INTRODUCTION TO HOSPITALITY Seventh Edition CHAPTER 7 Restaurant

INTRODUCTION TO HOSPITALITY Seventh Edition CHAPTER 7 Restaurant Manager Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Chapter Objectives • After reading and studying this chapter, the student should be able to do the following: 1. Describe a restaurant’s front of the house. 2. Explain how restaurants forecast their business. 3. Describe restaurant service. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Chapter Objectives • After reading and studying this chapter, the student should be able to do the following: 4. Describe front- and back-of-the-house systems. 5. Outline back-of-the-house operations. 6. Summarize restaurant management financials. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Front of the House (FOH) • Operations are divided into two sections: the front of the house (FOH) includes anyone with guest contact (dining room manager/hostess/bus persons/servers) and the back of the house (BOH) (kitchen manager/ cooks/prep cooks/expediter/receiving/dishwashing). continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Front of the House (FOH) • The restaurant is run by the general manager, or restaurant manager. • Depending on the size and sales volume of the restaurant, there may be more managers with other responsibilities. • Managers should all be cross-trained to relieve each other. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Front of the House (FOH) • The hostess’ job is to greet the guests and to manage seating in the dining room sections. • Tools such as seating charts and reservations books help the hostess to control the flow of seating. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Front of the House (FOH) • The FOH must create and maintain a curbside appeal—meaning keep the restaurant looking attractive both inside and out. • In addition to the 7 steps of the table service, servers are expected to be NCO —neat, clean, and organized—and to help ensure that the food is served at the appropriate temperature. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Restaurant Forecasting • Most businesses, including restaurants, operate by forecasting a budget of estimated sales and costs for a year. • These expenses are broken down in a weekly and monthly basis. Sales budgets are forecasts of expected business. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Restaurant Forecasting • The two components used in forecasting are guest counts (covers) and the average guest check. • The guest count reveals the number of guests patronizing the restaurant over a period of time. • The number of guests will vary during the week. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Restaurant Forecasting • Mondays are usually the slowest with Friday, Saturday, and Sunday usually providing up to 50% of the operation’s revenue. • Day of the week, meal period, previous forecast materializations, and special holidays are all factors of forecasting. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Restaurant Forecasting • The average guest check is calculated by dividing the total sales by the number of guests. • Multiplying the number of guests by the average guest check reveals the forecasted sales. • The year is divided into twelve 28 -day and one 29 -day accounting periods. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Restaurant Forecasting • The 13 accounting periods, when totaled, become the annual total. • Beyond using forecasts for estimating sales, managers also use them to predict staffing levels and labor cost percentages. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Service • Today, the quality of service has become very important to American diners. • A new American service has emerged. • A less formal yet professional approach is preferred by today’s restaurant guest. • Servers are not merely order takers. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Service • They are salespeople of the restaurant and must learn to gauge the guests’ satisfaction levels and to be sensitive to guests’ needs. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Service • Restaurants in the United States, Canada, and many other parts of the world use American service, in which food is prepared and appealingly placed on plates in the kitchen, carried into the dining room, and served to guests. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Suggestive Selling • Suggestive selling can be an exceptional tool to increase food and beverage (F&B) sales. • Servers report that most guests are not offended or uncomfortable with suggestive selling techniques. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Suggestive Selling • Through training and practice, servers become sellers. • Guests will more likely be receptive to suggestions from competent servers. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Front of the House Restaurant Systems • Point-of-sale or POS systems, are common in restaurants and other foodservice settings, such as stadiums, theme parks, airports, and cruise ships. • They are used to track F&B charges and other retail charges that may occur at a hotel or restaurant. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Front of the House Restaurant Systems • The POS system is made up of a number of POS terminals that interface with a remote central processing unit. • A POS terminal may be used as an electronic cash register, too. • Video monitors replace kitchen printers to present orders to the kitchen staff and monitor how long the orders take. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Front of the House Restaurant Systems • Kitchen monitors are widely used in quick-service restaurants (QSR) and increasingly used in table service restaurants (TSR). • Guest services solutions help a restaurant develop a dining relationship with its guests. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Front of the House Restaurant Systems • Their applications include frequent diner programs, delivery management with caller ID interface, guest accounts receivable, and gift certificate management. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Front of the House Restaurant Systems • Applications are accessed through the POS system and give restaurateurs the opportunity to offer their guests convenience, while allowing the restaurateurs to track who their best customers are. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Back of the House Restaurant Systems • BOH applications, also called PMSs, include inventory control and food costing, labor management, and financial reporting features. • FOH systems track employee working time. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Back of the House Restaurant Systems • A BOH management package adds the ability to manage payroll and human resource information. • Labor management includes a human resources module to track hiring, personal information, vacations, tax status, availability, and so forth. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Back of the House Restaurant Systems • Scheduling capability lets managers create schedules based on forecasted business. • These are enforced as employees check in and out, allowing management control of labor costs. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Back of the House Restaurant Systems • The labor management package also tracks actual working time and pay rates, feeding data into a payroll processor to generate paychecks and file tax data. • FOH and BOH systems post data into a relational database on the CPU. • Restaurant managers use these data for reporting and decision-making. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Back of the House Restaurant Systems • It is important to get reports in real time so that losses can be limited. • Some reporting packages provide a continuous graphical representation of financial data. • Personal digital assistants (PDAs) allow improved time management and speedier service. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Back of the House Restaurant Systems • They allow servers to post data on the spot and not at a computer terminal. • Orders don’t have to be written down. • PDAs also can be used in hotels, especially in housekeeping where they can give housekeepers and the front desk real-time information about room status. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Back of the House • The BOH refers to all areas that guests do not typically come in contact with; it is generally run by the kitchen manager. • The BOH includes purchasing, receiving, storing/issuing, food production, stewarding, budgeting, accounting, and control. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Back of the House • The kitchen manager, cook, or chef begin the production process by determining the expected volume of business for the next few days. • Much of the prep work is done in the early morning and afternoon. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Back of the House • The kitchen manager checks the head line cook’s order, which will bring the prep area up to the par stock of prepared items. • The kitchen layout is set up according to the business projected, as well as the menu design. • The cooking line is the most important part of the kitchen layout. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Back of the House • The size of the kitchen and its equipment are all designed according to the sales forecasted for the restaurant. • The kitchen will also be set up according to what the customers prefer and order most. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Back of the House • Teamwork is especially important in the kitchen—for example, helping each other with the prepping and the cooking. • A number of chefs are joining the green hospitality movement by encouraging the purchase of sustainable farming produce. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Back of the House • More than 20, 000 American Federation members are emphasizing organic and locally grown produce, whole-grain breads, and grass-fed meat products. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Kitchen/Food Production • Practicing proper staffing is crucial in running a successful kitchen. • Overstaffing, rather than understaffing, is often the best idea, because it is much easier to send someone home than to call someone in. • Extra employees allow for cross training and development. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Kitchen/Food Production • Problems can also be eliminated if a staffing plan is created. • Also crucial to a smoothly run kitchen is a competent staff. • Implementing a comprehensive training program is vital in the kitchen due to a high turnover rate. • Often, the most competent chefs are used to train new hires. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Kitchen/Food Production • Developing the skills of all employees is critical to the growth and success of the kitchen and, ultimately, the restaurant. • A development program may consist of delegating duties or projects to the staff, allowing them to expand their horizons within the kitchen and the restaurant business. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Kitchen/Food Production • Such duties include projections of sales, inventory, ordering, schedule writing, and training. • When determining production, par levels should be changed weekly according to sales trends to help control and minimize waste levels. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Kitchen/Food Production • The use of production control sheets is critical in controlling how the cooks use the products since production plays a key role in food cost. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Management Involvement and Follow-Up • Management should know firsthand what is going on in the BOH. • As management spends more time in the kitchen, more knowledge is gained, more confidence is acquired, and more respect is earned. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Management Involvement and Follow-Up • Continual management follow-up is necessary to ensure that policies and standards are being upheld. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Employee Recognition • Recognizing employees for their efforts creates a positive environment that motivates the staff to excel and to ultimately produce consistently better quality food for the guests. • This is an important aspect of BOH management. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Purchasing • Purchasing for restaurants involves procuring products and services that the restaurant needs in order to serve its guests. • Operators need to determine standards to set up an effective purchasing system. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Purchasing • The following must be established: standards for each food item, systems to minimize theft/pilferage, par stocks, who will do the buying, who will do the receiving, storage, and issuing of items. • Product specifications establish standards for each product. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Purchasing • Computerized or manual systems can be used to minimize theft and pilferage —but it can’t prevent it. • An efficient and effective system establishes a stock level that must be on hand at all times; this is called par stock. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Purchasing • The person who is responsible for ordering and the person who is responsible for receiving should not be the same person. • Keeping these responsibilities separate is important to guard against theft. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Purchasing • Pre-purchasing functions include planning menus, determining the quality and quantity needed to produce the menus, determining the inventory of stock levels, identifying items to purchase and the amount to be purchased, and writing specifications and market orders for purchase. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Purchasing • Purchase orders come as the result of the product specifications. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Receiving • When placing an order, the restaurant operator specifies the time and day the delivery is to be made. • Receiving is a point of control in the restaurant. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Receiving • The purpose is to ensure that quality, quantity, and price are what was ordered. • Perishable items may go directly to the kitchen and non-perishable items go into storage. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Storing/Issuing • Control of the stores is often a problem; therefore records must be kept of all items going into, and being removed from, stores. • The more people who have access to the storage areas, the more difficult it is to maintain strict controls. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Storing/Issuing • Items should only be released when an authorized requisition has been completed. • First-in–first out (FIFO) ensures stock rotation by placing the most recent purchases in rotation, behind previous purchases. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Budgeting • Budgeting costs fall into two categories: – Fixed costs are constant, regardless of the volume of business; and – Variable costs fluctuate with the volume of business. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Restaurant Accounting • One of the most important goals of any business is a fair return on investment, otherwise known as profit. • Accounting for income and expenditures is a necessary part of any business enterprise. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Balance Sheet • A balance sheet reflects how the assets and liabilities relate to the owner’s equity at a particular moment in time. • It is used by owners and investors to verify the financial health of a business. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Balance Sheet • Restaurants are one of the few, fortunate types of businesses to operate on a cash basis for income receivables. • There are no outstanding accounts receivables because all sales are in cash. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Operating or Income Statement • The income statement, which is for a month or a year, begins with F&B sales; from this total the cost of F&B is subtracted and the remaining total is gross profit. • Other expenses and sources of income are identified by category to eventually realize net income. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Operating or Income Statement • Managing the money to the bottom line requires careful scrutiny of all key results, beginning with the big-ticket controllable items such as labor costs, food costs, and beverages, on down to related controllable items. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Operating or Income Statement • Additionally, management may want to compare several income statements representing operations over a number of different periods. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Operating Ratios • Operating ratios are industry norms that are applicable to each segment of the industry. • Several ratios are good barometers of a restaurant’s degree of success. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Operating Ratios • Some ratios are: – Food cost percent – Beverage cost percent – Labor cost percent – Contribution margin and – Prime cost. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Food Cost Percentage • Food cost percentage equals cost divided by sales times 100 and is a comparison of cost of goods sold to sales. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Food Cost Percentage • Food cost percentage has long been used as a yardstick for measuring the skill of the chef, cooks, and management to achieve a predetermined food cost percentage— usually 28% to 32% percent for a full service restaurant and a little higher for a high-volume, fast-food restaurant. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Contribution Margin • The contribution margin is the amount that a menu item contributes to the gross profit, or the difference between the cost of the item and its sale price. • Some items contribute more than others on the menu; therefore food operators focus more attention on the items that contribute more dollars. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Labor Cost Percentage • Labor costs are the highest single cost factor in staffing a restaurant. • Labor costs include salaries, wages, benefits, and training costs. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Labor Cost Percentage • Labor costs are generally compared to sales as a percentage of sales, either as a whole or by labor category. • Labor costs are calculated by taking the cost of labor and dividing it by sales for the same period. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Prime Cost • Combined food, beverage, and labor costs are known as prime costs. • Prime costs should not go above 60% to 65% of sales. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Beverage Cost Percentage • The beverage cost percentage is calculated similar to food cost percentage and is used to compare the cost of goods sold to sales. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Lease and Controllable Expenses • The best lease is long term with options for renewal and should not exceed 5% to 8% of sales. • Lease costs are determined in different ways—by square foot, flat monthly rate, monthly rate plus a percentage of sales, etc. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Lease and Controllable Expenses • Most leases are triple net, which means that the lessee must pay for all alterations, insurance, utilities, and commercial fees. • Some restaurants pay a combination of a flat amount based on square footage and a percentage of sales. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Controllable Expenses • Controllable expenses are all the expenses over which management has control. • They include labor, direct operating expenses, food costs, marketing, etc. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Restaurant Manager Job Analysis • The National Restaurant Association (NRA) has formulated an analysis of the foodservice manager’s job by function areas and tasks, which follows a natural sequence of functional areas from human resources to sanitation and safety. continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Restaurant Manager Job Analysis • Key elements that must be addressed by foodservice managers include: – Recruitment and training – Orientation and training – Scheduling for shifts – Supervision – Employee development – Accounting – Cost control Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce continued on next slide Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Restaurant Manager Job Analysis • Key elements that must be addressed by foodservice managers include: – Scheduling and coordination – Planning – Communication – Marketing management – Facility maintenance continued on next slide Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Restaurant Manager Job Analysis • Key elements that must be addressed by foodservice managers include: – F&B operations management – Service – Sanitation and safety Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Recycling • At the end of the night in most restaurants, leftover food, paper, bottles, and cardboard are typically put in a dumpster. • Separating garbage is dirty; it requires people and time. • But, many operators say making minor changes reduces trash and helps the budget. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.

Trends in Restaurant Operations • A few trends include more restaurant food truck and mobile vendor operators, simplifying menus, increased use of technology, delivery, fast fresh casual, credit card guarantees and overbooking, and more large retail restaurants. Introduction to Hospitality, ICD-10 -CM/PCS Coding: A Map Seventh to Success Edition Lorraine John R. Walker M. Papazian-Boyce Copyright © 2017, 2013, 2009 by Pearson Education, Inc. All Rights Reserved.