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About the American Hotel & Lodging Association (AH&LA) Founded in 1910, AH&LA is the trade association representing the lodging industry in the United States. AH&LA is a federation of state lodging associations throughout the United States with 11,000 lodging properties worldwide as members. The association offers its members assistance with governmental affairs representation, communica- tions, marketing, hospitality operations, training and education, technology issues, and more. For information, call 202-289-3100.

LODGING, the management magazine of AH&LA, is a “living textbook” for hospitality students that provides timely features, industry news, and vital lodging information.

About the American Hotel & Lodging Educational Institute (EI) An affiliate of AH&LA, the Educational Institute is the world’s largest source of quality training and educational materials for the lodging industry. EI develops textbooks and courses that are used in more than 1,200 colleges and universities worldwide, and also offers courses to individuals through its Distance Learning program. Hotels worldwide rely on EI for training resources that focus on every aspect of lodging operations. Industry- tested videos, CD-ROMs, seminars, and skills guides prepare employees at every skill level. EI also offers professional certification for the industry’s top performers. For infor- mation about EI’s products and services, call 800-349-0299 or 407-999-8100.

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PLANNING and CONTROL for FOOD and BEVERAGE OPERATIONS

Eighth Edition

UNIFORM SYSTEM OF ACCOUNTS FOR THE LODGING INDUSTRY Tenth Revised Edition

WORLD OF RESORTS: FROM DEVELOPMENT TO MANAGEMENT Third Edition Chuck Yim Gee

PLANNING AND CONTROL FOR FOOD AND BEVERAGE OPERATIONS Eighth Edition Jack D. Ninemeier

UNDERSTANDING HOSPITALITY LAW Fifth Edition Jack P. Jefferies/Banks Brown

SUPERVISION IN THE HOSPITALITY INDUSTRY Fifth Edition Jack D. Ninemeier/Raphael R. Kavanaugh

MANAGEMENT OF FOOD AND BEVERAGE OPERATIONS Fifth Edition Jack D. Ninemeier

MANAGING FRONT OFFICE OPERATIONS Ninth Edition Michael L. Kasavana

MANAGING SERVICE IN FOOD AND BEVERAGE OPERATIONS Fourth Edition Ronald F. Cichy/Philip J. Hickey, Jr.

THE LODGING AND FOOD SERVICE INDUSTRY Seventh Edition Gerald W. Lattin

SECURITY AND LOSS PREVENTION MANAGEMENT Third Edition David M. Stipanuk/Raymond C. Ellis, Jr.

HOSPITALITY INDUSTRY MANAGERIAL ACCOUNTING Seventh Edition Raymond S. Schmidgall

PURCHASING FOR FOOD SERVICE OPERATIONS Ronald F. Cichy/Jeffery D Elsworth

MANAGING TECHNOLOGY IN THE HOSPITALITY INDUSTRY Sixth Edition Michael L. Kasavana

HOTEL AND RESTAURANT ACCOUNTING Seventh Edition Raymond Cote

ACCOUNTING FOR HOSPITALITY MANAGERS Fifth Edition Raymond Cote

CONVENTION MANAGEMENT AND SERVICE Eighth Edition Milton T. Astroff/James R. Abbey

HOSPITALITY SALES AND MARKETING Fifth Edition James R. Abbey

MANAGING HOUSEKEEPING OPERATIONS Revised Third Edition Aleta A. Nitschke/William D. Frye

HOSPITALITY TODAY: AN INTRODUCTION Seventh Edition Rocco M. Angelo/Andrew N. Vladimir

HOSPITALITY FACILITIES MANAGEMENT AND DESIGN Third Edition David M. Stipanuk

Educational Institute Books

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MANAGING HOSPITALITY HUMAN RESOURCES Fifth Edition Robert H. Woods, Misty M. Johanson, and Michael P. Sciarini RETAIL MANAGEMENT FOR SPAS HOSPITALITY INDUSTRY FINANCIAL ACCOUNTING Third Edition Raymond S. Schmidgall/James W. Damitio INTERNATIONAL HOTELS: DEVELOPMENT & MANAGEMENT Second Edition Chuck Yim Gee QUALITY SANITATION MANAGEMENT Ronald F. Cichy HOTEL INVESTMENTS: ISSUES & PERSPECTIVES Fifth Edition Edited by Lori E. Raleigh and Rachel J. Roginsky LEADERSHIP AND MANAGEMENT IN THE HOSPITALITY INDUSTRY Third Edition Robert H. Woods/Judy Z. King MARKETING IN THE HOSPITALITY INDUSTRY Fifth Edition Ronald A. Nykiel UNIFORM SYSTEM OF ACCOUNTS FOR THE HEALTH, RACQUET AND SPORTSCLUB INDUSTRY CONTEMPORARY CLUB MANAGEMENT Third Edition Edited by Joe Perdue and Jason Koenigsfeld for the Club Managers Association of America RESORT CONDOMINIUM AND VACATION OWNERSHIP MANAGEMENT: A HOSPITALITY PERSPECTIVE Robert A. Gentry/Pedro Mandoki/Jack Rush ACCOUNTING FOR CLUB OPERATIONS Raymond S. Schmidgall/James W. Damitio TRAINING AND DEVELOPMENT FOR THE HOSPITALITY INDUSTRY Debra F. Cannon/Catherine M. Gustafson UNIFORM SYSTEM OF FINANCIAL REPORTING FOR CLUBS Sixth Revised Edition HOTEL ASSET MANAGEMENT: PRINCIPLES & PRACTICES Second Edition Edited by Greg Denton, Lori E. Raleigh, and A. J. Singh MANAGING BEVERAGE OPERATIONS Second Edition Ronald F. Cichy/Lendal H. Kotschevar FOOD SAFETY: MANAGING WITH THE HACCP SYSTEM Second Edition Ronald F. Cichy UNIFORM SYSTEM OF FINANCIAL REPORTING FOR SPAS FUNDAMENTALS OF DESTINATION MANAGEMENT AND MARKETING Edited by Rich Harrill ETHICS IN THE HOSPITALITY AND TOURISM INDUSTRY Second Edition Karen Lieberman/Bruce Nissen SPA: A COMPREHENSIVE INTRODUCTION Elizabeth M. Johnson/Bridgette M. Redman HOSPITALITY 2015: THE FUTURE OF HOSPITALITY AND TRAVEL Marvin Cetron/Fred DeMicco/Owen Davies REVENUE MANAGEMENT: MAXIMIZING REVENUE IN HOSPITALITY OPERATIONS Gabor Forgacs FINANCIAL MANAGEMENT FOR SPAS Raymond S. Schmidgall/John R. Korpi

PLANNING and CONTROL for FOOD and BEVERAGE OPERATIONS

Eighth Edition

Jack D. Ninemeier, Ph.D., CHA

Disclaimer

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the ser- vices of a competent professional person should be sought. —From the Declaration of Principles jointly adopted by the American Bar Association and a Committee of

Publishers and Associations

The author, Jack D. Ninemeier, is solely responsible for the contents of this publication. All views expressed herein are solely those of the author and do not necessarily reflect the views of the American Hotel & Lodging Educational Institute (the Institute) or the American Hotel & Lodging Association (AH&LA).

Nothing contained in this publication shall constitute a standard, an endorsement, or a recommenda- tion of AH&LA or the Institute. AH&LA and the Institute disclaim any liability with respect to the use of any information, procedure, or product, or reliance thereon by any member of the hospitality industry.

©2013 By the AMERICAN HOTEL & LODGING EDUCATIONAL INSTITUTE 2113 N. High Street Lansing, Michigan 48906-4221

The American Hotel & Lodging Educational Institute is a nonprofit educational foundation.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without prior permission of the publisher.

Printed in the United States of America 1 2 3 4 5 6 7 8 9 10 17 16 15 14 13

ISBN: 978-0-86612-415-7

Preface ................................................................................................ xiii

Part I Introduction to Food and Beverage Control ........................... 1

1 The Challenge of Food and Beverage Operations ................... 3

Travel and Tourism: The Umbrella Industry ...................................... 3 The Hospitality Segment

Overview of Hotel Organization .......................................................... 6 The Food and Beverage Department

Commercial and Noncommercial Food Services ............................... 11 Important Similarities • Important Differences

Overview of Food Service Management ............................................. 14 The Operating Control Cycle • The Management System • The Management Process • Integrating the Process

A Common Problem: The Labor Shortage .......................................... 22 Managing a Multi-Unit Restaurant ...................................................... 23

Multi-Unit Restaurant Organization Structure

The Increasing Role of Technology ...................................................... 24 Endnotes, Key Terms, Review Questions, and Internet Sites ........... 28

2 The Control Function ............................................................. 35

Management Resources and Objectives .............................................. 35 The Manager in the Management Process .......................................... 38 The Control Process ................................................................................ 38

Establish Standards • Measure Actual Operating Results • Compare Actual Results with Standards • Take Corrective Action • Evaluate Corrective Action • Food Service Operations Control

Considerations in Designing Control Systems ................................... 47 Responsibilities for Control ................................................................... 51 Control in Multi-Unit Operations ........................................................ 53 Key Terms, Review Questions, Internet Sites, and

Mini-Case Studies ............................................................................. 53

Contents

vi Contents

Part II Planning for Food and Beverage Control ................................ 59

3 The Menu: The Foundation for Control .................................. 61

Food Service Control Points .................................................................. 61 The Menu’s Influence ............................................................................. 63 Menu Planning ........................................................................................ 64

Marketing and the Menu • Theme and Atmosphere • Menu Planning Strategies • Building the Menu • Dining Trends • Menu Design • Menu Changes

Calculating Menu Selling Prices ........................................................... 70 Subjective Pricing Methods • Objective Pricing Methods • Important Pricing Considerations

Evaluating the Menu .............................................................................. 83 Defining Profitability • Defining Popularity • Evaluating Menu Items • Improving the Menu

Menu Planning in Multi-Unit Organizations ..................................... 91 Menus and Technology .......................................................................... 92

Menu Planning and Technology • Menu Design and Technology • Menu Production and Technology • Menu Engineering and Technology

Endnote, Key Terms, Review Questions, Internet Sites, Case Study, and Problems................................................................ 99

4 Operations Budgeting and Cost-Volume-Profit Analysis ......... 111

The Budget Process: An Overview ....................................................... 111 Budgeting in Multi-Unit Operations • Budget Reforecasting

Three Steps of Budget Development ................................................... 116 Step 1: Calculate Projected Revenue Levels • Step 2: Determine Profit Requirements • Step 3: Calculate Projected Expense Levels

Budget Development: An Example ...................................................... 123 Step 1: Calculate Projected Revenue Levels • Step 2: Determine Profit Requirements • Step 3: Calculate Projected Expense Levels

The Operating Budget as a Control Tool ............................................. 128 Technology and Budget Development

Cost-Volume-Profit Analysis ................................................................. 132 CVP Assumptions and Limitations • The Basic CVP Equation • CVP Example: The Lumberjack Cafe • CVP Example: The Plantation Grill

Contents vii Endnotes, Key Terms, Review Questions, Internet Sites,

and Problems ..................................................................................... 139

5 Determining Food and Beverage Standards ............................ 145

Standard Recipes..................................................................................... 146

Developing Standard Recipes • Sources of Recipes

Standard Purchase Specifications ......................................................... 153 Standard Yields ....................................................................................... 154

Determining Standard Yield • Cost per Servable Pound • The Cost Factor • Adjusting Standard Recipe Yields

Standard Portion Sizes ........................................................................... 158 Standard Portion Costs .......................................................................... 159

Calculating Standard Menu Item Costs • Calculating Standard Portion Cost: Beverage • Special Standard Cost Tools for Beverage Control

Recipe Management Software .............................................................. 166

Ingredient File • Standard Recipe File • Menu Item File • Precost and Postcost Analysis

Standard Food Costs .............................................................................. 168

Calculating Standard Costs per Meal

Standard Beverage Costs ....................................................................... 170

Computerized Standard Beverage Cost Calculations

Use of Standard Costs in Multi-Unit Operations ............................... 172 Endnotes, Key Terms, Review Questions, Internet Sites,

and Problems ..................................................................................... 174 Chapter Appendix: Weight and Measurement Conversions ........... 181

Part III Designing Effective Food and Beverage Control Systems ....... 183

6 Purchasing and Receiving Controls ........................................ 185

Purchasing Objectives and Procedures ............................................... 185 Purchasing Responsibilities .................................................................. 187 Selecting Suppliers.................................................................................. 187 Purchasing the Proper Quality ............................................................. 189 Purchasing the Proper Quantities ........................................................ 191

Perishable Products • Non-Perishable Products

The Purchase Order System .................................................................. 195

Technology and Purchasing Systems

viii Contents Security Concerns in Purchasing .......................................................... 201 Reducing the Cost of the Purchasing Function .................................. 203 Purchasing in Multi-Unit Organizations ............................................. 204 Receiving Controls .................................................................................. 205

Receiving Personnel • Receiving Procedures • Request-for-Credit Memos • Marking Procedures • Security Concerns in Receiving • Technology and Receiving Systems

Key Terms, Review Questions, Internet Sites, Case Study, and Problems ..................................................................................... 214

7 Storing and Issuing Controls .................................................. 223

Storing Control: General Procedures ................................................... 223

Inventory Control Policy • Separating Directs from Stores • Defining Storage Areas

Security Concerns in Storage Areas ..................................................... 226

Limit Access • Lock Storage Areas • Minimize Behind-Bar Storage • Control Storeroom Keys

Maintaining Quality During Storage ................................................... 227

Rotate Products • Ensure a Properly Controlled Environment • Implement Effective Sanitation Practices • Ensure Proper Storage

Inventory Control Procedures .............................................................. 229

Inventory Turnover • Inventory Recordkeeping Systems • Physical Inventory System • Perpetual Inventory System

Technology and Inventory Management ............................................ 235

Inventory Management Information • Technology and Inventory Counting

Special Beverage Inventory Concerns.................................................. 242

Behind-Bar Inventory Costs

Issuing Control: General Procedures ................................................... 245

Issuing Procedures • The Food Issue Requisition Process • Computer-Generated Issue Quantities

The Beverage Issue Requisition Process .............................................. 248

Establishing Bar Par Inventory Levels • Beverage Issuing Steps • Bottle Marking • Additional Beverage Control Concerns

Endnotes, Key Terms, Review Questions, Internet Sites, Case Study, and Problems................................................................ 251

Contents ix

8 Production and Serving Controls ........................................... 261

Production Planning............................................................................... 261

Forecasting Production Requirements • Formulating Production Plans • Production Planning and Food Purchasing • Production Planning: Convenience Foods • Special Beverage Production Planning Requirements

Production Control ................................................................................. 269

Quality Requirements • Maintaining Standards • Production Cost Control Procedures • Special Beverage Cost Control Procedures

Food Serving and Service ...................................................................... 275

The Server and the Guest • Server Responsibilities • Service Control Factors

Technology and Service ......................................................................... 280

POS Technology • Order Entry Devices • POS Printers • Managing Guest Accounts • Other Automated Service Applications

Automated Beverage Control Systems ................................................ 292

Order Entry Devices • Delivery Networks • Dispensing Units • Management Considerations

Endnotes, Key Terms, Review Questions, Internet Sites, Mini-Case Studies, and Problems ................................................... 296

Part IV Using Information from the Control System .......................... 303

9 Calculating Actual Food and Beverage Costs .......................... 305

Actual Food and Beverage Costs: Monthly Calculations ................. 306

Actual Cost of Sales: The Basic Calculation • Sources of Information for Basic Cost of Sales • Calculating Inventory Value • Adjustments to Basic Cost of Sales • Sample Calculations

Actual Food Costs: Daily Calculations ................................................ 320

Components of Daily Food Costs • Sources of Actual Daily Food Cost Information • Calculating Actual Daily Food Costs

Actual Beverage Costs: Daily Calculations ......................................... 323

Principles for Calculating Actual Daily Beverage Costs • Procedures for Calculating Daily Beverage Costs: Manual System • Bartender Performance Review

Technology and Actual Product Cost Calculations ........................... 328 Endnotes, Key Terms, Review Questions, Internet Sites,

and Problems ..................................................................................... 329

divyamani

x Contents

10 Control: Analysis, Corrective Action, and Evaluation ............. 337

Analyzing: Comparing Standards with Actual Results .................... 337 The Comparison Process • Comparison Process Questions • Managing Variances • Potential Profits • Identifying the Problem

Taking Corrective Action ....................................................................... 348 Assigning Responsibility

Evaluating the Effectiveness of Corrective Actions ........................... 353 Technology and Analysis, Corrective Action, and Evaluation ......... 354 Endnotes, Key Terms, Review Questions, Internet Sites,

and Problems ..................................................................................... 355

Part V Controlling Revenue .............................................................. 359

11 Revenue Control .................................................................... 361

Revenue and Guest Check Control ...................................................... 361 Manual Guest Check Systems • Automated Guest Check Systems

Collecting Revenue from Guests .......................................................... 364 Server Banking System • Cashier Banking System • Revenue Reports

Assessing Standard Revenue: Beverage Operations ......................... 373 Beverage Revenue Standards: Manual System • Beverage Revenue Standards: Automated Systems

Key Terms, Review Questions, Internet Sites, and Problems ........... 379

12 Preventing Theft of Revenue ................................................... 385

Theft by Bartenders ................................................................................ 386 Theft by Misuse of Revenue Management Equipment • Theft by Misuse of Beverage Products • Preventing Theft through Shopper Services

Theft by Cashiers .................................................................................... 394 Theft by Food and Beverage Servers and Other Staff ....................... 394 Theft by Guests ....................................................................................... 398 Employee Theft from Guests................................................................. 402 Control of Cash after Collection ........................................................... 405

Preventing Theft of Bank Deposit Funds • Preventing Theft When Bills Are Paid • Preventing Bookkeeper and Accountant Theft • Employing Other Revenue Control Tactics

Key Terms, Review Questions, Internet Sites, and Mini-Case Studies ..................................................................... 410

Contents xi

Part VI Controlling Labor Costs ......................................................... 415

13 Labor Cost Control ............................................................... 417

Managing Human Resources ................................................................ 418 Basic Staffing Tools • Recruitment and Selection Procedures • Employee Orientation Procedures • The Training Process • Employee Supervision • Employee Performance Evaluation

Factors Affecting Work Performance and Productivity .................... 430 Work Simplification and Labor Cost Control ..................................... 436

Increasing Productivity

Labor Control and Employees .............................................................. 438 Employee Motivation • Increasing Interest in Work • Controlling Turnover

Human Resources and Multi-Unit Management ............................... 443 Area Manager Responsibilities

Endnotes, Key Terms, Review Questions, and Internet Sites ........... 446

14 Implementing Labor Cost Controls ........................................ 451

Establishing Labor Standard Measurements ...................................... 451 Determining Productivity Rates ........................................................... 453 Constructing a Staffing Guide .............................................................. 455

Fixed Versus Variable Labor • Staffing Guides and Budgets

The Staffing Guide as a Scheduling Tool ............................................. 461 The Staffing Guide as a Control Tool ................................................... 465

Variance Analysis • Comparing Actual Labor Costs to Budgeted Labor Costs • Planning Corrective Action

Employee Scheduling in Multi-Unit Operations ............................... 470 Automated Labor and Payroll Information Systems......................... 474

Other Labor Control Applications • Payroll Register File

Endnote, Key Terms, Review Questions, Internet Sites, and Problems ..................................................................................... 478

Index ................................................................................................... 485

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xiii

Preface

CONSISTENCY IS A GOOD THING in food and beverage operations. Ideally, managers and their supervisors will work together to develop standards that define how products should be prepared and served. These standards focus on what is neces- sary to provide value to guests so they will most enjoy their dining experience, whether it be a fast meal in a quick-service restaurant or a fine dining opportu- nity in a high-check-average establishment. A next step to ensure consistency is to develop policies and procedures that enable related costs to be minimized with- out sacrificing quality. Both of these strategies—focusing on the guests and then developing procedures to please them—have long been core principles of success in food and beverage operations.

Those operations that recognized and practiced these principles performed better than their counterparts during the recession of 2007–2009. They adapted menus and services to meet the economic concerns of their markets and to keep their customers returning, and they continued to use cost-effective procedures so value pricing could remain an alternative. Wise managers understand that best practices to spend limited resources wisely are just as useful in good financial times as they are during hard times. One does not waste money just because there are higher revenue levels.

This book addresses cost control aspects of food and beverage management. However, it assumes that managers have looked and will continue to look at the business from their guests’ viewpoints. The absence of this ongoing discussion does not mean these concerns are not important. In fact, they are critical.

Nothing, however, has changed more in the food service industry during the thirty-plus years since the first edition of this book was published than the technol- ogy used for operational planning and control. Operations of all sizes now have more tools and information available to help decision-makers plan and control their operations in order to reach financial and other goals. While previous edi- tions of this book have addressed technology in the context of “what was new” between publication dates, this edition fully integrates technology information with the control processes and procedures discussed. When illustrating points, this edition uses examples drawn from computerized rather than manual plan- ning and control systems, in recognition of the increased role that technology plays in food and beverage operations of almost every size. Also, “Learn More on the Web” sidebars throughout the text point readers to web-based resources that provide the latest information for those readers who want to more fully explore the technology issues and other topics discussed.

Thankfully, some things have not changed for this edition. The eighth edition of Planning and Control for Food and Beverage Operations continues an emphasis on practical activities that managers in food service operations of all sizes can use to plan and control their operations. Managers are extremely busy, and they must make the best use of their time to control their always limited resources. The pri- mary topics of this book—food and beverage products, labor, and revenue—are

xiv Preface carefully analyzed, and the best strategies for their management in commercial and noncommercial food service operations are provided. This book is meant to be read and used. Students in formal educational programs and trainees in hospital- ity operations may read the book from cover to cover as part of formal or informal professional development and …