Managing Inventory = Solid Cash: Liquidity translates to profitability
The concession snack business has made its foundation based on buying low-cost items and turning them into high-profit-margin opportunities. Sounds easy enough, yes? No! High profitability in the concession industry comes from the ability of the operation to turn less perishable items into cash. The shelf life of popcorn, Coke syrup and gummies is nearly equal to that of an Eveready battery: a long time. The danger that exists in the next generation of concession foodservice will be in the life cycle of the highly perishable foods that are being introduced to the marketplace. It will be important to understand how to cycle fresh produce in and out of the kitchen. It will be important to know the shelf life of the meat products served to the dine-in theatre patron. Inventory control has always been a key element in managing food cost and will be even more important going forward.
Inventory turn can be defined by how long it takes to deplete the stock one has purchased and received cash for that inventory. When I was a kid, I typically had a “lemonade” stand in the summer. For me, it was ten cents for the Kool-Aid and free water for the 32 ounces of lemonade. (Real lemons were too expensive and didn’t make enough juice). A total of 32 ounces of liquid was served in eight-ounce portions. (Remember, ice displacement would fill a 16-oz. cup.) I could sell the lemonade for 25 cents, making me one dollar for a ten-cent investment. Here is where it gets tricky: When it got hot, I would begin drinking the inventory. Pilferage and waste ate away at my potential earnings. Simple enough. I could buy three packs of Kool-Aid and sell all three in one day. The inventory turn was 24 hours, or one day(a cost of 30 cents per day: three to one).
[“In accounting, the inventory turnover is a measure of the number of times inventory is sold or used in a time period such as a year. The equation for inventory turnover equals the cost of goods sold or net sales divided by the average inventory.”—Business Dictionary]
Inventory cycle means how many times do I replenish my inventory stock? In theatres, inventory cycles are typically monthly, some are weekly, and all are based on two factors: storage space and the shelf life of the ingredients. Some theatres are tasked with low-volume storage space and therefore must reorder supplies weekly to stay in business. The downside to this is they also run short on product and therefore lose sales. The opposite can happen when a large theatre has plenty of space and wants to be sure plenty of stock is on hand. Overabundance leads to pest infestation, spoilage, theft and poor counts.
[Inventory cycle is “a method of keeping track of inventory by performing inventory counts constantly, or on a frequent and regular basis, instead of once per year or once per quarter. A business using the cycle inventory method might count different items at different rates, based on the level of turnover or demand for that particular item.”—Business Dictionary]
How do you know how much stock should be on hand? There are four basic rules: First, do daily counts; second, record all dates of delivery of stock on the case; third, evaluate and analyze the sales records as often as possible; fourth, store/warehouse products in the best conditions.
If you count the concession stand inventory daily, you will be extremely familiar with three things. How much food was extended, or “missing”? How much production was required for those items, and how much waste was incurred? Daily counts give the manager a real-time picture of usage and real requirements, not hopeful sales. Compare this to the actual dollar sales receipts for the day.
When food items are delivered into the theatre, first check the expiration dates to be sure those items are in date and allow for some storage time, hopefully months not days. (Bread/buns and dairy might be an exception.) Use a permanent marker to write day received in LARGE numbers; it will be easy to rotate the products and use the oldest product first. First In, First Out: FIFO. Rotating food products is vastly ignored in too many locations. It is very easy to just stack the new delivery right on top of the old. I have seen bags of popcorn over a year old in a location, as the manager never found it necessary to use the oldest corn first, because restacking was too much trouble. In the meantime, the expansion rate dropped by 30% and the operator was losing money, not only from inferior product but less production in the yield ratios.
The third key component to inventory turns is the actual evaluation of what is being sold. Not only by the day, but by the hour. Example; I sold 14 coffees today, therefore I need to keep coffee in the urn all day. Not so! Maybe 13 of the 14 sold were before 12 noon and the one other was sold at 9 p.m. Pastries and breakfast items might sell well before the afternoon matinees and probably more often than hot dogs. Analysis of the sales will assist in the reduction of waste and improvements in purchasing habits.
Storage of food products in the most ideal places will support good turns. Placing candy in storage closets without temperature controls will result in loss. Refrigeration at above 40 degrees and below 50 degrees is a foundation for spoilage and food bacteria. Placing foods and cases off the floor can seem rudimentary, but do you also consider janitorial supplies and cleaners the same way? Chemicals cost money as well. Protection of all the inventory is necessary; paper towels, lids, straws, napkins all have a monetary effect on the cost of inventory. Always store inventory at least six inches above the floor.
Here are some tips to improve the change from solid inventory to cash deposits:
* Evaluate your ordering procedures and timeliness.
* Evaluate your inventory record system.
* Do daily counts, weekly inventory, and monthly orders.
* Conduct your physical inventory efficiently.
* Store inventory in ideal locations.
Larry Etter is senior VP at Malco Theatres and director of education at the National Association of Concessionaires.