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Costing a menu

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Costing a menu

Correctly costing a menu may not be glamorous, but it is fundamental to the success of any restaurant. By sticking to a few simple principles, you can ensure you’re building your business on firm foundations. Andy Lynes reports

A menu is the window to the soul of a restaurant. Not only will it tell what type and style of cuisine the restaurant serves, how much you will pay and how much choice you will have, but to the trained eye, it will also tell you how successful a restaurant is likely to be.

That the dishes sound enticing and delicious should be a given, but how well the menu has been costed is just as important. Simply put, there’s no point having people beating down your door for a delicious, great value lobster dish, if every time you sell one you lose money because you haven’t correctly calculated what it costs you to put the plate in front of the customer. A few dozen happy customers later and you could be closing your doors.

The good news is that the processes required to cost a menu are pretty straightforward. First, you need to identify direct costs. These are the food costs and relate to the ingredients that make up a menu. In order to identify the food cost, absolutely everything that goes into a dish has to be taken into consideration, including the salt and pepper, the amount of oil or butter used in the cooking, the potential wastage and portion size.

Once you know your direct costs, you can then calculate how much you need to sell the dish for on your menu, and that’s where gross profit percentage comes into play. The gross profit percentage (GP%) is the gross profit measured as a percentage of the selling price of a dish and is the figure that is widely considered to be the most important measure of profitability in a restaurant. To be financially successful, a restaurant needs to make a GP% of about 65%-70%, with food costs of 30%-35% (different styles of restaurants, though, can operate acceptable food costs of between 20% and 60%).

In order to calculate the minimum price you need to sell a dish at, simply divide the indirect costs by your target food cost percentage expressed as a decimal. For example, if the ingredients for a venison main course with garnish costs you £8 and your target food cost is 30%, the calculation would be £8 divided by 0.30 which equals £26.60. To the gross profit of the dish, subtract the indirect costs from the selling price, which in this example gives you £18.60 (in the real world, you would almost certainly round up the selling price to £27, giving you a gross profit of £19).

It’s a very healthy sounding figure, but before you start popping Champagne corks, we need to talk about indirect costs. These costs are made up of almost all the other elements beside the ingredient costs that are required to run a restaurant. They include rent or mortgage payments, rates, staff, administration, light, heat, equipment, maintenance, linen and cleaning materials and, of course, VAT.

On average, that leaves the net profit to make from running a restaurant at around 5% of annual sales. It’s therefore important that all costs are tightly controlled so that the net profit (the difference between the selling price of the food and both direct and indirect costs) ends up as close as possible to the target GP.

When costing your menu, there’s a balance to be struck between inexpensive and more expensive ingredients. To take two contrasting examples, fish is generally expensive to buy, so the cost is high and the margin low; but on the other hand pasta is inexpensive, so the cost is low and the margin high. Some dishes will always be more popular (high volume) than less popular (low volume) ones. Beef, for example, is generally a high-volume dish compared with pigeon.

Balancing the costs of a menu requires the juggling of the number of low-cost/high-margin/low-volume dishes alongside the number of high-cost/low-margin/high-volume dishes. But you should also consider that a dish with a higher GP% does not always mean a higher GP. For instance, a pasta dish that sells for £5 with a food cost of £1.50 will have a GP of £3.50 and a GP% of 70%. In 
comparison, a beef dish that sells at £10 with a food cost of £5 will be more profitable in cash terms with a GP of £5, but will have a lower GP% of 50%.

“There are certain proteins like monkfish or veal rump that aren’t prime enough to warrant a supplement, but end up costing you more than duck, chicken or cod, so you don’t really want too many of those things on a menu together,” says Matt Christmas, head chef of Michelin-starred Chez Bruce in Wandsworth, who also points out that it’s not just about what ingredients you buy, but when you buy them too.

“We keep an eye on prices and tend to buy things when they are at the low end. When I first became a head chef, I struggled with this as I didn’t have the repertoire or experience to get the menu to react quickly enough. The price of something like turbot would skyrocket and I would run a week or so losing money because I wasn’t on top of it.”

It’s also worth considering that it’s not just the main ingredient of a dish that can affect direct costs. In recent years, the cost of dairy ingredients has risen significantly, affecting everything from the butter you put on the table to butter and cream in savoury sauces and desserts.

“My dairy bill has tripled in the past three years and its now higher than my dry stores,” says Simon Hulstone of Michelin-starred the Elephant in Torquay. “We’re trying to work around it by cutting down on butter sauces, but we’ve got to the point where we’re going to the supermarket to buy our butter for basic cooking because we can find two-for-one deals and I’ll stock up there.”

Minimising wastage is another key aspect to costing a menu, ensuring that the maximum percentage possible of everything you buy in is converted into saleable items on your menu. If £50 of food is wasted a day, it can add up to £250 a week or £12,500 a year.

Chefs need to be as frugal as possible, using every element of an ingredient in a variety of different ways. For example, a whole chicken can be utilised by using the breasts in a main course dish, the legs in a terrine and the wing tips and carcass for a stock. “One thing we do religiously nowadays is use all trim and waste to make burgers, fishcakes, brandade, pastillas, sausage rolls, etc, either as garnishes or starters,” says Christmas.

Writing a menu should be a pleasurable part of running a restaurant. With some careful thought and planning, there’s no reason why the creativity of a chef, the desire to use favourite ingredients and to provide customers with a memorable meal that they’ll return for again and again can’t go hand in hand with the need for financial success.

And, as Christmas points out, sometimes it’s the simple, easy things that can make all the difference: “A cheap, tasty and popular soup is the holy grail for a set price menu.”

Michelin-starred tasting menu
The Elephant, Torquay – chef-patron Simon Hulstone

“To set the price of the tasting menu at £72.50, we looked at our average à la carte spend, which is £50-£55 a head. The tasting menu is two extra courses and a few bits thrown in as well. It started at £60 and slowly crept up, mainly because we can because of who we are. I don’t want to undervalue our tasting menu or kitchen skills and we’ve never had a comment that we’re expensive.

“Everything’s worked to a GP of 75%, with a maximum of £15-£16 cost of ingredients for the whole menu. We can’t take fillet steak off the menu – it’s the one thing everyone will eat. We struggle with pigeon, venison and duck, and chicken seems a bit cheap to put on a tasting menu. But we don’t want the fish and meat to be more than £8 for the both of them.

“Garnishes will be small pieces of vegetables, some like wild garlic are foraged and free, and some are from our farm. We also have things stored from the winter, like chutneys, jams and pickles.

“Most of our ingredients sit around the same price, so when the fillet of cod, parsnip purée, lardo Ibérico, verjus and spring onion butter dish goes we’ll replace it with another fish of the same sort of price. If there’s a glut of scallops, we’ll put them on, but only if we can get them cheap enough.

“We use dishes off the à la carte so we’ve always got the ingredients and aren’t wasting anything. The portion size of tasting menu dishes is similar to those on the à la carte, but the main proteins are cut a little smaller. To bulk up the main ingredients, we might put a braise with them like shin or some chicken wings: a cheap protein that we can turn into something special.

“Although we have a Michelin star, we’re not a fine dining destination, so seven courses of big portions will fill you up. I want my customers to feel they’ve got value for money and will return.”

Brasserie menu
Hotel du Vin – group executive head chef Matt Powell

“With about 60 items, the Hotel du Vin menu is big but it encompasses our bar and room service menu, so you can eat whatever you want wherever you are in the hotel. We have eight to 10 starters and the same with the main courses. To cut down on wastage, there’s dishes in the prix fixe sections that are also in the entrées, and the same with the prix fixe and the plats principaux, so there’s some crossover, which keeps down wastage, but gives people a varied amount on the menu.

“The menu changes five times a year, but some things we’ve become known for will run throughout the whole year, like soupe à l’oignon, steak tartare, cassoulet, pork belly, bouillabaisse, crème brûlée and tarte tatin.

“When we’re costing a menu, we don’t start with the selling price, we start with the product. We get the best we can and base the dish around that. I would look at seasonality first because that’s how to get the best price.

“We would never try to exceed £10 for a starter or £20 for main course because bistro food is meant to be quite accessible. However, we do exceed that with fillet steak (£31.95) and sole meunière (£27.95) because of the price of the product. The prices stick out but our customers tell us they want them to be on the menu. Special times of the year, like Christmas and Mother’s Day, is when we bring out luxury ingredients such as lobster.

“We use the F&B Shop purchasing system which has a costing template to give us the margin we’re looking for. It also helps us with our wastage because it will tell me how much yield I’ll get from a product and how much wastage there should be.

“When ingredient costs fluctuate, I wouldn’t try and find a cheaper product because it might fix things in the short term, but it won’t look after you in the long term. We use companies that are loyal to their producers and suppliers and we stick with them. When prices come down, that loyalty pays off because they’re honest with us and immediately pass the savings on to us.”

Michelin-starred à la carte menu
Social Eating House, London – chef Paul Hood

“We work on 68-69 GP%. Dishes are split 50/50 on the menu between those which are a little over and a little under the GP%, so it balances itself out. To get the selling price of a dish, we list all the ingredients, total them all up, then add VAT on top. We add 20p for things like bread and butter and petits fours that we don’t charge for then multiply it by 100 and divide by 30 which gives the food cost.

“I wouldn’t want to go higher than £15.50 for a starter. Some restaurants can charge £20-£25 but we’ve got to be careful in Soho – if people saw that on the menu it’s going to turn them off. We try and keep a couple around the £11-£12 mark.

We settled on six to seven starters plus another two dishes on the prix fixe lunch menu. It helps with costing because you haven’t got too much produce coming into the building – if we had another three or four dishes we’d be spending a lot more money. It keeps the ordering more manageable and you know what your spending on a daily basis.

“Our most expensive dish is slow-cooked Cornish venison saddle, five spice and honey swede, candied walnut and red cabbage at £34. We get the whole saddles in; two saddles is around 35 portions. Working with suppliers, you build relationships and they’re there to help you out. Haggling between suppliers helps keep the costs down.

“Each portion costs us in the region of £7-£9 by the time your wastage comes off it. You get more wastage off a large animal, so it’s hard to say that for every venison saddle you’ll get the same cost on every portion. This is one challenge you have to struggle with when costing a menu because you can’t change your prices every day.

“We change the menu quite frequently, but we never do a complete menu change at once. 
If you do a massive change, you end up spending a fortune on food, so we change one dish per week, which is more manageable and keeps the costs down. Sometimes we’ll keep the protein on and just change the garnish as it comes into season. Seasonal vegetables are at the best price at their best time of year, so we use those instead of shipping in more expensive ingredients from abroad.

“We try to get some of the money back off the trimmings by using every single piece of the ingredient. We make a mash from the swede trimmings, for example, and other bits of trimmings go to staff food, so nothing’s going in the bin. We have the bar here too, so we use a cod tail, which we wouldn’t normally serve because it’s too flat and thin, to make a nice fish and chip burger to sell for £9. The fish would already be costed into the main à la carte dish, so that’s a bonus for us.”

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