It's a no-brainer that managing food costs is an important factor in ensuring a restaurant's success. Knowing your restaurant's food costs helps determine factors like menu pricing, tracking prime costs, and hitting profitability targets.
Food cost management is particularly important given the ongoing food inflation and other factors of economic uncertainty.
Controlling your restaurants' costs can feel overwhelming and challenging, but we assure you it doesn’t have to be. Come along with Backbar as we deep dive into the factors that make up restaurant food costs, why it's important, and how you can use your food cost numbers to help your business overall.
What Factors Make Up a Restaurant's Food Costs?
To put it simply, your food cost is the total combined cost of your restaurant’s food. However, finding that cost is a little more complicated than that.
When restaurants talk about food costs, they’re usually talking about two types:
Period cost
This refers to the total food cost over a specific time period, like a week, month, or year. In order to calculate period cost, you’ll need to use the cost of goods sold (COGS) ratio. Period costs provide a quick snapshot of your food costs.
For reference the equation for calculating COGS is:
(Beginning inventory + Purchases Inventory) - Ending Inventory
Plate cost
This refers to the total costs of each dish before margins are added. It's essentially a COGS measurement that focuses on each individual menu item. To calculate plate cost you add the portion costs for each recipe on the dish — as well as any standalone ingredients such as proteins.
What is your restaurant food cost percentage?
Most restaurant owners, managers, or accounting staff will express food costs as a percentage instead of raw numbers. This is the restaurant’s food cost percentage.
Here is the food cost percentage equation:
Food Cost Percentage = (Beginning Inventory + Purchases - Ending Inventory) / Food Sales
Why is Knowing Your Food Costs So Important?
Food costs are one of the largest expenses for restaurants. For your restaurant to be successful, knowing and controlling food costs is vital.
Food cost should be a key factor when strategically pricing your menu. Plate costs and the restaurant’s food cost percentage goal must be used to determine menu pricing. Perceived value and market demand are also considerations, the actual food costs are really what should determine what price you make each menu item.
Food and labor costs are mostly controllable, “prime” expenses. That's why restaurants must track their food costs to be able to determine how to maximize profitability.
In addition, knowing food costs can help you achieve cost targets. Tracking how plate or period costs change over time gives you insight into how food cost is trending and gives you valuable information about the need to increase prices or implement various food cost controls.
How to Manage Your Food Costs
There are several ways that you can control food costs at your restaurants. Use these strategies to help you contain or reduce food costs to maximize margin!
Consistently Track and Calculate Your Inventory
When calculating your inventory, you should be tracking this at a consistent time of the day. For example, it is best to calculate your inventory at the beginning or end of each day. This helps you keep your numbers consistent when calculating inventory and your food cost percentage. Software like Backbar can make inventory tracking a breeze without taking up too much of your time. Work smarter, not harder, as they say.
When a food order arrives, you should always inspect the delivery’s contents to ensure that you are not accepting food (and therefore, paying for it) that is past its prime or damaged and unusable.
Checking inventory regularly can give you an idea of how and at what rate your food is being used or wasted. For example, if you notice that you have salami that is going unused and spoiling, change your food order to a lesser amount to reduce food waste. Conversely, if you’re running out of mozzarella cheese before your dinner service even starts, you need to increase your food order.
Watch Third-Party Delivery App Fees
There has been recent confusion as to why restaurant menu prices are higher if customers order delivery via a third-party app like DoorDash or GrubHub. The fact is no service free. While using a third-party delivery service vs. an in-house system has tons of pros and cons, if you choose the third-party service that system has fees.
Most users are aware of the fees on their end such as delivery fees or small order fees. But, you as the restaurant are also charged fees for utilizing the service.
For example here are a few popular apps' commission fees:
- DoorDash: 15-30%, depending on which plan you choose between their Basic, Plus, or Premier options. DoorDash offers its plans with zero payment processing fees. (DoorDash also offers a commission-free plan called Storefront)
- Grubhub: 5-15+%, also depending on if you go with their Basic, Plus, or Premium plans. (Grubhub also offers a commission-free plan called Grubhub Direct)
- Uber Eats: 15-30% for delivery orders, depending if you're on their Lite, Plus, or Premium plan, and a 6% fee for pickup orders, regardless of the plan.
So, if you're considering inflating your menu prices on these apps a bit to help elevate your profits we say go for it. If people complain simply remind them if they order takeout directly from you and come pick it up they'll eliminate these fees and still get to enjoy their meal.
Pay Attention to Forecasted Sales Throughout The Year
Looking at your past sales history and using that data to predict your sales in the upcoming weeks. Not only does this help managers control food waste it also results in better management of employee scheduling, ordering, and food prep. The consequence of missing your forecast can be costly.
Set Food Cost Goals and Track Your Progress
A way to manage food costs is through establishing ideal food cost variances for your restaurant.
By monitoring the variances between ideal food cost and actual food cost, you can easily pinpoint any operational weaknesses, identify loss and theft, and combat rising commodity costs. In addition, do not overlook the cost of food waste; controlling waste is a key component in controlling your COGS.
Train The FOH and BOH Staff to Also Keep Food Costs In Mind
How does your staff contribute to keeping food costs low? You’d be surprised how much waste comes from orders that were either punched or prepared wrong.
Do you train your cooks and line personnel on portion control, and make sure they follow it at all times? How do you measure items like sauces? It’s one thing to require a process for putting together menu items, but it’s another to uphold that process.
Don't Overlook Employee Meal Policies
It's typical for restaurants to have some sort of policy around staff meals. While it may seem tempting to cut employee meals as a quick way to lower your food cost, you most likely will have an upset staff on your hands.
However, you should set regulations on staff meals. They should be delicious, filling, and balanced, but not extravagant — so filet mignon won’t be making an appearance except on special occasions or unless the staff member is ok paying full price to treat themselves.
Monitor You Suppliers Cost Changes
Vendors can frequently change their prices based on the seasonality of items and/or demand. These changes can seem very minimal from week to week but can add up over time. Tracking price changes will also help you determine if your plate costs need to be recalibrated — which, as we already discussed, can make all the difference.
Having a system that processes every invoice can make it easy to make a habit of tracking price variances. By digitizing invoice data, you can collect and easily view important information that can help you see if vendors are consistent or change prices too frequently.
Is It Time To Re-engineer Your Menu?
When was the last time you took a good, objective look at your menu? The basics of menu engineering simply intend to eliminate any menu items that are costly to prepare but are not selling enough to make a profit. These are the items that are sending your food cost up.
On the other end, you want to figure out which items are most profitable and find a way to upsell them.
