Capital, Costing, Pricing, and Promotion in Food Business

In starting up a catering and fast food service business, one needs to have sufficient knowledge about the investment and manpower requirement, other expenses, food costing and pricing and profit.

Capital Requirement

The type of catering and food service business can be determined by the capital invested on it. A home-based catering service business that offers delivery service, has smaller capital requirement. Much bigger capital is needed in setting up a restaurant especially when located in an elegant place like a hotel.

Table 5 shows the investment requirements in setting-up a catering/fast food service business. It should be clear to you what type of catering or food service business you are going to start with: school children lunch, party packs, fast food / turo-turo, regular catering or fine dining catering. If this is clear, all investments including the place of establishment can now be focused on. You can determine the cost of location, the equipment and utensils needed in the kitchen and dining area, the furniture and accessories needed, the manpower requirement and delivery service.

Annex 2 (Tables 1 & 2) shows the investment costs and requirements of different catering or fast food businesses: equipment and utensils, direct materials and manpower. The cost of the equipment depends on its quality. Those that will be used in fine dining have better quality and are therefore more expensive than those used in carinderias, fast foods or canteens.

Included in the equipment are cooking utensils, dining utensils and furniture and fixtures like tables, chairs, table cloths, stacking trays, designs and accessories. The estimated lot cost is indicated in the tables. If all equipment will have to be bought, the cost ranges from P135,000 to P1,150,000 depending on the type of catering service. For fast food services, where the place is rented, investment on equipment ranges from P200,000 to P300.000.

The salaries and wages of the personnel is based on the their qualifications and experience but this should not be lower than the minimum wage. For starters, make use of your kitchen equipment and utensils to save on costs. Household members may help in the business instead of immediately hiring personnel. For these, you will just have to shell out from P5,000 to P15,000 for one week operating capital with two occasions for 100 persons.

Annex 2 (Table 3) shows the sample menus for each type of food service. Also shown are the direct materials, labor and overhead cost and the total cost for each menu. These plus the mark-up determines the package price of the service. The mark-up for each type of food service varies.

Mark-up for school children lunch is only 15% while for party packages, it is estimated at 20%. A regular catering service can charge up to 35% mark-up but fine dining catering can go as high as 50%. This is explained by the amount of capital infused and the capacity to pay of the target customers. The price of the competitors also affects the mark-up of the business.

Aside from the capita! requirement of the food service business, it is important to know how to price your food correctly. In pricing your food, the cost of ingredients, overhead expenses and mark-up that covers other indirect expenses and desired profit should be considered.

Here is a simple way on how to cost your food:

1. Get the total unit cost per serving of the main ingredient, usually the meat and fish, and all other ingredients used per serving:

For example, a fried dalagang bukid is priced at P20.00 per serving

P11.43 – one piece of dalagang bukid at P80/kg and 7 pcs/kg +
0.50 –  cooking oil
——–
P11.93 – total cost per serving +
8.07 –  68% mark-up
——–
P20.00 – price per serving

Mark-up for food usually does not go lower than 50%.

2. Determine the scrap cost, which is the value of trimmings or unused part of the raw materials, to know the actual cost of the raw materials.

For example, pork costs P145.00/kg and the edible portion after removing the trimmings and considering shrinkage is 900 grams. To estimate for the actual value of pork, use the following formula:

P145.00 per kg / 900g = 0.161 x 1000g/1kg  =   P161.11 1kg

P161.11 – is therefore the actual cost of pork

3. Include the cost of packaging of the food like the box, Styrofoam container and plastic in computing for the selling price.

For example, the fried dalagang bukid with rice in styrofoam container is sold at

P 20.00 – price per serving of fried dalagang bukid
5.00 – rice
2.00 – styrofoam
————-
P 27.00 – selling price

Cost Control

Another important consideration in the food business is cost control. This is to avoid unnecessary expenses and save on costs and to further increase profit. The following are some tips on how to avoid high costing.

  1. Make a standard recipe or make an exact measurement of the ingredients to be used per dish or food served.
  2. Make an exact measure or standard measure per food serving. The suggested serving sizes of ingredients are shown in the previous discussions.
  3. Buy ingredients in bulk if the ingredients are not highly perishable and can be stored for a long time like canned goods, cooking oil, sugar and the like.
  4. Buy fresh and high-grade ingredients.
  5. Ensure the availability of storage equipment like refrigerator to avoid wastage or spoilage.
  6. Cook just enough dishes for one-day operation.
  7. Serve regularly specialty dishes and foods that are highly saleable and remove from the menu those that are not saleable.
  8. Have a good system of recording the purchased raw materials. Keep the receipts as basis for costing.
  9. Most of all, hire efficient and trustworthy workers.

Table of Standard Measurements

  • Dash or few grain………………………………….. less than 1/8 teaspoon
  • 3 teaspoons…………………………………………. 1 tablespoon
  • 2 tablespoons ………………………………… 1/8 cup
  • 4 tablespoons……………………………………….. Va cup
  • 5 tablespoons + 1 teaspoon……………………. 1/3 cup
  • 8 tablespoons……………………………………….. V2 cup
  • 10 tablespoons + 2 teaspoons………………… 2/3 cup
  • 12 tablespoons……………………………………… 1 cup
  • 2 cups…………………………………………………. 1 pint
  • 4 cups or 2 pints …………………………………… 1 quart
  • 4 quarts……………………………………………….. 1 gallon

Promotion and Networking

The success of the food service business lies on the customer. Because of this, ways should be done to promote the food business so that customers will patronize the food and services continuously.

Ways of Promotion

  1. Word-of-mouth. If your business has delicious food, and excellent service, satisfied customers will return to your place, spread the news and recommend your restaurant to friends and acquaintances.
  2. Signboard. This is important for customers to know and remember the name of your restaurant and to help them to find your place.
  3. Publicity. Another way to attract customers is through publicity. A good review done by a food critic in a newspaper or magazine will help bring customers to the restaurant.
  4. Discount and promotional items. Promotion can be done through the provision of discounts and promotional items like key chain, umbrella, food bonus and others at your restaurant.
  5. Advertisement. If your budget allows it, you may advertise on newspapers, television and radio so that more prospective customers will know your business.
  6. Brochure and calling card. It is important to have brochure and calling card to give to customers to be remembered and called when needed in the future.
  7. Entertainment. You can have free entertainment inside your restaurant like a pianist, singer or band to make eating more enjoyable.
  8. Public relations. It is also important to have good and effective relationship with the public by joining civic activities and food festivals. Good relationship between your customers and workers is also important to have a smooth business operation.

It is not enough that your food service business is popular and has promotion and advertisement to succeed. It also needs to get in touch with different institutions or organizations to improve food preparation and service. We call this networking.

It is recommended to food service business owners to join workshops and seminars to know the trends and present preferences of consumers. In this way, they can improve the quality of their service and food. In joining food festivals, they can observe and study the different food preparation style of different provinces and countries.

source: www.trc.dost.gov.ph, photo from www.freedigitalphotos.net

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