Food Costs in Developing Countries

[the1mu]

I am exploring opening a pizzeria and ice cream business in a 2nd tier city in China.

I have observed that FC typically runs 29-33% in the states. The ingredients in a developing nation can be quite costly due to the majority being imported. Even if I could get some of the ingredients locally, the overall trend here is to distrust local products.

That being said, any idea if the FC % would change at all and if so by how much?

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[bodegahwy]

In order to answer one would need to know some basic facts:

First, what is the selling price you expect to get for a typical pizza and what size would it be?

What would your costs to buy the major ingredients would be: cheese, flour, tomato product for sauce? Those three items will drive your overall food cost. (Also for boxes if you expect to do much delivery and carryout)

After that I am sure you can get meats and vegetables locally so you should be able to figure those costs out.

 

[the1mu]

The second question is easier to answer than the first. Mainly because the main competition is Pizza Hut which is rebranded in Asia as a full dining and fairly fancy restaurant. There are a few other pizzerias but they are all Pizza Hut style pizzas and many are frozen doughs.

I am considering doing 18" NY style pies and possibly selling by the slice. Most of pizza huts’ pizzas are 8-10" and people buy steaks and pasta. Basically, the market is such that people like pizza but don’t eat a whole one, which is why I think by the slice may do well (still doing some market research).

The second question is easy. Cheese costs between 900-1200 RMB for 25kg. All my pepperoni, bacon and sausage are produced by hormel as there is nothing comparable locally. They are my second highest cost on a pizza. All in all, I can produce a 18" pepperoni for 35 RMB total FC. Or 35.3 to be precise.

That is with making my own dough, shipping on ingredients, tax that must be paid on the food stuffs specifically (don’t ask, it’s a weird system).

Now, I don’t know what I can REALLY get for it, I plan on doing some more direct market research soon. However, I know that a 12" at the random little Pizza Hut clone with multiple toppings is about 45 RMB (18" is over double the size of a 12"). Pizza Hut itself has such a weird/fancy menu, I have a hard time comparing, but they are between 56-80 depending on toppings, crust, etc.

Is that enough info to make some educated guesses? Of course, I have done the math myself, but I’m more interested in hearing the thoughts of those who are actually doing it, not just the straight numbers.

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[bodegahwy]

You have enough information to calculate an ideal “menu” cost once you make some kind of assumption for what price you will charge. Typically there is a difference between menu cost and food cost because of waste, mistakes, portion control errors, cancelled or bad orders, employee use/theft etc.

 

[GotRocks]

I always approach food cost calculations after I have determined my labor cost calculations.

The typical cost of combined food & labor cost should be 55% or lower, right?
So if you have a labor cost that is low, you can typically run a less profitable food-cost ratio, and vice versa

 

[bodegahwy]

The typical cost of combined food & labor cost should be 55% or lower

I wish. We can run that when we are busy or even a bit less but in our slow months we run higher. Our overall year %s are about 60-61% combined. But that is with a manager running the place not me. If I took him out of the equation labor would drop from about 32% to 22% and combined cost would be 50-51%.

We are in a resort market so we have a larger than typical swing from season to season. For instance our sales the week after next will be almost 4X our average week and every bit of 10X our slowest week.

 

[GotRocks]

I wish. We can run that when we are busy or even a bit less but in our slow months we run higher. Our overall year %s are about 60-61% combined. But that is with a manager running the place not me. If I took him out of the equation labor would drop from about 32% to 22% and combined cost would be 50-51%.

We are in a resort market so we have a larger than typical swing from season to season. For instance our sales the week after next will be almost 4X our average week and every bit of 10X our slowest week.

I get where you’re coming from, summer is our busy time here, we are also a tourist/resort town.
my weekly sales totals in winter still fall below what we see in one single summer day. so we see our typical labor cost double in off-season months.

 

[the1mu]

Is there a good way to estimate labor costs ahead of time? I have pretty good ideas of the wages here, but how do I calculate needed labor force for a restaurant that seats say 30 people or so and is open 12 hours of the day, 7 days a week?

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[GotRocks]

Is there a good way to estimate labor costs ahead of time? I have pretty good ideas of the wages here, but how do I calculate needed labor force for a restaurant that seats say 30 people or so and is open 12 hours of the day, 7 days a week?

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Projecting sales on a place that is not open yet borders on alchemy, but you can get a general idea to start, to fine tune it later when you get a better idea of your fixed & variable costs.

Do you know how many employees you’ll need per shift, and how many shifts per day, their average hourly costs, then average their total daily pay as a start.

 

[bodegahwy]

Is there a good way to estimate labor costs ahead of time? I have pretty good ideas of the wages here, but how do I calculate needed labor force for a restaurant that seats say 30 people or so and is open 12 hours of the day, 7 days a week?

Not being from your part of the world or understanding the costs of food, rents, wages, benefits and other burdens these questions are not something that it is easy to help with. If you are not comfortable with figuring food costs or writing an appropriate work schedule for the kind of business you are contemplating opening I suggest you think twice about the whole idea. At the very least, consider paying a consultant for help.

A consultant does not need to be someone who presents themselves as a consultant and charges a high fee. Simply finding the manager or owner of a restaurant of similar size in an area that will not be your competition but which is similar in nature for rents, wages, food costs etc and ask if they will help you with some of these questions for a fee. Paying someone $1000 might save you from several $10,000 mistakes.

 

[the1mu]

No being from your part of the world or understanding the costs of food, rents, wages, benefits and other burdens these questions are not something that it is easy to help with. If you are not comfortable with figuring food costs or writing an appropriate work schedule for the kind of business you are contemplating opening I suggest you think twice about the whole idea. At the very least, consider paying a consultant for help.

I am actually quite comfortable with it as I currently run a bakery here and am in charge of all scheduling and hiring. I have also actively done scheduling for a few other businesses both in the food service industry and those not.

That being said, I know I have more to learn and was hoping that perhaps there was some wisdom out there for predicting how much work staff is needed based on shop size. I know there is more to learn and that is what I’m trying to do: gather more information and learn from it.

I will keep in mind your advice about a consultant for this particular aspect of opening a store!

Thanks!

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[the1mu]

You have enough information to calculate an ideal “menu” cost once you make some kind of assumption for what price you will charge. Typically there is a difference between menu cost and food cost because of waste, mistakes, portion control errors, cancelled or bad orders, employee use/theft etc.

Regarding this earlier post, do you have a margin of error that you factor in straight out of the gate to account for all the non-ideal factors?

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[bodegahwy]

Regarding this earlier post, do you have a margin of error that you factor in straight out of the gate to account for all the non-ideal factors?

I would love for it to be zero… but it never is. I think that it is at least 2 points. I am sure others will chime in here as well. Part of the issue for us is that we just zero out donations and let crew make pizza for dinner on top of waste and mistakes… So if I thought my ideal should be 26-27% and I end up at 29% I am pretty happy. A lot depends on cheese price though. Every 20 cents cheese moves is worth about 1% food cost to me. My target cost assumes I am paying $1.85 a pound. This year it has been a lot higher even though it is back in that area again now and should be going lower.

 

[the1mu]

I would love for it to be zero… but it never is. I think that it is at least 2 point. I am sure others will chime in here as well. Part of the issue for us is that we just zero out donations and let crew make pizza for dinner on top of waste and mistakes… So if I thought my ideal should be 26-27% and I end up at 29% I am pretty happy. A lot depends on cheese price though. Every 20 cents cheese moves is worth about 1% food cost to me. My target cost assumes I am paying $1.85 a pound. This year it has been a lot higher even though it is back in that area again now and should be going lower.

Thanks! The 2% is helpful.

But, shit! The cheapest I can dream of getting cheese here is about $2.60 a pound!! Usually it’s closer $3.11.

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