As per a study conducted by the Natural Resources Defense Council, more than 40% of food in the US is wasted. This ends up costing the economy more than $165 billion. If you own a restaurant, you are not only contributing to the problem, you are also hurting your bottom line. The good news is that you can eliminate both issues by following some tips.
Why You Should Prioritize Food Costs
As a restaurant owner, you know that approximately 30% of your overall sales is spent on ingredients alone. If your restaurant isn’t getting as many customers as it did before, cost cutting will be a priority. That way, you can make operational adjustments that will not affect your bottom while increasing profits.
Here are some of the main reasons why you should focus on food costs:
Determine Popular and Unpopular Dishes
If you know your food costs, you can determine which menu items are more profitable and which ones are costing more than they are being ordered. This way, you can determine which dishes are high in demand and which ingredients need to be ordered more frequently. Identifying popular dishes will help you prevent food spoilage, reduce waste and thus save money in the long run.
Optimize Menu Prices Easily
Popular dishes are ordered more times than their unpopular counterparts so they bring in more money in comparison. Optimize your menu prices accordingly so you can save money and bring in more as well.
Negotiate Better Rates with Suppliers
By getting on top of your food costs, you can figure out if vendors are charging you more. Plus, if a supplier’s rates are making food costs rises, you can look for another supplier who can give you affordable ones.
Top Ways to Manage and Reduce Food Costs
Your restaurant cannot expand or attract diners if your food costs are out of control. Here are some ways you can do that:
- Price Menu Items Appropriately
Control food costs by enhancing the profitability of your menu items. By determining which items are under and overpriced, you can you can increase or decrease food costs on particular ingredients accordingly. For example, if a low margin item is selling a lot and increasing your food costs, you can balance it out by either increasing the price or by adjusting portion sizes.
By adjusting the menu this way you can promote items that have high margins, but are low in sales. With a deeper understanding of menu balancing, you can make data-backed decision that can reduce food costs significantly.
Image Text: Food costs
Alt-Text: Manage food costs in a restaurant
Description: A range of vegetables on a board
- Stay On Top of Your Food Cost Percentage
Your food cost percentage has a lot to do with your overall food expenditures. To calculate it, figure out your cost of goods sold (CoGS). This is the amount you spend on ingredients over a certain duration for your menu items. Use this formula:
CoGS = Beginning inventory + Additional inventory – Ending inventory
After determining your CoGS, you can calculate your food cost percentage. Just divide the former with your total sales over a set period of time. The formula will look something like this:
Food Cost Percentage = CoGS/Sales x 100
The number you get will let you know how much you are spending in sales on ingredients which in turn will help you optimize your profit margin. For most restaurants, this can fall anywhere between 28% and 35%. It depends on the type of restaurant you have, service quality and the number of diners it is built for.
- Evaluate Vendor Price Changes
Vendors change prices regularly as per the seasonality of the items they can get along with their demand. While these changes may seem small since they change little week by week, the total amount can add up significantly over time.
By tracking those price changes, you can figure out your sales costs and whether you should change them or not. Plus, by tracking price variations, you can be a better position to negotiate for net pricing.
- Implement a Waste Not, Want Not Policy
By reducing food waste in your restaurant, you can reduce food costs significantly as well. While this strategy may be counterproductive for the while restaurant, implementing a Waste Not, Want Not policy in your kitchen can help you save a lot of money down the line. Otherwise, you will be throwing away that cash in landfills.
While some restaurants have been able to maintain zero waste policies, they cannot be realistically implemented across the industry. By reducing waste, you can a lot more to reduce and manage food costs. For example, instruct your chefs to collect and use protein scraps to make stocks and soups. Similarly, leftover bread can be baked again to make crispy croutons and leftover fruit can be used to make flavorful jams.
By encouraging the kitchen staff to recycle food this way, you can get them excited about your initiative and save money for your efforts.
- Automate Operations to Eliminate Bottlenecks
All of the aforementioned tips can help you manage food costs but they will also take a significant amount of time. Updating costs and comparing vendor prices can take time that you can be spending on improving your establishment.
This is where automation can help. With the right technology, you can upload and code incoming invoices so you can keep track of prices for the ingredients you need and how they change over time without manual intervention. By automating this task, you can also get accurate data and you won’t have to spend time calculating them either. The software will do it for you.
Certain software solutions are also sophisticated enough to determine costs per plate at a particular time as per the data gathered from invoices. With a drag and drop interface, you can experiment and find more cost cutting solutions for your establishment.
Bottom Line
Food costs are unavoidable, but if they are not managed well they can eat into your bottom line. The aforementioned food cost management tips can ensure you can pay your staff, yourself and for ingredients while making a profit.
