After reading Diary of an Executive Chef in Chapter 4, what most surpised your about the operation of hte kitchen? Would you be interested in this as a career path?
Practice: Diary of an Executive Chef Michael Dutnall As you will appreciate after having studied the theory section of this chapter, operating a commercial kitchen profitably requires insight into various financial measures, such as food cost of sales, payroll costs and the costs of equipment. This practice section explains a number of financial reports available to chefs and provides thought on how to react to the information these reports provide. In addition, practical advice is shared on how to best manage the financial health of a kitchen by combining information from both internal and external sources and making sound managerial decisions at the right time to ensure profitability percentages are achieved in line with the budget and forecast of the business. Introduction The Royal Air Force Club in Mayfair, London is a private members’ club that welcomes current and former officers of the Royal Air Force and their direct family. As it is a not-for-profit organization, all revenue from the five-star quality offerings its 24,000 members enjoy is reinvested in the club and its Grade II listed building in Central London. Many royals have visited the club in its 100-year history, and Her Majesty Queen Elizabeth II is currently the club’s Patron. Next to its 110 bedrooms, the RAF Club is renowned for its high-quality food and beverage services and to our members is a home away from home. It houses the Running Horse Tavern, the Cowdray Lounge and a wonderful Dining Room where it serves à la carte dishes for breakfast, lunch and dinner. In addition, the eight function rooms including the Library and the Ballroom are the backdrop of many private and club events ranging from weddings to gourmet dinners. As Executive Chef of the RAF Club, I manage the financial health of the kitchens that provide food for the various outlets and events in the Club. Our brigade consists of 23 chefs and seven kitchen porters. There are certain recurring financial checkpoints and safety nets which help me manage the expenses of my department, e.g. the food flash and the daily revenue report. Any kitchen has various financial aspects that all need to be aligned in order to achieve healthy profitability: payroll, food purchasing, and all the products needed to run the kitchen (including everything from piping bags to cleaning supplies to frying pans). I will take you through two weeks of my working cycle to give you an example of a kitchen’s financial management process. Daily information and key measurements Food flash On a daily basis I receive the food flash from our Cost Controller, an example of which is pictured in Figure 4.3. It shows the revenue generated by meal period and outlet. It also specifies how much revenue was made through functions in our meeting rooms and events hosted by the Club for which we charge an entry/participation fee. It then shows the total value of the food purchases received per day. On a weekly basis, we divide the total food purchases by the total F&B revenue which gives us the food cost. This is one of the most important key performance indicators (KPIs) in a kitchen. The target food cost a chef works towards differs depending on what type of establishment they work in. Typically, it can vary from 20% to 30%. In general, fine dining restaurants work on the higher end of the spectrum whereas fast food businesses would be around the lowest mark. The target in our Club is 30%. In a kitchen operation, food cost is such an important measurement that it is not uncommon for a Chef’s bonuses to be linked to the budgeted percentage being achieved. It is not overly helpful to look at food cost on a daily basis, as the food received on a day is usually not served on the same day. Therefore, we look at the figures for the week, fortnight and month. In the UK, hot beverages and fruit juices are also considered food and are therefore included in food cost and food revenue numbers. It is important to check these documents daily to spot any mistakes. For example, we run hosted Club events with guest speakers for around 100 attendees. These events usually include a three-course meal. Tickets are sold and paid for in advance, which means the money has already been received by the Club a few days prior to the event. If we then fail to allocate this money (revenue) to the various departments involved and do not split the ticket price into food revenue, beverage revenue and meeting room revenue, there will be no food revenue visible in the ‘Events’ line in the food flash, even though the costs of the food we have bought in for this event are visible. This would show our food cost in a much more negative light than it actually is. Daily revenue report In addition to the food flash, our Finance team sends out the daily revenue report. The daily revenue report is a snapshot of the business’ total performance of the previous day and month to date giving both the Rooms and Food and Beverage departments insight into their performance. For Rooms, it shows occupancy percentage (96.55% in the below), average rate per room (£111.42), total rooms revenue (£9,359), etc. For F&B, it includes how many guests dined (our covers) during which meal period (breakfast, lunch or dinner) in each different food outlet, the total income for all outlets on the day and the average spend or average check per cover. Supplier information Apart from the information supplied by the Club, a number of my food suppliers send out daily specials. In my case, those are my meat supplier and fish supplier. It shows which products I can purchase for good value. These products can then be used for daily or weekly specials, or served in the staff restaurant. The lower the costs of the ingredients in a dish, the lower the food cost will turn out. Next to the information I get sent, I also actively go out looking for updated booking numbers in our reservation system and liaise with the Events team to get final numbers for the events in the upcoming days. Any variance in numbers can have a direct impact on your food cost: for example, an event in two days’ time that was for 100 covers has dropped to 80 covers. Most likely, the food for this will already have been ordered so it leaves me with 20 portions of entrecote steaks that I now need to use somewhere else to avoid them from going to waste. The daily routine in the kitchen also includes checking the fridges holding high value items such as meat and fish to ensure they are still within shelf life. Any food spoilage is not only an unnecessary waste, it will also have an impact on the department’s food cost as it is money spent without any money made from it. Mid-month report Around the fifteenth day of the month, finance teams in large companies can send out mid-month figures. These reports usually show revenues vs. budget, a comparison to last year and an overview of the performance of each department and outlet. It can also specify the costs that have been made so far to keep the department running – in that case, it is basically an “interim” profit & loss statement (P&L) with roughly the same information as the P&L at the end of the month would include. As our Club is not a massive company, I usually use the daily revenue report and a food flash of a day mid-way through the month and look at the month to date figures to have a sense-check of how we are doing so far. In the example below, we are slightly too high in terms of food cost – 30.32% instead of the goal of 30%. Food cost may be of vital importance to the management of the kitchen, but it is not the only financial target we look at. In addition to food cost, payroll is a big expense for any kitchen operation – as it is for the entire hospitality industry. The costs of payroll could make up to 50% of the total costs of running a kitchen and therefore it is extremely important that these costs are controlled in a sensible way. The third significant chunk of costs of operating a kitchen is the money spent on all products used to operate the kitchen – i.e. what we need to cook and produce the dishes. This ranges from cling film to date labels to whisks to mixing jugs. We will look at both of these sets of costs in a bit more detail later on. Managing of costs in response to mid-month In the mid-month report above, our food cost is slightly higher than we would like it to be, with 0.23% above our target. It is then up to me as Executive Chef to work with my team to ensure this is brought down to show a healthy figure at the end of the month. Food cost variances: how to identify and mitigate From the daily information I received throughout the month, I am aware of a number of contributing factors that have pushed up the food cost. First of all, the costs of some of our ingredients skyrocketed. Egg prices are still up as a result of the recent fipronil crisis in mainland Europe. An algae disease killed large numbers of fish driving up the price of e.g. salmon, which is a popular ingredient in restaurants. The announcement of Brexit made the British Pound significantly drop in value, making it more beneficial for British farmers to export their goods to other European countries, leading to fewer products being available for the businesses in Britain. More recently, the unusually bad weather in the first quarter of 2018 prevented many fishermen from going out, which meant the supply of fish dropped and prices which are driven by demand increased. To ensure the impact of these developments is limited I would then re-look at my menus and make alternative choices for our weekly menus and event menus. We have a database of suppliers that we work with, so just as people would use various supermarkets to keep the costs of their own weekly shop down, we also check which supplier has the best deals available. Before changing the menus, there are a number of other things I can do or check to firstly ensure the food cost displayed is the correct figure, and secondly bring it back down to healthy levels. To verify the food cost is correct, I check back on a number of invoices received and compare them to our orders. If the supplier is either charging more for products than were actually delivered, or a higher price per product than what was agreed, the food cost turns out higher than it should be. This does not mean that our suppliers are trying to trick us, but could for example happen