The Economics of Food - 4 tips for a profitable food operation

16 March 2017

Many clubs ask what is the best way to run their food operations? In-house, with all the pain of finding and keeping chefs, kitchen hands and wait staff, or contract it out and remove that headache? Well there is no right or wrong answer, just what suits you best at the time.

Some clubs cycle through both on a monotonously regular basis - contract out for four or five years until things go pear-shaped, then bring it back in house until that gets too hard again.  Some clubs have the in-house formula set and all their food operations, even if they have three or more, are managed in-house.

Surprisingly, quite a few club managers started their careers in the kitchen as qualified chefs who didn't like the heat and got out of the kitchen.  This background has put them in the unique position of understanding how a kitchen should operate, especially the economics of the business.

Whichever way a club goes, there is one golden rule - you must have a good food offering and it must make a profit.  At the very least it should break even, but managed properly the in-house kitchen should generate a profit.

If you contract out, it is helpful from a management perspective to understand the economics so that you can assist the contractor and negotiate a reasonable arrangement for your club.  Always remember, regardless of who owns the kitchen it will always be seen as the club's bistro, brasserie or restaurant, so the food must be good quality at the right price.

So what of the economics?  For contracted catering, the story is often a low percentage game for the club, especially in rural and remote areas where it can be a challenge to get anyone to run a food operation that often is only viable for three or four nights a week.  What usually happens is that the contractor gets the kitchen at no rent, and the club will often also pick up overheads such as power, gas and water and take care of waste.

What is the benefit to the club? Food brings patrons into the club who then spend on the bar.  This is often a small amount but, realistically, without food many clubs would have no reason to trade for most of the week.

If the contractor does a good job and builds a strong and profitable food business that keeps the club open seven days a week, there will come a point when the club should renegotiate and get the contractor to put some skin in the game.  Even if it is just a peppercorn rent of $100 per week or getting the contractor to pay its own overheads.

So back to the in-house operation.  From an economic point of view, the longstanding rule of thumb for kitchen/restaurant revenue has always been a third on food, a third on staff and the last third for overheads and profit.  But what does this mean?

Your target gross profit (GP) margin should be 66 per cent.  In other words, the food ingredients should represent no more than one third of the sale price for the meal.  For example, if it costs $3.00 to put a portion of fish and chips on the plate, then you must sell that meal for a minimum of $9.00 ($3.00 x 3 = $9.00).  It is easy to get caught out trying to provide budget meals such as a $10.00 steak when even rump steak is $20.00 per kilo.  If you serve a 200-gram steak, that will cost you $4.00 before you add chips and salad (or whatever).  And even if you can do that for $1.00, you still have to sell that meal for $15.00 to maintain the basic 66 per cent GP.  Sell it for $10.00 as a promotion and your margin drops to 50 per cent.  Add in staff wages and suddenly there is not much left for overheads - power, gas and water - let alone waste removal.  Before you know it, you're running at a loss.

So, what can you do to make the show more profitable? There are some tricks of the trade.

Portion Control

When good chefs create their menus, they weigh every ingredient and work out the portion cost for every meal, right down to seasoning, oil, sauces etc.  Then they must stick to that every time they make that meal.  Weigh and measure all ingredients as part of preparation for service every day to ensure minimal waste.

Potion Size

Not too big and not too small.  In the old days it was all about huge portions, but why feed a pensioner a chicken schnitzel that would stop an 18-year-old footballer only for half the meal to end up in a doggie bag or the bin?

You can have a small eaters' menu for kids, women and pensioners and a "Footballer's Challenge" menu, with large portion sizes for the big eaters.  The right portion size means clean plates coming back and minimal or no waste - an immediate reduction in costs.

Minimal Waste

Waste is the third factor in managing a healthy bottom line.  Get the butcher to supply meat cut to your specification on portion size.  That way they take the loss in trimming waste, not you.  Ensure you select quality fruit and vegetables from your providers and store it properly.  Effective stock rotation means less waste, so date all fresh or frozen supplies prior to storage.

Use short-dated stock and (if necessary) special it out at a small discount.  This means you can recover 75-80 per cent of the full sale price, rather than dumping spoilt stock at 100 per cent of the cost price and no return.

Well Trained Staff

Staff are the final piece of the profitability puzzle.  I have seen many in-house food operations making a good GP of 60-70 per cent, only to bleed the profits by over staffing or hiring inefficient staff. 

Your food operation should add to the bottom line and not be subsidised by gaming, especially given the current environment.  If the anti-gamers of the world eventually win their fight and your gaming revenues are dramatically reduced; your number one attendance driver will need to be your number one contributor to profit!

(SOURCE: Ron Browne, ClubsNSW Manager - Professional Development, ClubLIFE Feb 2017)

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