EXECUTIVE SUMMARY

TRENDS

Fast food retains its position as the largest and the fastest-growing category
in the Philippine consumer foodservice industry. During 2012, this category
reported total foodservice revenue of Ps121.9 billion, taking 30% of total
value sales in consumer foodservice. Growth in terms of outlets, transactions
and value sales remains vibrant. Outlet openings have been supported by the
increasing number of shopping centres and small community supermarkets in
Metro Manila and key cities nationwide. Outlet growth was estimated to be at
8% in 2012 while transactions and value sales ballooned by 9% and 11%
respectively.

Philippines Consumer Spending 1998-2014 | Data | Chart | Calendar

Consumer Spending in Philippines increased to 1226549 PHP Million in the second
quarter of 2014 from 1213723 PHP Million in the first quarter of 2014. Consumer
Spending in Philippines averaged 858722.06 PHP Million from 1998 until 2014,
reaching an all time high of 1226549 PHP Million in the second quarter of 2014 and
a record low of 583959 PHP Million in the first quarter of 1998. Consumer Spending
in Philippines is reported by the Philippine National Statistical Coordination Board.

FAST FOOD REST. 59.50%

Industry standard

Restaurant Accounting: For Profit's Sake,

Inventory Your Food Cost!
by Ron Gorodesky and Kate Lange

The food is great, the service fabulous and the restaurant is busier than ever
- but are you wondering why the bottom line isn't all it should be?
Check your FOOD COST. A vital ratio - key to the success of any restaurant
as it directly impacts profitability. A profitable restaurant typically generates a
28%-35% food cost. Coupled with labor costs, these expenses consume 50%75% of total sales. Because of the impact food cost makes on an operation,
food cost is one of the first things we examine at a troubled property. Beyond
the bottom line, food cost also reflects an operation's food quality, value
provided to the customer, and management skill level.
Despite its importance, we find many restaurant managers do not calculate
food cost correctly, or if they do, they do not fully understand the process. To
be useful, food cost percentages must be determined accurately. Then the
ratio can be compared to industry averages and previous performance. With
an accurate food cost, steps can be taken to improve the operation and
ultimately help your savings and improve the bottom line. The following is a
step-by-step method for calculating food cost including an example and a
worksheet to figure your own food cost.
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CALCULATING FOOD COST

Keeping in mind you want to eventually compare your food cost with industry
averages, how you determine the numbers must be consistent with industry
practices. The industry standard is based on the Uniform System of Accounts
for Restaurants (a handbook available from the National Restaurant
Association). This system clearly identifies what items are included in each
part of the food cost formula and IS briefly outlined below.
Food Cost = Cost of Food Sales / Food Sales
GENERAL GUIDELINES
Establish a specific time period for analysis. The food sales and costs
should be generated during a set accounting time period of at least two
weeks or more typically, every 28 days.
Juices, coffee, soda supplies and other non-alcoholic beverage sales
are included in food cost calculations.

STEP BY STEP - CALCULATING FOOD COST

1. TIME FRAME
Working with your accountant and managers, set up a regular time
frame to analyze food cost. It is critical that the elements of the food
cost calculation (sales, inventories and purchases) are representative of
this time period.
2. FOOD SALES
This is the relatively easy part - total the customer checks or reports
from point-of-sale registers making sure to only include sales generated
from food sources (sources other than food should be allocated to a
"beverage" or "other income" account). Remember to use sales
generated only within the allotted time frame.
Example: Food Sales (+ Juice, Soda, etc.) $1,850
3. COST OF FOOD SALES The costs associated with food sales are
comprised of purchases and inventory level adjustments. In our
experience, this part of the calculation is often computed incorrectly.
Determining the amount of purchases for the time period is straightforward:
Total all food purchases (include delivery charges and non-alcoholic
beverages). Example: Food Purchases in past 28 days $500
Equally important, and often not included in determining cost of food

sales, is the inventory adjustment. Many restaurants consider only

purchases in determining food cost. This does not create an accurate
food cost percentage - depending on the day purchases are made and
what the cut-off date is for including sales in the food cost calculation,
your food cost could appear 5 to 6 points higher or lower than it is.
Additionally, this discrepancy makes it difficult to compare and track
food costs.
For example, suppose you receive (purchase) all your dairy and meat
products on Thursday to prepare for the weekend. The time period for
determining food cost ends on Friday (the next day). In calculating your
food cost, it appears much higher than last month. While the increase
may be due to theft or another operational issue, most likely it is due to
calculating your food cost inconsistently and incorrectly. Your purchases
reflect a large Thursday delivery, however, you do not log the sales from
the weekend to offset these purchases, making your food cost appear
out of line. Additionally, you have not factored in the inventory
adjustment.
Determine Inventory Adjustment
Realizing the time and energy that counting inventory on the line (in
"production") is prohibitive to including inventory in food cost
calculations, we recommend estimating a production inventory level.
Conduct the inventory of the dining room, service and production areas
a few times, average the inventory levels and use that constant figure
each time period. Add the estimated figure to the physically counted
storeroom inventories each period for your ending inventory. It is
important to update the production inventory level at least once a year.
Now that you have your ending period inventory level, look at the
change from your beginning (start of time period) inventories (kitchen
and storerooms). The key to accurate cost determination is
understanding the role inventory levels play. For example, if the
beginning inventory level is valued at $100 and four weeks later the
ending inventory for the period is valued at $75, the inventory
adjustment is the $25 difference - an increase in cost of food sales
because you used $25 worth of inventory and did not replace it with new
purchases.
Considering this change and its effect on cost of food sales, apply the
difference to the total purchases for the time period, giving you the total
cost of food sales.
Cost of Food Sales = Purchases +/- Inventory Adjustment
(ADD if Beginning Inventory > Ending Inventory,
SUBTRACT if Beginning Inventory < Ending Inventory)
Example:
Purchases $500
Beginning Inventory $750
Ending Inventory $625
= $500 + $125
= $625 Cost of Food Sales

4. FOOD COST PERCENTAGE The final step - putting the numbers

together!
Food Cost = Cost of Food Sales / Food Sales
Example Food Cost = $625 /$1,850 = 33.8%
Now you have the basic steps to complete your own food cost accurately and
consistently with industry practices. Following is a form to assist you in the
calculation.
CALCULATING YOUR RESTAURANT'S FOOD COST
TIME FRAME:
Start Date_______End Date_______
FOOD SALES (including coffee, juices and non-alcoholic beverages):
A._______
COST OF FOOD SALES:
Food Purchases (including non-alcoholic beverages):_______
Inventory Adjustment:
Beginning Inventory_______
Ending Inventory_______
Difference_______B._______
Food Cost = Cost of Food Sales / Food Sales
FOOD COST =
Line B / Line A =_______=_______%
ANALYZING YOUR FOOD COST
WHAT SHOULD BE YOUR FOOD COST PERCENTAGE? Ron Gorodesky,
President of RAS, maintains that successful restaurants generate food costs
in the low to mid 30's. However, different types of restaurants typically run
higher or lower percentages - steak houses may run up to 40% whereas
Italian restaurants may run about 28%. Comparing your cost percentage to
restaurants with similar menus and service levels provides a more accurate
perspective.
For example, the average food cost is 35.7% for American/Regional menu
themed restaurants and 32.0% for a restaurant in a multi-unit organization.
HOW CAN YOU USE YOUR FOOD COST PERCENTAGE? The next step
requires compiling the sales and costs consistently and regularly, as
comparisons to previous performance can prove very helpful, identifying
problems and trends - remembering that a decrease in food cost is as
important to investigate as an increase. From here, your operation is
positioned to tighten their food costs by standardizing recipes, evaluating
purchasing systems and taking other steps to create a target food cost for
your particular restaurant - with the ultimate goal of positively impacting your
bottom line. So, For Profit's Sake, Inventory Your Food Cost!

Restaurant Advisory Services provides full-service consulting services to the

restaurant and hospitality industries. The firm offers a full menu of advisory
services focusing on every aspect of the life cycle of restaurants and other
hospitality organizations, from pre-opening and conceptual planning, to dayto-day operations, to design and brokerage.