food costing and control

Food cost is the ratio of a restaurant's cost of ingredients (food inventory) and the revenue that those ingredients generate when the menu items are sold (food sales). 

It’s no secret that running a restaurant is tough. In fact, most restaurants never make it past their first year!

A common concern among restaurant owners is managing food costs. To manage your food costs, you need to understand how they affect your profits.

Understanding your food costs is important because it has a direct relationship with how profitable your restaurant can be.

Although many of us feel anxious or confused when we have to think about numbers, the process doesn’t have to be difficult and complicated. Monitoring your cash flow and managing your restaurant budget can be easily done with the right tools, and you’ll have peace of mind knowing you’re on top of everything.

An accounting software helps you manage your books and records, as well as your inventory and transactions quickly and accurately. If you have a POS system with inventory management capability that tracks all your inventory and purchases, you can simply sync your data with your accounting software and the rest will be taken care of.

However, if you want to go about it the old-fashioned way, here are a few budgetary items to keep in mind:

Cost control is the ongoing practice of taking measures to reduce business expenses as a way to increase profits. Food cost control specifically, is identifying and reducing the cost of food and beverages at your restaurant. 

The key to running a successful, profitable restaurant isn’t the food or the service.

Of course, those things are critical. It’s a nonstarter--without good food and good service, people just won’t eat at your restaurant. But when you dig into what actually sets apart the most successful restaurants, chains, and franchises, it’s not because they have the best dish or the nicest staff.

It’s the math that makes the business work.

The bottom line for any restaurant is that it’s a numbers game. In order to survive, you can’t just create great food, do great marketing, or provide an awesome experience. You have to nail the operations part, too. And that means knowing your numbers cold and understanding how to manipulate the numbers in order to keep your business profitable and sustainable.

Cost per meal gives you the most accurate description of your food costs as they pertain to the volume of meals you’re selling.

Cost per meal is also the gateway to unlocking other powerful ways of looking at your business: Average cost per plate (the sum of all your dishes prices divided by the number of dishes), as well as quick-and-dirty calculations such as total costs vs profit per party (average dish price multiplied by number of seats filled).

You can also use a percentage approach per meal to understand the margin being driven by each individual dish. Even if you’re at a consistent 32% overall food cost, for example, it’s good to know if that cost is similar across all dishes, or if you have a number of dishes at varying percentages.

Having these numbers in mind can inform decisions such as which dishes to promote, which to redesign, and which to retire, depending on your overall strategy.

Highlight these dishes and ensure your menu focuses on them prominently. 

Great stalwarts, don’t tuck them away but don’t focus all your energy on them. Consider adding a version that you can sell at a premium (such as a sampler that contains elements of several of these dishes), or provide add ons that can help you increase profits while adding to the experience. 

Consider highlighting these, or asking your staff to promote these items. You could try lowering the price to see what happens, or consider redesigning the presentation. Either way, make sure you reserve some of your key menu space for these items. 

Often times you can’t simply remove this item; maybe it’s standard fare for your type of cuisine, or one that holds deep emotional connection. Take an objective view and don’t focus too heavily on these items, but don't allow them to take up prime menu real estate either. 

Menu Psychology is a study of how a restaurant's menu can influence people to spend more money. There are many tactics that restaurants use, some even have a "menu engineer" who helps them make sure they optimize their menus.

By the same token, the most and least expensive dishes on your menu may suffer from what is known as extremeness aversion--a documented phenomenon that essentially describes human’s tendency to gravitate towards the middle of the pack when faced with choices representing a series of extremes.  

Keep this in mind when forecasting and planning your menu. Items on either side of the average may suffer from a lack of popularity, no matter how delicious they are.

Consider listing items or sizes in an array that you can accommodate, and expect customers to gravitate towards the middle of the pack when presented with a range of choices.

Knowing your food cost percentage is crucial because it serves as a key indicator of profitability and overall success in the restaurant industry. Restaurants typically operate on slim profit margins, usually around 3-5%. Therefore, keeping food costs at an appropriate level is essential for maintaining profits.

Monitoring your food cost percentage enables you to make smarter spending decisions, adjust your menu to maximize profits, gain a better understanding of supply chains and their impact on profitability, and update your menu based on available and affordable ingredients.

It’s common for some recipes to be more of a guide for experienced cooks. This is fine if your goal is to show the process of putting together a dish. But if you want to cost your recipes, you need to be more detailed and write down your prep actions. Instead of just saying onion, you want to say sliced onion, diced onion or whatever else applies to your yield percentages. All of these details have to be reflected in the final recipe that ends up on a customer’s plate.  

Whether you do it quarterly, or have a team behind you costing food monthly, every time you have a new invoice, you should be keeping track of costs and making adjustments.  No one likes working with a spreadsheet and doing all the manual work that goes with managing it correctly. And ERP and inventory systems claim to calculate accurate restaurant food costs. However, these systems have little understanding of how chefs actually think, create, and use recipes day to day. 

Chefs and restaurant operators need a space where they can take full ownership of their food costs and recipes as a whole.