Butchering and the Inventory Impact

Hi Joe,
My question would also be, how do account for it in inventory. Right now we are sitting on 400 lbs of this usable trim product for grinding stewing or otherwise. We will generate revenue from it, but wonder do we count it at a discounted price per pound or the original price per lb. that we paid for it when it was a whole muscle item?

Thanks for the quick and informed response. Greatly appreciated!!

Cheers,
Ross

Imagine you have a vendor, Fabricated Beef Products, who you swap whole pieces of meat for fabricated, portion control items. You never pay this vendor any money since you swap one large item for several smaller items. If you give them $1,000 worth of whole sirloin and they return sirloin steaks and ground beef, you would treat the transaction as a wash.

Credit the inventory value of the whole piece of meat. Then debit the inventory for the steaks and trim meat. If you decide to treat the trim as free, the steaks would carry the full cost of the whole piece of meat. On the other hand, if you place a value on the trim, discount the value of the whole piece by the trim credit and then value the steaks based on the net.

The key issue here is the value of the steaks. You probably would not spend the labor cost butchering the whole sirloin simply to achieve many pounds of ground beef. If you have a true value in your operation for the trim meat (I use revenue generating menu items for my test.), go ahead use a full credit based on comparable market prices for ground beef.

The total of the steaks and trim for a specific production batch would be exactly equal to the value of the whole sirloin used in the batch. In a nutshell, your steak cost goes higher as the credit for trim goes lower.

It seems you meet the criteria for valuing the trim based on the market cost of ground beef. Your inventory value of the steaks and trim should reflect the cost of the whole sirloin used to produce these items.

Butchering and Usable Trim

Hi Joe,
Just a quick question we are having a debate about at out businesses.

We bring in our own whole sirloins of beef, trim them, and cut and portion them to our specs typically for sirloin steaks in a variety of portions 8 oz. and 10 oz. cuts.

So we have 3 items resulting from that process:
1. A usable salable product in the form of cut and portioned sirloin steaks as mentioned above.
2. We get actual waste that does not go into anything other than soups, stocks, reductions etc…
3. And we have a considerable amount of usable trim that we can manipulate into another food form and generate revenue with, i.e. burgers, chop steak, etc.

My question is we have a considerable amount of this usable salable trim in our freezer. The question is how we account for it in our inventory. At the price/ lb we paid for it upon delivery, a factored price after we it is trimmed and in the ready to use format in the freezer waiting to be utilized (essentially the same costing formula applied to the steaks we are portioning for immediate sale) or at a cost reduced price as it is no longer a part of the original piece of meat we would be using to generate sales with in the immediate as we do with the portioned steaks.

Your wealth of knowledge and assistance here would be greatly appreciated!! Get back if you can.

Kindest Regards,
Ross Munro

There are two schools of thought on this issue Ross. The first group charges the cost of the whole sirloin to the steaks. They consider all usable trim "free" and they use the total weight of steaks divided into the purchase cost of the whole sirloin to calculate the cost per usable pound. This philosophy is correct if the trim is used in employee meals, stock pots, etc.

The second school of thought credits the cost of usable trim. Typically, there are two primary trim bi-products: ground beef and stew meat. These people weigh the ground meat and cost the credit using the prevailing cost per pound for ground beef. They do the same for the stew meat. The net cost is then divided by the weight of the steaks to get a cost per usable pound.

I prefer the second method if the restaurant serves burgers, meatballs, meatloaf and entrees which utilize the stew meat. The bones may also be credited if you genuinely gain revenue from their use. If the chef had to buy beef bones for base menu items and did not need to purchase as many due to the butchering process, you can go ahead and follow suit with the bones.

Menu Planning and Strategy

Our industry is experiencing a shift in the demand curve. Restaurant goers are downsizing from upscale to casual, casual to fast casual and fast casual to QSR and take-out. The regular patrons at many family owned restaurants are watching their checks and eliminating an appetizer or dessert course. If you have a lower priced entree on your menu, you may find the popularity on the increase.

Most of the menu analysis and menu engineering models were built during a time of solid annual growth for our industry. These models focus on high gross margin entrees loved by patrons. Blindly using these models to adjust menu prices may hurt your bottom line. These models are designed to eliminate low gross margin menu items if the popularity is low.

Rather than completely eliminating these dogs, you may want to repackage these items. Take them off your printed menu and try them as budget specials. You may find a winner or two.

The stars need to get your full attention. Are your guests still selecting the reliable cash cows? You may see the high gross margin items slipping in popularity. Chef Mario Batali (one of my favorite chefs) was quoted in a USA Today article: "There's less caviar, foie gras and truffles, but they're still there. They're just not on nine courses. They're on one course." This same article highlights other chefs who have decided to offer more price points for their patrons.

Expense accounts are being scrutinized at every major S&P 500 company. The current earnings season on Wall Street shows companies are slashing costs.

The wine lists are offering guests fewer trophy bottles as demand for the $200 plus bottle of wine has collapsed. Many restaurants religiously ordered their annual commitment from the same boutique vineyards without regard to consumption. Now, these wine cellars are loaded with these high cost bottles. Many have decided to end this practice and they are moving these bottles by the glass.

Are there ways to produce the same gross margins in this new era? Yes. You need more turns on busy nights. Offer early bird specials, table d'hote options, and popular add-ons for your popular menu items. Promote seasonal ingredients which typically offer lower cost of sales.

Customer knowledge (including dining out budgets) leads to effective menu planning efforts. Rather than completely revamping your current menu, you may find a few strategic revisions will help you meet your targets.

Beverage Included Buffets

The lowest priced lunch buffet we visited on our tour was $6.95. This operator serves both BBQ pork (whole hog) and fried chicken with lots of sides and desserts. Drinks are not included and sweet tea is sold for $1.19 (unlimited). A quick look around the dining room showed about 75% of patrons enjoying a tea and the others ordering tap water (free).

There were a few competitors offering similar food choices for $7.45 with beverage included with the meal. On average, the $6.95 buffet plus beverage accounts for $7.85 in revenue and an extra $0.40 in gross margin.

For out-of-town guests, the big $6.95 sign beckons. By the time they see the buffet layout and are warmly greeted by the hostess, they will probably never ask about the extra charge for the tea.

I spoke with one of the general managers at the all-inclusive buffet. He told me most of his business is local and everyone wants the tea. They have offered the buffet with tea for decades. He believes the locals are aware of the real price for the buffet with tea at the $6.95 location. I'm sure he is correct.

Both restaurants were very busy in the middle of the week.

All You Can Eat Buffets

We have all tried an all you can eat buffet. Whether you are in Las Vegas, a local hotel for Sunday Brunch, a Chinese restaurant or a buffet specialist, the format is the same. You are seated and asked for your drink order. Once the order is taken, you are invited to go ahead to the buffet.

Most buffets are setup in stations. Typically, there is one or more ethnic food stations (Italian, Mexican and Chinese are common), a roast meat station, seafood station, BBQ station, a large salad bar and a dessert station. Breakfast and brunch buffets will include an omelet station (with lots of toppings), breakfast meats, pancakes, waffles, bagels, toast, muffins, fresh fruit, smoked salmon, and cereals.

Operators who pay attention to baked goods have an edge since these items have a relatively low food cost. It is advisable to have a server help guests with the roast meats. Most buffet houses continually pick up plates when the guests leave the table for seconds.

Buffet operations require high fixed costs. Much of the food and production staffing is decided before the meal period. Operators need accurate forecasts to prevent costly over production.

There are two schools on how to close down a buffet. Some professionals believe the buffet should look fully stocked right up until the final guest is served. Other operators prefer to offer fewer pans as the clock nears closing time. You need to have a strategy for either philosophy. The worst buffet presentations are those where you see many pans with very little food and drying sauces and gravies.

At the very least, these pans should be removed or replenished (depending on the policy). I have requested a tour of the buffet before deciding to dine on occasion. About 1/3 of the time, I decide to leave due to the appearance of the food.

Packed Restaurants

I'm just back from a long road trip through coastal North Carolina and South Carolina. Since it was past the peak season, hotel rooms were dirt cheap and I never hit one traffic jam. All you can eat BBQ places were enjoying full parking lots. At lunch time, these spots offer whole hog BBQ with fried chicken and loads of sides and desserts for $7.50. Some throw the ice tea in and others charge ($1.79 for unlimited tea). This has a terrific impact on food cost results.

I know there are lots of people who want to debate gross profit vs. food cost percentage. With regard to the tea included issue, it doesn't matter what camp you are in since the impact is huge. At one place, I paid $10 and another $8 for basically the same style food and service. I'm guessing the $10 (includes tax but no tip) spot is on target for a 33% cost of sales since they charge for the tea. If the same costs were incurred by the operation with no charge for tea, their cost % would be over 40%.

Both parking lots were jammed.

Down in Myrtle Beach, the dinner buffets offer all you can eat seafood spreads for $19.99. The calorie count was pretty high at lunch and I skipped the dinner buffets. A couple of the owners let me in to observe the buffets. One had a raw bar with lots of shrimp, oysters, crab claws and clams. They also had just about every style shrimp entree and lots of dishes with fin fish and vegetables. Drinks were extra at the places I visited.

The number one issue in Myrtle Beach is the selections. It seems a competitive advantage is held by restaurants offering more selections. One marquis: "Over 170 selections..." Another: "We have 120 selections..." The people who spoke with me said the customers liked to try a little bit of everything and they all like dessert.

Several operations highlighted their bakery offerings. I didn't actually see a baker but there was a prominent bakery at one place. They offered take-out bread, rolls and desserts.

The place with 170 offerings in the off-season scared me a little. They had a light crowd due to the heavy rain and it was a Wednesday night. Still they presented the 170 menu items (some with dairy) in the huge buffet area. Some operators run the cream soup and bisque over several nights bringing the food from cold to hot and back several times.

If I was in the market for a big meal, I probably would have tried the place with the raw bar and a mere 100 menu items. Their lot was about 50% full.

Nobody offered an all you can eat breakfast buffet. I'm sure many of the hotels offer breakfast. The places I visited mostly opened at 5 PM.