Chapter 7

Standard Product Costs &

Pricing Strategies

Food and Beverage Operations

1Tuesday, May 19, 2009

Chapter Overview

• Standard recipes• Standard food & beverage costs• Menu pricing methods

2Tuesday, May 19, 2009Essential knowledge for Food Service Professionals

The time to begin considering this information is during college.

Standard Recipes

• A standard recipe: a formula for producing a food or beverage item– Ingredients– Quality of each ingredient– Preparation procedures– Portion size– Portioning equipment– Garnish

3Tuesday, May 19, 2009The standardized recipe is commonplace in large hotels, restaurants and chain restaurants

Advantages of Standard Recipes

• Consistency of quality, flavor, portion size

• Efficient purchasing practices• Preparation of correct number of items• Effective scheduling• Less supervision required• Elimination of guesswork• Less reliance on employee memory

4Tuesday, May 19, 2009Strict standards in the kitchen begin with accuracy, consistency and portion control

Steps for Standardizing Recipes

1. Select time period for development2. Have the chef or bartender describe

preparation3. Double-check recipe by observation4. Record the recipe5. Share the recoded standard recipe with

staff6. Test for quality and quantity (Exhibit 6 p.162)

7. Train employees in standard recipe use

Chaining Recipes – Including sub-recipes as ingredients for a standard recipe.

5Tuesday, May 19, 2009

Adjustment Factor

• To accurately increase or decrease the yield of a standard recipe

• Divide the desired yield by the original yield

Adjustment Factor =

Desired Portions (225)

Original Portions (100)= (2.25)

New Amount =

8 oz(original amount)

X2.25

(adjustment factor)

=18 oz

6Tuesday, May 19, 2009

Cost Calculations

• Portion Cost: Divide the total cost of the item by the number of portions the recipe yields.

Portion Cost = Total Cost ($75)

Portions (50) =($1.50)

7Tuesday, May 19, 2009Food cost typically range from 24-35%

Cost Calculations (cont.)

• Total Meal Cost: Add the portion costs of all meal components

• Contribution Margin: Subtract food costs from food revenue

Contribution Margin = Selling Price - Food Costs

8Tuesday, May 19, 2009

Standard Beverage Cost

9Tuesday, May 19, 2009Usually 15-18%

Standard Beverage Cost (cont.)

Cost per Ounce: divide the cost of the bottle by the number of ounces per bottle e.g. per-ounce cost $1 = $25/25oz

Drink Cost Percentage: Divide drink cost by drink selling price and multiple by 100

Drink Cost Percentage= (Drink Cost / Drink Selling Price) X 100

e.g. Drink Cost Percentage 25%=($1/$4) X 100

10Tuesday, May 19, 2009

Subjective Pricing Methods• Reasonable

– Represent a value to guest• Highest

– Guest will be willing to pay• Loss-leader

– Draw in guests who will order more expensive items once they are on the premises

• Intuitive– Will appeal to guests; trial-and-error

11Tuesday, May 19, 2009

Objective Pricing Methods (cont.)

• Desired food cost percent markupSelling Price = item's standard food cost

divided by desired food cost percente.g. $1.5/33%= $4.55

Elasticity of demand– Relationship between selling price and

volume sold– Demand responds to price changes

12Tuesday, May 19, 2009

Objective Pricing Methods (cont.)

Is Lower Food Cost Percentage the Goal?

MenuItem

Food Cost

Menu SellingPrice

Food costPercent

ContributionMargin

Chicken $2.50 8.25 30.3 $5.75

Steak $5.50 14.00 39.3 $8.50

13Tuesday, May 19, 2009Although Pricing is crucial to make a profit

Variety and guest satisfaction needs to be considered for repeat business.

Objective Pricing Methods (cont.)

• Profit Pricing– Allowable food cost

ForcastedFood

Revenue- Nonfood

Expenses -Profit

Requirements

= Allowable FoodCosts

$800,000 - $415,000 - $75,000 = $310,000

14Tuesday, May 19, 2009

Objective Pricing Methods (cont.)

• Budget food cost percent: divide allowable food costs by forecasted food sales.

Budgeted FoodCost Percent =

$310,000 (allowable food costs)

$800,000 (allowable food costs) = .388

(39% rounded)

The resulting percentage is divided into an item's standard food cost to arrive at a selling price. e.g. $1.5 / .39 = $3.85

15Tuesday, May 19, 2009