredientsa. If caterer is in major metropolitan area they have access to all ingredients but if they are in ruralarea, they won’t have as much accessi. Ingredients available through general food purveyors like SYSCO or U.S. Foodservice1. Provide fresh produce, meat, seafood, dry goods and sundries; operate internationallyii. Specialty items like wild mushrooms, game, wines, and certain cheeses must be purchased through companies that specialize in these products; caterer must network tofind these companiesb. Variability in price – prices for products like meat, seafood, fruit, veggies vary the mosti. When meat industry has production problems or foreign embargoes has been issued prices will increaseii. Factors that affect price: migratory patterns, reproductive cycles, biohazards iii. Fruits/vegetables at lowest cost when in seasonc. Important to compare suppliers before purchasingd. Before opening catering business, have selection of recipes and their costs establishedi. Altering recipes without sacrificing quality e. Portion control – use kitchen scales to make sure all guests receive same portion amount; accuracy leads to profitabilityi. Seasonality of items imported from elsewhere will be less expensive at peak season regardless of where they are produced 1. Ex: apricots, cherries, corn, currants, pumpkinsf. Holidays affect price of food and beveragei. Ex: Caviar much more expensive if purchased the week before New Year’s Eve because of increased demandii. Smart caterer uses suppliers as resource for info relative to trends in food and beverage costsg. Inflationary costs –important when pricing menu items for future eventsi. Better forecasting allows caterer to ensure a fair profit without having to go back to customer and renegotiate