Prime Cost

The foundational KPI for food & beverage profitability

At Landscapes Golf Management (LGM), we don’t buy into the concept that food & beverage is a “loss leader” for private clubs and golf courses. We believe that food & beverage should contribute to the club’s long-term success, not hinder it.

We all know how challenging the F&b industry is. Finding and retaining employees has never been more difficult. Consumers have more options than ever. Costs keep rising, from food and beverage inventory to supplies and chemicals – everything is getting more expensive!
Stand-alone restaurants can simply increase prices to offset rising costs. But clubs must balance the expectations of dues-paying members with an eye on attrition.

As a management company with decades of food & beverage experience, we have found that menu planning and inventory control are critical factors in running a profitable f&b operation. We rely on KPI benchmarks to track our success.

We’ve all heard about different benchmarks or performance indicators for food & beverage like food cost, inventory turnover, and waste/spoilage. One of our favorites is a lesser-known KPI called Prime Cost. Prime Cost (PC) is the total Cost of Goods Sold (COGs) plus real Payroll Dollars. We’ve found a PC of 90% is typical in the golf industry.

Let’s dive into an example:

A club’s COGs run at 43% – or 4% over budget. After the board meeting, the chef gets a scolding and decides to get things back on track – so she switches from pre-packaged/portioned steaks to buying whole sides of beef. On the next P&L, COGs have dropped to 38%. Problem Solved!

Not-so-fast. Hours and hours of kitchen labor are associated with this maneuver. Someone has to butcher. Someone has to grind the beef. Someone has to wrap and label steaks. All of a sudden, payroll costs have ballooned to 50% of revenue, and the savings of the lower food cost are wholly lost.

Clubs must understand that no single KPI or metric can determine profitability. We often see clubs cherry-pick small successes while turning a blind eye to the disappointing areas of the operation.
Prime Cost gives us a better understanding of the business’s health than food or labor costs alone. Using the above example of COGs at 38% and Labor at 50%, the Prime Cost is 88%. At this level, the food and beverage department is undoubtedly losing money and draining resources from the rest of the club.
At Landscapes Golf Management, we have found that the best way to run a profitable golf course and private club food & beverage operation is to manage food and payroll costs together. The example above is extreme, but it illustrates that the two metrics are linked and must be looked at in tandem.

We mitigate rising food and beverage costs by consolidating vendors and improving leverage for better upfront pricing. We commit to 80% volume with our primary vendor. Fewer deliveries and larger drop sizes give the distributor a reason to offer preferred pricing. We lock in on margin schedules that make the need for price shopping unnecessary. This frees up valuable time for our managers and chefs. We utilize systematic inventory management to control waste. We methodically plan our menus to control costs while offering attractive and profitable pricing. Finally, we train, train, and train some more. We make sure our recipes are followed.
On the payroll side, we utilize a budget-based weekly scheduling philosophy and pro-rate based on actual revenue. Most clubs that deal with high payroll costs have poor scheduling practices.

Lastly, turnover can lead to myriad problems in F&B. It drives payroll costs through the roof because of training. It can lead to inconsistent quality and excess waste. Most importantly, it can lead to burnout, with everyone scrambling to “fill in.” The employee experience is an essential part of our success. We offer much more than a paycheck; Culture First is our company motto – and we mean it. We offer competitive compensation and benefits packages. We work with our team members to help them achieve their work and life goals. We have an employee assistance program. All of these items contribute to our track record of long-term, happy employees.