Food and Beverage Revenue and Expenses
Just as its name outlines, there are two major components in this operating department: food (food and non-alcoholic beverages) and beverage (alcoholic beverages). As unexciting and trivial as this distinction may seem, it is very important that each component is recorded separately in order to be properly tracked and benchmarked. Therefore, as per the USALI this department’s schedule displays three separate streams of revenue: Food, Beverage, and Other.
There are five sources of food revenue: venue, in-room room dining, banquet / conference / catering, mini bar, and other. Venue Food Revenue encompasses the proceeds from selling food and non-alcoholic beverages in the property’s individual dining facilities, for example, restaurants, bakeries, snack shops, spas, among others. In-room Dining Food Revenue refers to the sales that need to be delivered to the guests’ rooms. Banquet / Conference / Catering Food Revenue refers to the sales in the property’s banquet rooms. The caveat here is that while the Banquet category is used for groups or individuals who are also occupying guestrooms, the Catering designation is used for the ones who are not hotel guests. Mini Bar Food Revenue includes sales of packaged items (soft drinks, bottled water, candy, snacks) that are placed in the rooms for guests to purchase. Finally, Other Food Revenue comprises the sales of food and non-alcoholic beverages that are not included in any of the four previous categories.
The structure and definitions for Beverage Revenue is exactly the same as for its Food counterpart, with the distinction that the sold items to be recorded are alcoholic beverages instead of food and non-alcoholic ones. Therefore, this section will also be divided into five segments: Venue, In-room Dining, Banquet / Conference / Catering, Mini Bar, and Other Beverage Revenue.
The final stream, Other Revenue, comprises the proceeds from selling services and not consumable food and beverage items. The USALI defines these as: audiovisual, function room rentals and setup charges, cover charges, surcharges and service charges, and miscellaneous other revenue.
Adding up these three streams (Food, Beverage, and Other) gives us the department’s Total Revenue. But this is only half the story – cost of sales and expenses must also be factored in to gain a clear understanding of the operation.
Following the three revenue streams, the cost of sales is sub-divided into three categories: cost of food sales, cost of beverage sales, and cost of other revenue. Subtracting the total cost of sales from total revenue we find the department’s Gross Profit, a measure that can be used as a proxy for efficiency. Expenses, on the other hand, are twofold: labor costs and departmental expenses. Labor costs consist of salaries and wages, bonuses, benefits, service charge distributions, and payroll taxes. Departmental expenses typically include cleaning and dishwashing supplies, flatware and glassware, utensils, china, kitchen fuel, laundry and dry cleaning, training, uniform costs, among others. The Food and Beverage profit is then calculated by subtracting these expenses from the previously defined Gross Profit.
Food and Beverage Operating Metrics
As the saying goes, a place for everything and everything in its place. Now what? It is not because of a whim that information is required to be registered this way, but out of a need of uniformity to perform relevant and meaningful benchmarking exercises. The objective is to track the results of your property’s Food and Beverage department over time, but also evaluate how it compares to other similar operations in order to identify and develop industry best practices that will enhance profitability. Following the USALI standards ensures that financial information and ratios will be comparable across properties.
There are several operating metrics that you can choose from to assess your Food and Beverage operation. And even though your selection of KPIs will depend upon your specific strategic goals, some of the most commonly used ratios to track revenue, costs and profitability are:
Revenue Mix: The purpose of this ratio is to understand where your revenue is coming from. In other words, you want to know how each segment of your operation contributes to your total departmental revenue. Who is the star: banquets, restaurants, in-room dining? Are there any changes in the ranking? Does your composition reflect that of similar properties?
To calculate this ratio, simply follow the formula for each segment: venue, In-room dining, Banquet/Conference/Catering, mini bar, and other.
Revenue Mix % = Total Venue Revenue (or any other segment) / Total F&B Revenue
Average Check: This ratio shows how much on average each customer spends on food and beverage in your property. You can calculate it by segment and meal period, and differentiate food from beverage revenue to make it more detailed. This information helps you understand your customers’ spending behavior, so that you can design action plans to optimize your pricing strategy.
The formula for this ratio is the same for every segment and meal period:
Average Food (or Beverage) Check = Total Food (or Beverage) Revenue / Number of Customers
Food and Beverage Revenue Per Available Room: With this ratio you can measure the yield achieved by your Food and Beverage operation relative to the number of rooms available at the property. This information can then be compared to the results from your competitive set, so as to understand the standing of your department’s operation in the market in terms of overall performance.
To calculate this ratio, you just need your Total Food and Beverage Revenue and the number of available rooms:
Total F&B Revenue PAR = Total F&B Revenue / Rooms Available
Cost Percentage: This ratio allows you to evaluate how efficient your operation is in its use of the available inventory. In particular, you want to assess potential issues with portion sizes, pouring controls, waste, theft, among others. To make this ratio’s information more actionable, you should calculate your food and your beverage cost percentages separately.
The formula to calculate this ratio is:
Food (or Beverage) Cost % = Cost of Food (or Beverage) Sales / Total Food (or Beverage) Revenue
Food and Beverage Profit Percentage: This allows you to measure how efficient your operation is at turning every dollar spent by a customer into profit. How much, after covering costs of sales and expenses, does the department have left? Again, this is a result you want to compare against your competitive set.
The calculation is very straightforward:
F&B Profit % = Total F&B Profit / Total F&B Revenue
Remember, these are only a few examples of operational metrics, and the USALI displays a diversity of additional ratios for the Food and Beverage department (pages 199 to 207, if you have a copy of the book). Just select a set of KPIs that will work towards measuring your organization’s specific goals, set realistic targets based on the market information, and measure performance regularly to track your progress.