Carrot Sticks and Liabilities — Understanding The Food Business

Carrot Sticks and Liabilities

Take a carrot for 20 cents (cents lol pence).

Cut it into sticks.

Sell carrot sticks for 50 cents.

This is the most simple and stupid value added product in food.

Ask yourself:

Does the cost of the labour exceed the difference in price of the raw material and the value added product?

If it takes 5 minutes to make 1 portion of carrot sticks from 1 carrot.

By an employee that is paid $12 an hour.

5 minutes is $1 labour cost.

To create 30c of added value.

We get 12 portions of carrot sticks per hour.

From 20c ware cost of carrot to 50c selling price of carrot.

30c profit margin.

Per hour you have 12 x 30c profit. $2.40.

You are paying 12 dollars an hour to create value of $2.40 per hour.

You would have:

Ware cost: 12 carrots = $2.40

Labour cost = $12

Total cost = $14,40

Assuming you sold all carrots at 50c and you sold all 12 portions of carrot sticks.

You would generate $6 revenue.

Total cost minus revenue = earnings.

$ 8,40 loss.

You would lose $8,40 an hour chopping carrot sticks and selling them as a business model.

The profit margin is smaller than the labour put into the value added product.

This recipe loses money for the company: it is a liability.

Sadly some companies create a system where there are recipes that are liabilities.

Then turn to unpaid overtime as a solution.

Efficient recipes are the solution.

Not unpaid overtime.

A recipe can be objectively measured as an asset or a liability.

Creating recipes that are assets is the goal.

This was an excerpt from the forthcoming book “BUSINESS CHEF HOTEL RESTAURANT EFFICIENT KITCHEN” by Barney Khan.

Keep up to date @ www.barnkhan.co.uk @barnkhan on instagram