September 22, 2019
Keeping Score With Foodservice
Last month our column emphasized the importance of coffee and fountain on total foodservice and store sales. Let’s assume that the issues raised last month have been addressed. You know how important those categories are to not only the foodservice department but to your overall c-store.
Unfortunately upon review you have determined that you are not generating the sales and gross profits that you want from your foodservice / foodservice beverage offer. Should you contact b2b Solutions, one of the first questions we ask is how do you measure sales and profits. This may seem like a simplistic question, but we have learned that “how you keep score determines how you play the game.”
Most often the answer we get is that the retailer has one, maybe two foodservice departments (generally taxable and non-taxable foodservice) on their cash register. In cases like this, our next question is how many cups of coffee or fountain drink are you selling? How many customers are buying your foodservice items each day? Most of the time the answer is “I don’t know”.
The one question we always ask that most retailers can quickly answer is “Are you using cost or retail accounting to track foodservice?” All too often the answer is retail accounting. If you are going to be really serious about foodservice you need to institute cost accounting for the category. Retail accounting works ok for rest of the store in general because inventories remain relatively constant and the majority of the items are not perishable in nature.
It does not work well for foodservice because of these same two issues. For example, many retailers place the value of a cup of coffee on the cup. Many cups favored by the industry come packed 1,000 to a case, so every time you order a case, you book somewhere in the range of $800 to $1,200 inventory. Because retail accounting books profit at the time of purchase, it also means you can have very wide profit swings from month to month.
The perishable nature of foodservice is also difficult under retail accounting. For example, if you have a roller grill program, chances are you have retailed in the full value of your hot dogs and other items when purchased. Most companies/stores have a strong emphasis on reducing or controlling shrink.
In fact, many store managers’ bonuses have a shrink component to them. That means that they are going to be hesitant to throw away the hot dog even though it has been sitting on the grill for several hours. Worse yet, they are far less likely to ever fill the grill because they worry that if no one buys the items they will have to “eat” the shrink.
Cost accounting does require more work. For example, you will have to develop projected cost for each item sold. For a cup of coffee that would include the coffee, cup, lid, stirrers, creamers used, etc. Then you have to track sales by item and inventory all the cost components weekly.
For an individual operator whose foodservice offer consists of hot beverages, cold/frozen beverages and a roller grill, the additional work required may not be warranted. In these cases, b2b Solutions generally recommends that a modified retail system be used. This requires placing some of the retail value of more than one component of an item. With coffee this could include placing some of the value on the bags of the coffee (works whether it’s a frac-pack or beans) and some on the cup. By placing it on both, the retailer is mitigating the margin impact when purchases of either are made. The same margin spreading tactic can be used for all foodservice items.
No matter if retail or cost accounting is used, retailers should also track units – i.e., cups of coffee or fountain or number of hot dogs sold on a daily basis. Tracking units can often provide a better basis for compassion or benchmarking from store to store or year to year. Sales can appear to go up simply because you raised the price. Number of cups, etc. (especially when measured against customer count) will tell you if you are truly moving the needle in foodservice.