The Restaurant business is a complex one comprising three different sectors; the Service Sector, the Trade Sector and the Manufacturing Sector, each with its own challenges. To succeed management must master costing and pricing issues in each of the three sectors and define the type and scale of the operation.Service Sector, Entertainment Industry with a simple costing formula management can target the demographic (age group and disposable income) it wants to invite by creating the necessary ambiance, in which location is the key. This can range from a clean watch-the-cook, side walk café, food bar with specialty service staff and quick check-out to a full service, five star layout with in-house live-entertainment with special theme nights. The more combination of settings used the more difficult the costing formula and the pricing strategies; whether to charge an entrance fee, add a service charge on to the bill or absorb the cost into the bill.
Trade Sector, Retail Industry this part of the restaurant business can be compared to a vending machine, goods are purchased at a cost (the purchase cost of finished goods) and sold at a price which includes the unit cost of the item, the prorated replacement cost of all equipment involved and the cost of any supporting inputs (water, electricity, gas, etc.). The most important issue in this sector is the decision of what to sell and when, local knowledge of celebrations and the competition is essential. Items that are rare must be centre displayed and prestige priced, others that are easily available must be highly recommended and competitively priced, and some common items must be loss-leaders or even give-a-ways.
Manufacturing Sector, Food & Beverage Industry is a very complex costing formula to constantly calculate the purchase cost of finished goods, that is referred to under the trade sector, by using the last purchase cost of raw materials or ingredients divided by the number of servings that item can make, factor in for waste trends, the replacement cost of all equipment and production staff involved and the cost associated with fixed expenses (Premise Rental, General Insurance, etc.) and management (Computerize System, Salaries, etc.). The kitchen operation must be professionally designed from the menu back to the storage layout of goods, to allow for the smooth preparation of anything on the menu, no surprises.
It is under the manufacturing sector part of the restaurant business where many lose control. Profits are clear under the Service Sector, Entertainment Industry where door revenue or service charges can off-set the related expenses and under the Trade Sector, Retail Industry where finished goods are sold with an obvious mark-up. Constant supervision of kitchen activities and closely monitoring purchasing procedures cannot substitute for profit sharing incentives for key personnel and for proper costing and pricing.
Rationale
T.A.J & Associates Company Limited uses this occasion to comment on topics that have been covered, both academically and by the mainstream media, to add its opinion and point out investment opportunity, not to invoke any social action.
