To serve food or not to serve food?

As a consultant for Bellissimo Coffee InfoGroup for many years, the one statement I constantly hear from prospective entrepreneurs is, "We don't want to serve any food!"

For many who enter the specialty coffee business, much of the attraction is that coffee retail location is a fairly simple beverage operation that does not encompass the complexities and vulnerabilities associated with the typical foodservice establishment.

So why do so many coffee bar owners add food to their menus when they are so adamant about not doing so at the start? Why might you want or need to add food to your operation? There are several good reasons for considering this option.

Numerous specialty coffee operators offer a diversified menu of food items for the same reason-increased revenue. Many who have gone into the coffee business with the intention of serving only beverages have discovered they cannot generate enough revenue through beverage sales alone. Serving food has become necessary to realize a profit.

Should You Add Food?
Before you develop a menu, bring in food products, hire a cook, and attempt to create additional revenue by selling food, consider these important factors:

Do you really need to add food to your present operation? The best way to answer that question is to look at your ledger. Do you need to generate greater sales to become profitable? Do your combined lease and loan payments in an average month represent more than 10 percent of your average monthly sales? In other words, if your combined lease and loan payments consume more than 10 percent of your monthly gross income, it may prove difficult to achieve profitability with your present sales.

If the payments consume 20 percent, 30 percent or more, it may prove impossible. Using the ratio of rent/loan payments to sales, you should be able to determine if your ailing profitability is a result of insufficient sales volume. If your combined lease/loan payments represent 10 percent of your gross sales or less, you should be profitable or close to it. In this case, serving food may not be necessary. If you're not making a profit, it's likely due to improper menu pricing, poor operational controls, improper budgeting, or a combination of these variables.

Do you need to differentiate your store from your competition? If increasing competition has you concerned, or if you hear the "big green mermaid" is moving to your neighborhood, creating a menu of unique, high-quality food items can be an effective way to develop and maintain a competitive advantage.

Labor and Equipment Considerations
After you've analyzed the economic factors and determined whether adding food will help you achieve you desired profit, you'll need to make some important decisions about the items you'll serve.

Will you add simple pastries and baked goods to accompany your coffee beverages, or will you offer a more extensive menu that includes desserts, salads, sandwiches, and soups?

Again, base this decision on the additional revenue necessary to position your business "in the black." If you only need to increase your sales by a nominal amount-say $1,000 per month-it may be sufficient to add some simple pastries. But if your monthly sales are $10,000 short of the necessary level, you should consider adding more than muffins and scones.

Other important factors to consider are the expenses associated with producing those sales. Let's say you add muffins to your operation. You pay 50 cents for a ready-to-serve muffin and sell it for $1. There is a 50-percent cost associated with the sale of that muffin. This means if you sell $1,000 worth of muffins in a month, your net profit will only be $500 (at best). If you need to add an additional $1,000 to your bottom line each month, $1,000 in muffin sales will only move you halfway toward your goal.

You might also have additional labor and equipment expenses. Try to avoid menu items that require significant amounts of additional labor to produce or a substantial investment in equipment.

It will probably be wiser to buy items that are preprepared and resell them than to produce them from scratch, even if the food cost associated with selling preprepared items are higher. Let's say you could bake your muffins from scratch for 25 cents each instead of the 50 cents you pay for ready-to-sell muffins. This may seem appealing. After all, if you sell both muffins for $1, haven't you increased your profit margin from 50 to 75 cents?

Remember, however, that someone must make that muffin, and there is a cost associated with that effort. If you pay your bakers $8 per hour and it takes them one hour to create the muffin batters, bake 40 muffins, and clean up their work area and tools, there will be a 20-cent-per-muffin cost associated with creating each muffin. Your 75-cent profit margin has now been reduced to a 55-cent margin. In addition, if you had to spend $3,500 to buy a convection oven, mixing bowls, whips, spoons, muffin pans, and oven mitts, it may take years to recoup your investment by tallying the additional 5-cent-per muffin advantage you now have over ready-to-serve muffins.

Furthermore, what are the energy costs of operating your convection oven? What happens if your baker burns as occasional pan of muffins? What happens if she gets sick for a week---will you have to assume her job function? Remember, there are costs associated with the production and sale of every item. You must analyze all your options carefully.

Obviously, some equipment expenses are unavoidable, and if you project that adding these food items will cure your economic woes, you should probably make the investment. If you want to sell pastries, for example, you may need to buy a pastry display case. If you plan to make panini sandwiches, you will need to buy a panini grill. Perhaps you'll need an extra refrigerator and/or freezer to store certain food ingredients. You may even need a deli slicer, prep table, and prep sink.

Unless you have excess cash, avoid creating a full kitchen. When you start adding items such as griddles, broilers and deep fat fryers, you will be required to install a stainless steel hood with an exhaust fan, a fire suppression system, and a return-air unit. This will run into thousands, if not tens of thousands, of dollars.

If you want to do some simple baking-such as proof-and-bake or brown-and serve items-you may want to buy an electric convection oven. In many areas you can use this piece of equipment without an exhaust system, but check with your local bureaucracies first to verify this.

Regardless of the food items you are considering, run your proposed menu by your local health department, building department and fire marshal first to ensure there will be no unforeseen restrictions or costly requirements.

Understanding Your Market
Before you start creating you food menu, consider the following factors:

• Who is your target market? Who are your customers? You'll probably offer a different menu if your operation is located across from a high school as opposed to in a hospital. Be sure you understand the taste preferences of your customers.
• Take regional or ethnic preferences into consideration. Grits may be popular in Alabama and Mississippi, but they probably won't sell in Idaho.
• Regardless of the food items you decide to serve, select quality products. The caliber of your food items should match the quality of your beverage. Remember, quality is generally the one area where you can differentiate yourself from the big boys.

• Check with your food purveyors to make sure ingredients for your food items are available in your market.
• Make sure the ingredients are available year-round, and ask if they're vulnerable to seasonal quality and price fluctuations.
• Plan your menu so you can use ingredients in more than one recipe. In other words, try to avoid bringing in an ingredient for just one menu item, especially if it's highly perishable!!

Assuming your coffee operation employs counter service, you will need a menu board for your food items. Your food menu board should be next to your beverage board, so customers have no trouble seeing it. It should also be attractive and easy to read. I recommend commissioning a professional sign maker to create your menu board.

Similarly, display point-of-sale signs for your pastry case, countertop and display shelf items. You can produce these with your computer. Print or photocopy them onto attractive paper or card stock, and laminate them so you can clean them easily while retaining their attractive appearance.

Be sure to include at least a brief description of each item to minimize any uncertainties your customers may have about a product. For example, calling a sandwich "The Southwest Panini" will not tell customers the contents of the sandwich and may make them hesitant to order. However, if the description reads, "The Southwest Panini"-a mesquite-broiled chicken breast covered with mild green chilies and Monterey jack cheese grilled on French roll-they will know exactly what to expect.

When pricing menu items, I recommend the following:

•  If you buy ready-to-serve items (such as muffins, bagels, or frozen desserts), doubling your cost is usually sufficient.
•  If you or your staff must prepare the item, multiply the cost of the ingredients by three or four (depending upon what your competition charges for similar items).

Gross profit dollars are the profits you put in your cash register every time you sell an item. This is a confusing concept, so here's an example: If you sell a Crab Louis salad for $9.95 and it costs you $4.95 to produce, your cost of making that salad is just under 50 percent. If you make a Caesar salad for $1 and sell it for $4, your cost of making it is 25 percent. So what do you want to sell, Crab Louis or Caesar? While Caesar offers you a more efficient margin, Crab Louis nets you more money. So every time a customer orders a Crab Louis, you put $5 of net profit into your cash register, and every time a customer orders a Caesar, you put $3 of net profit into your cash register.

If you wanted to run a 25 percent food cost on a Crab Louis salad, you would need to charge almost $20. Unfortunately, you would probably never sell any at that price. However, upon evaluating the gross profit dollars gained by selling it at $9.95, it is still advantageous to offer this item. So be aware of the gross profit dollar potential of an item as well as its cost as a percentage of its sale price.

Make It Good!
Let me emphasize again that if you add food to your operation, you must be committed to serving quality products. Plan thoroughly. Explain to your food purveyors what you're trying to accomplish. Listen to their ideas and have them bring you products to sample. Check out your competition. Investigate all the options.

As an owner or manager, you must actively supervise the purchasing, production, portioning, storage, rotation, preparation, and presentation of all your food products on a daily basis. Over time, you will be able to evaluate which items are a hit and which haven't gained customer acceptance. Make adjustments as necessary and always keep innovating.