Readers’ Q&A with Steven Brown on F&B pricing

Tania Longmire
By Tania Longmire October 20, 2011 13:41

Readers’ Q&A with Steven Brown on F&B pricing

Alan Macfarlane, Scotland: I am having trouble achieving my gross margin on food.

My problem is that the committee is requiring a 60 per cent margin, which I believe to be excessive, as our chief source of income is the faithful bar snack (bacon sandwich).

Steven Brown: This is a fairly common complaint (I sound like a doctor now don’t I!). Any food service will struggle to make a 60 per cent margin on a bar snack menu alone if, as I suspect, the usual golf club members’ mentality regarding the provision of food prevails. Allow me to explain.

When I am being asked to investigate poor performing F&B operations I am constantly faced with the following dilemmas raised by my clients:

1. The members don’t want to pay any price that approaches a reasonable high street price (for example, they demand a cup of coffee for 60p and a sandwich for £1.75).

2. The committee responsible for pricing (and therefore profitability) has little understanding of the factors that affect gross margins (and profits).

3. The members make demands upon the F&B outlet but shy away from considering the possible expansion of their catering offer into more profitable areas of catering (for example, function activity) because it may change the ethos of the club or the rules.

Many readers will know my thoughts on all of these issues but in response to the original question I will keep it brief. Firstly, while I understand that the payment of an annual fee (social or otherwise) should indeed grant members certain privileges I don’t believe that food at just above break even is one of them!

If, however, that is how your club wishes to allow the provision of food to its members, that’s fine, so long as in the next breath they don’t then expect a 60 per cent gross margin!

That expectation is unrealistic and places an unfair onus on the F&B manager, who is desperately attempting to balance the books.

A decision must be made to either charge unrealistic retail prices and not achieve 60 per cent, or charge prices that will achieve 60 per cent but possibly enrage the members.

Secondly, how many golf clubs do you know that have, as committee members, people whose daytime job it is to control F&B operations in the business world? I am not denegrating the excellent work that these members do, merely the level of knowledge and expertise they possess in relation to offering advice to the F&B managers on how to achieve the targets they set.

If they were challenged by the F&B manager to offer advice on how to achieve a 60 per cent margin, then what would that advice be?

They would need to be able to offer advice on the following:

a) The formula for correctly calculating a 60 per cent gross margin;

b) The precise workings of a costing sheet showing a detailed breakdown of each dish’s costs and the contribution of every item shown;

c) The range of purchasing options (local or national suppliers);

d) The effects of seasonality on products;

e) Acceptable levels of waste that affects margins;

f) Competitor activity and pricing;

g) The make up of their demographics and their individual spending power;

h) Matching the level of service availability to the customers’ expectations (service time and style that greatly affect pricing).

I urge you to discuss these issues with your own committee to be better able to asses their level of competence in advising you of how to achieve the required 60 per cent margin.

Thirdly, there is no doubt in my mind that if the club was to consider expanding its catering offer into function activity then, with careful control and planning, you could easily achieve your 60 per cent margin and then some.

Whilst you have not stated whether or not your club is capable or willing to consider this expansion it is certainly worthy of consideration. However you must be aware of all the cost issues related to that expansion, not the least of which will be employing a chef, not a cook, new equipment, more staff and no lack of disruption to the existing members’ routine. While that may seem daunting there are great profits to be made for ‘professional caterers’ and in so doing the spectre of achieving a 60 per cent margin off the back of a rasher of bacon diminishes rapidly.

I hope this will help you and good luck.

Wally Crabtree, Surrey: My staff wage bill is enormous and growing bigger every year. My problem is I don’t have any guidelines on what I should be paying or how I match up to industry norms. Can you offer any guidance and is there a formula for calculating a wage percentage?

SB: Your wage cost will very possibly be your single biggest outgoing and needs to be carefully controlled.

Having said that, golf clubs are notoriously difficult to measure and control due to the nature of the business – allow me to illustrate.

Industry Norms in F&B:

a) Staff purely dedicated to operating a bar and with no input into the catering operation save taking orders. The industry works on a 10 to 12 per cent wage percentage – that is, £10 to £12 will be spent on bar staff for every £100 of VAT-exclusive turnover taken. Now don’t panic, that is an industry norm for bars. I will explain how and why it is different in golf clubs in a moment.

b) There are three very different industry norms for wage percentages relating to catering,

i. The sandwich operation – a wage percentage of approximately 15 per cent,

ii. The hot snacks service (for example ham, eggs and chips), a wage percentage of 25 per cent,

iii. The full blown restaurant (for example cordon bleu offering and a chef) – a wage percentage of 35 to 50 per cent. (This will rise to 55 per cent with function catering).

Here is why there are differences. The cost, in labour terms, of producing a sandwich (preparation time) is far removed from that of producing a steak. In pure costs terms you may be as profitable in net profit terms to produce a sandwich as to produce a steak because of vastly reduced overheads, the biggest of which is the staff cost. I have no doubt that you also suffer the same fate as every other golf club catering operation, namely:

a) You need to employ staff at times to suit the customer requirements, (for example, the chef has to be in at 8am to produce a full English and no customers turn up);

b) I am paying a chef £35k a year to produce bacon sandwiches!

c) My bar staff also double up as the waiting on staff.

This last point is fairly typical and is to my mind a good use of resources. It does, however, make it virtually impossible to dedicate the staff’s working hours specifically to one department or the other, leaving you with an overall staff bill ranging from 25 to 60 per cent!

You must ensure that your staff multi task and that you get the best return on your investment. Whatever your staff wage percentage currently is, review it. Cut out inefficiency, ensure that the service standards are not affected and then review it on a regular basis being ruthless where you need to be.

I know many clubs would not survive if it wasn’t for the goodwill of some members of staff who put in unpaid time to ensure the bar and catering operation is available when customers need it to be and that is to be applauded, but in business terms I ask these questions: “How much profit did each member of your F&B team generate for you last week? How much on average (a working week) did staff take every hour and did that justify the expense?”

If the F&B operation is meant to be simply a non-profit making service then staff-wage analysis doesn’t matter. If, however, you believe, as I do, that your F&B should be run on commercial lines, then please pay attention to your staff wage percentage.

Here’s the formula for calculating it for the week: VAT ex turnover divided by wage payments times 100 equals the wage percentage.

Hope this helps.

Tania Longmire
By Tania Longmire October 20, 2011 13:41
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