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594 Hereford Steak Hauses Thomas Ahrens, United Arab Emirates University and Christopher Chapman. Imperial College London f'd love to lrnow where I am as an area manager. f don ·t lrnow what to do with food margin. Sha/1 I say to my restaurant managers. weil done? Thank you? You·re fired? Hereford Steak Houses operated a chain ot more than 200 wholly owned, full-service restaurants across the UK. Over the past 10 years the division had achieved substan tial growth in revenue · aod eamings through the addition of new restaurants. More recently, however, with increasing numbers of new entrants to the UK eating-out market and the growing saturation of Hereford Steak Houses' own outlets, senior managers were increasingly turning their attention to internal financial controls as a means to sustain earnings growth. National branding and rnarketing for the chain was managed centrally by Hereford Steak Houses' head office. Most significant to this was the nationwide menu that defined the food specifications, cost and price of all dishes for sale 1n all outlets. Menus were designed to deliver a target food gross profit margi.n that was agreed between tl1e boards of Hereford Steak Hauses and t'he corporate leisure group of which it was part, and applied to all of Hereford Steak Houses' o□tlets. While food cost was a primary element of restaurant cont.rollable costs, as the above quotation from an area man ager indicates, there was a lack of agreement on how the food margin reports should Source: Thomas Ahrens, United Arab Emirates Uni�ersity and Christopher Chapman, Imperial College London. Case 304 be used to evaluate a restaurant manager. Restaurant managers emphasised that they wanted leeway to meet the demand of their local clientele. The gross profit ma.rgin was defined as sales minus cost of food used, and was generally referred to as the 'food margin'. For each new menu a selection of dishes was iteratively developed in order to achieve the target food margin (in terms of percentage and cash). This was a compJicated process since tbe menu needed to con tain dishes at a range of price points ta appeal to different customers. Depending on the selHng price, different levels of margin were realistic. For example, a very h.igh margi.n on high-cost dishes resulted in unrealistic sales prices, but could be sustainable an law-cost dishes. High-volume dJshes offered scope for the centralised purchasing department an negatiate substantiaI price discounts. Hereford Steak Hauses' position as a buyer of large quantities of food also allowed them to enforce strict quality stand ards for raw materials. The process of developing individual restaurant budgets started with an estimatiao of the achievable level af sales growth based on expected number of dishes and prices from the central rnenu. Budgets were paiostakingly built up. They drew on the data base of standard ingredient costs, which included a standard allowance for wastage (Exhibit 304.1). Then dish specificatians, prices and expected sales mix weie decided (Exhibit 304.2). For weekly rnanagement reparting this da.ta was used to generate a target food margin based on each restaurant's actual dish-mix that could be compared with the actual cost of food used (Exhibit 304.3). The actual cost of food was calcu lated by adding the opening inventory to deliveries received minus clasing lnventory (see Exhibit 304.4). Menu design ingredients database report Standard wastage percentage: 1% lng·redient no. Descripti.on Input cost Wastage Standard cost 100 1 pat butter 0.05 0.001 0.05 101 1 standard gamish 0.20 0.002 0.20 102 1 sachet ketchup 0.05 0.001 0.05 .151 1 bread roU 0.15 0.002 0.15 297 1 portion of fries 0.60 0.006 0.61 314 1 carton vegetable soup 2.40 0.024 2.42 601 9 oz rump steäk 6.00 0.060 6.06 907 6 oz fro1.en cod Cillet 3.60 0.036 3.64 915 1 fish finger 0.25 0.003 0.25 595 (/) E QJ - ..0 0 L. a. >,, "'O ::, - (/) QJ U1 n, u 1- a:::<( a..="" 1="" case="" 304="" 1="" 1'="" 11="" 1="" dishno.="" 1="" 11="" 12="" 21="" !'="" 596="" oish="" specification="" and="" costing="" report="" @="" standa-rd="" cost="" sales="" cost="" price="" description="" %="" sales="" ingredients="" (l)="" (e)="" soup="" 10.0%="" 1="" pat="" butter="" 0.05="" 1="" bread="" roll="" 0.15="" 1="" carton="" vegetable="" soup="" 2.42="" --="" total="" f.2.63="" e5.50="" --="" ---="" steak="" and="" chips="" 45.0%="" 1="" standard="" garnish="" 0.20="" 1="" portion="" of="" fries="" 0.61="" 9="" oz="" rump="" steak="" 6.06="" --="" total="" f.6.87="" f.11.95="" --="" ---="" fish="" and="" chips="" 25.0%="" 1="" standard="" garnish="" 0.20="" 1="" portion="" of="" fries="" 0.61="" 6="" oz="" frozen="" cod="" fillet="" 3.64="" total="" u.44="" es.so="" --="" ---="" fish="" fingers="" 20.0%="" 1="" sachet="" ketchup="" 0.05="" 1="" portion="" of="" fries="" 0.61="" 3="" fish="" fingers="" 0.75="" total="" ll.41="" f.4.95="" --="" ---="" restaurant="" no.="" 219="" budget="" report="" -="" week="" 48="" dishes="" revenue="" cast="" grass="" profit="" margin="" (l)="" grass="" profit="" margin="" (%)="" soup="" steak="" and="" chips="" .fish="" and="" chips="" fish.="" fingers="" budget="" 1500="" 13563.75="" 7120.50="" 6443.25="" 47.5%="" actual="" dishes="" sold="" 240="" 480="" 480="" 400="" gross="" profit="" margin="" (%)="" (l)="" 52.3%="" ez.87="" --="" --="" 42..5%="" es.os="" --="" --="" 47.7%="" u.06="" --="" --="" 71.4%="" t:3.54="" --="" --="" actttal="" 1600="" 13116.00="" 6805.50="" 6310.50="" 48.1%="" case="" 304="" restaurant="" no.="" 219="" stock-keeping="" report="" -="" week="" 48="" opening="" purchases="" closing="" stock="" during="" stock="" lngredient="" no.="" description="" count="" week="" ccmnt="" 100="" 1="" pat="" butter="" 200="" 120="" 30="" 101="" 1="" standard="" garnish="" 200="" 1300="" 300="" 102="" 1="" sachet="" ketchup="" 300="" 400="" 300="" 151="" 1="" bread="" roll="" 300="" 100="" 60="" 297="" 1="" portion="" of="" fries="" 2000="" 900="" 1840="" 314="" 1="" carton="" vegetable="" soup="" 100="" 180="" 40="" 60l="" 9="" oz="" rump="" steak="" 300="" 400="" 160="" 907="" 6="" oz="" frozen="" cod="" fille.t="" zso="" 300="" 70="" 915="" 1="" fish="" finger="" 200="" 1200="" 200="" .ln="" order="" to="" take="" advantage="" of="" centralised="" purchasing="" and="" also="" to="" ensure="" tight="" con="" trol="" over="" quality="" standards,="" restaurants="" sourced="" all="" their="" food="" purchases="" through="" the="" centralised="" supply="" chain.="" especially="" for="" seasonal="" produce="" it="" was="" normal="" for="" hereford="" steak="" hauses="" to="" agree="" price="" bands="" with="" their="" food="" suppliers.="" fluctuations="" in="" the="" price="" of="" food="" purcbased="" were="" accounted="" for="" by="" the="" central="" purchasing="" department.="" the="" weekly="" buclget="" report="" for="" the="" restaurants="" were="" based="" on="" the="" standard="" costs="" that="" had="" been="" defined="" during="" the="" design="" of="" the="" menu.="" questions="" 1="" calculate="" the="" following="" variances="" for="" restaurant="" no.="" 219:="" static="" budget="" vanance.="" sales="" volume="" variance,="" sales="" mlx="" varianc:e.="" sales="" quantity="" variance="" and="" lhe="" flexible="" budget="" variance.="" 2="" calc:ulate="" usage="" (="efficiency)" variances="" for="" all="" ingredients="" for="" restaurant="" no.="" 219.="" 3="" ii="" yoo="" were="" the="" manager="" of="" restaurant="" no.="" 219,="" what="" woutd="" you="" do?="" 4="" recently="" the="" central="" purchasing="" department="" managed="" to="" secure="" a="" 5%="" reduction="" on="" the="" mput="" cost="" for="" steaks="" and="" a="" 15%="" reduction="" in="" the="" input="" costs="" cf="" portions="" of="" fries="" compared="" with="" those="" shown="" in="" exhibit="" 304.1.="" calculate="" the="" result,ng="" price="" variances="" for="" restaurant="" no.="" 219="" for="" week="" 48.="" 597="" ii)="" e="" qj="" __,="" ..c="" 0="" l..="" a.=""> "'O ::, ..... 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