Casino Consulting | $1 In Chicken Is Worth More Than $1 In Cash
Casino Consulting | $1 In Chicken Is Worth More Than $1 In Cash
When completing a casino cage audit, you are normally required through REGS and MIGS to undertake certain tasks several times a day, making sure that every cent is accounted for. Employees are held firmly responsible and have to undergo background checks, licensing and 24/7 surveillance. Reports are sent out to be audited, the process is repeated every few hours and there is not a second that the accounting department responsible for the cage do not know exactly how much is in the cage in both cash and chips.
Multimillion dollar software tracks money and generates reports, shows audit failures and identifies system weaknesses. A casino will not open without gaming management be it a Japanese replica or the Ballys cream of crop. Not a penny moves without a form and a thing and a process.
Civilian vendors cannot even think of being able to look inside the cage without the granting of specific permissions and security and without being thoroughly vetted. Furthermore, if an audit shows a $90 short during a cashiers shift, there are rigorous protocols that remove that employee from the workplace, with he or she being suspended pending investigation.
The cashier’s float was only $25,000 so why, when a chef has an inventory of the same amount – or more realistically stock with a value of millions – are the same protocols not applied? A refrigerated produce order with a wholesale purchase value of $25,000 is worth $100,000 when sold – add margins, the cost of preparing the food, the notional cost and marketing of attracting a guest to eat at the venue – or $0 in three days when its lifespan is complete and the stock has to be thrown away. We therefore ask the important question of ‘why are the perishable supplies in your food & beverage inventory not treated with the same respect?’
The reason is because it is not a legal and regulated requirement: Indeed to many, food is an annoyance or necessary evil to satisfy the gaming customers. Often operated and managed by underqualified staff and those who do not think of the inventory as a currency, venue management are not treating this valuable stock as they ought to.
The Casino Floor has multimillion dollar software given the rate and speed of transactions and the automation of the gaming process. More often than not, Food and Beverage has excel spreadsheets at best. This is not about software. In these cases, software is mostly purchased as a solution to a problem when the problem is actually that very person formulating the solution. You cannot purchase food cost control, only people can. Software just cuts the man hours down and translates the data into more readable fashion for cross analysis.
Only in the last few years have many properties recognized the ability and indeed necessity for strong F&B presence to provide a significant new revenue stream not only from existing players but also the new customers who come purely for the F&B options. This therefore means there is also a new marketing benefit realized, however the value of strong F&B is not the purpose of this article. This article is focused on how the value of inventory got lost ‘somewhere’. All too often we walk into mega million dollar sites who use MBWA (management by walking around), P&L and some spreadsheets to analyze their F&B when the converse should apply. The person running the F&B needs the analysis to run that department efficiently.
Our first message to management in these cases is to rethink how this valuable asset is handled and fast. Inventory is currency just like cash and should be treated as such. It should not be laying around in various storerooms, it should not be accessible to ‘just anybody’ and it certainly should have tracking. Unfortunately this is one of the biggest challenges we face in an F&B context: Getting someone to take a can of peas seriously, especially when they go through a palette a week. We genuinely don’t see the difference between a walk-in freezer and a safe. This overall shift in mindset is the largest hurdle to overcome but one that pays constant dividends when applied. Getting people to see it our way and recognize the weaknesses in the procedures in place is one of our key tasks in these situations.
We expect to swing the costs of goods downwards by about 7-12% of total gross program sales. So when our prospective customers ask us how we are so confident in our ability to make change without interrogating the numbers further, it usually comes back to us to see if F&B is controlled by MBWA. Generally, however, a problem in F&B is an indicator of a wider problem within the company as someone should have addressed this issue, fixed the issue or at least understood that at times, there is value in preferring $500 in guaranteed beef sales than $500 in cash.
Let’s not forget, however, the always tightly controlled liquor cage with keys, cameras and par systems for an inventory of $6,500 behind a bar. Managers often do what is at best common practice and at worst, easy …. and ignore the rest. Liquor being the more stolen commodity is a myth because no one knows about the food being stolen either through waste, bad portions or theft. How could they with no accountability or stock management in place?
The good news is that the solution is a simple one. Yes the department needs to be stripped and rebuilt, yes new controls and procedures need to be put in place. But there is one department already on site specializing in this for our cash currency. Accounting of course. Who better to protect our inventory currency?
There are many solutions that casinos should undertake but it all starts with Accounting taking control of inventory the second it arrives on the property. Wherever it may be stored it is owned by accounting and its movement into the supply chain should be through the standard purchase orders and audit logs. Two slips of paper and a controllable inventory has been started. From this one can then branch out into the other issues that require close inspection such as whether the site is holding too much inventory, cost analysis, vendor analysis, plate management and so forth …. but you must start at the root of the problem and move from there.
With inventory sitting in storage and now ultimately accountable to or controlled by an accounting department the process is clear, inventory and par maintenance. By using perpetual inventory as opposed to static, the par can be determined quickly as each unit has a “days on shelf” associated to it. More importantly, the property can now drill down on its costs and its uses to the individual purchased unit which is a key indicator of profitability and efficiency.
With these changes made, you now have an F&B department which need only focus on the cost of goods for the product they have transferred out of storage allowing for a much more isolated process and facilitating the all important checks and balances. This is a real cost system which gives your chef the chance to make an impact and be able to complete his job. The minute it leaves storage, accounting relinquishes responsibility for stock and the chef or section head is responsible.
You have now successfully changed the entire structure of your F&B department. Purchasing is now taking orders on product demand from accounting, receiving is now an accounting function, the chef is focused on food and managing the food offering in the kitchen rather than in the storage and each department has a more focused responsibility in an area they are most skilled.
One small tip – limit access to storage!!
OnSite Consulting is a nationwide hospitality and consulting company to the casino, hotel & restaurant market. Providing immediate solutions for sites seeking turnaround, insolvency and concept repositioning. www.onsiteconsulting.com
