The restaurant industry has always been challenging, but things got harder when the COVID-19 pandemic hit. Restaurant businesses worldwide suffered substantial monetary losses during the pandemic, and an estimated 90,000 restaurant operators saw their businesses close their doors. Many restaurateurs who didn’t have to shut their doors are still trying to recoup their losses. Managing restaurant food costs in this challenging transitionary period is essential.
Keeping an eye on the cost of food is crucial for restaurant owners, but it’s a time-consuming task. It can be hard to maintain healthy profit margins as the cost of ingredients rises. But with the proper management system, it’s possible to ensure a steady income stream and a healthy bottom line.
From inventory management to supply chain changes, there are several ways for restaurateurs to keep their restaurant food costs down — and boost their profit margins. Let’s look at some of those techniques and find the best way to manage your restaurant food costs.
Restaurant food costs are the total sum a restaurant management team spends on ingredients and food supplies for their menu items. They fall under a restaurant’s operating expenses and impact how much a restaurant should charge diners for items on its menu.
Variable costs, including inventory costs and labor costs, are often known as “prime costs,” while fixed costs (like rent and insurance) can be seen as “fixed costs.” Tracking your fixed and prime costs is vital for predicting your monthly net profit and ensuring you’re charging enough to keep your restaurant in the black.
Tracking different metrics can help you better understand your restaurant's food costs and other operating costs. This, in turn, can ensure you know what menu prices to set to keep your restaurant menu profitable.
Many restaurant owners calculate their food cost percentage to closely monitor their total costs. Your food cost percentage represents the money you spend on menu items compared with the income you earn on those items — i.e., the percentage of your sales you spend on ingredients to make your dishes.
To calculate your food cost percentage, follow the food cost percentage formula:
Food cost percentage = (Food costs ÷ Gross sales) x 100
For example, if you spend $2,000 on ingredients but make $5,000 in the same period, your food cost percentage would be (2,000 ÷ 5,000) x 100 = 40%.
If you don’t have a handle on your food costs, use this more detailed formula instead:
(Cost of beginning inventory + Purchases made - Cost of Ending Inventory) ÷ Total food sales x 100
If the final value is 40%, this means that for every dollar your restaurant earns in sales, you’re spending an average of $0.40 on the ingredients to make each item. As a benchmark, an ideal food cost percentage is low — it means you’re spending less on food per dollar earned.
It’s worth noting that this metric doesn’t include labor costs or other costs — it’s simply the raw ingredient cost of your food items.
Another valuable metric to track is the cost of goods sold (COGS). Your COGS value is a raw value (rather than a percentage) representing the total restaurant costs spent to produce each menu item. It accounts for prime costs (food and labor costs) and can also include fixed costs like rent or mortgage payments.
Many business owners use their COGS value to calculate their gross and net profit, as it includes the total costs incurred to make each sale.
Tracking and managing your restaurant food costs helps you set the best menu prices and ensure a profitable menu. Here are five ways you can manage your food costs.
Tracking your sales data can help you monitor which menu items are customer favorites and which are less popular. A reliable point-of-sale system (POS system) can help. With this POS data in hand, you can eliminate menu items that aren’t performing well. This can help you reduce food waste in the long run, as you can ensure that only the most profitable dishes stay on your menu.
Self-service apps like KioskBuddy can also help reduce your COGS by lowering labor costs. Customers can place and pay for orders themselves, meaning you need fewer front-of-house staffers. KioskBuddy also provides sales reporting and lets you export information into a CSV file to calculate metrics like restaurant food costs and COGS.
Keeping an eye on your restaurant inventory can also help you reduce food waste.
The right inventory management system lets you track your food inventory, meaning you only order what you need when you need it. This prevents you from over-ordering — which is particularly important for perishable items like fresh fruits and veggies, meat and fish, and dairy products.
By only ordering what you need, you can reduce the proportion of wasted ingredients and save money on your actual food costs, too, since you’re only buying items that are low in stock.
If you notice lots of food coming back to the kitchen when your customers have eaten — whether they’re taking it away in a doggie bag or just tossing it in the trash — you might want to consider reducing the portion sizes in your restaurant.
By lessening the amount of food on each plate even a little, you can reduce your restaurant food costs significantly over the course of a year.
Let’s say a particular dish on your menu costs $2 worth of ingredients to prepare. If your diners don’t eat 10% of the meal on average, that’s $0.20 of ingredients down the drain every time someone orders it. If you sell 100 of this dish weekly, that’s $20 a week — or $1,040 per year — of wasted money.
Reducing that dish’s portion size by just 10% could reduce your annual food costs by over $1,000.
Another way to reduce your restaurant food costs is by building a good relationship with the producers in your supply chain. Food prices might seem fixed, but if you work closely with a specific supplier, you might be able to negotiate a better deal without compromising on quality.
For non-perishable goods or ingredients with a long shelf life, consider buying in bulk. If you place a large order with a supplier, they’re more likely to offer discounts. It’s also a great way to build a strong relationship with another business — increasing your chance of getting loyalty discounts or reduced prices later.
If you want to serve dishes with a higher food cost percentage, consider putting them on a rotating specials menu for a limited period of time.
By decreasing availability for these items, you can increase demand, as customers will view them as something out of the ordinary and worth paying more for. You can, therefore, recoup higher ingredient costs by pricing the dish at a higher value.
Whether you run a high-end full-service restaurant or a fast-food chain, tracking and lowering your restaurant food costs is an essential task in your restaurant operations. Thorough food cost control can help you reduce your outgoings and ensure you know how much to charge for every item on your menu.
KioskBuddy presents restaurant managers with real-time data to help them keep an eye on their sales data, making it easier than ever to calculate your restaurant food cost percentage and COGS values. It’s quick and easy to set up and helps free up your front-of-house staffers.
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