Controlling Food Costs in Your Restaurant

For any restaurant owner or restaurant operator, happy customers and delicious food are key. But behind the scenes, effective food cost control is vital for long-term success and boosting your bottom line. In a competitive market, it's not just about saving money, it's about sustainability and profitability.

This guide provides restaurant owners and restaurant operators with strategies to manage their costs of food, improve profit margins, and reduce waste.

Understanding Restaurant Food Costs

Before you can cut food costs, you need to understand your current restaurant food cost. Precise knowledge is crucial, starting with key metrics.

What is Food Cost Percentage?

Food cost percentage is revenue spent on food and drink, calculated as:

(Cost of Goods Sold (COGS) / Revenue) x 100 = Food Cost Percentage

A healthy food cost percentage is typically 28%-35%, but lower is better.

Deciphering Food Cost of Goods Sold (COGS)

Food Cost of Goods Sold (COGS) is the direct costs of food and drink sold. Calculate it as:

Beginning Inventory + Purchases – Ending Inventory = Cost of Goods Sold (COGS)

Let's break down each component of this formula:

• Beginning Inventory: This is the total value of all your food and drink inventory. It is calculated at the start of the accounting period. This is your starting point for cost tracking.
• Purchases: This number includes the total cost of all food and drink items your restaurant bought and received during this time.
• Ending Inventory: Ending inventory is the total value of the food and drink you have left at the end of the accounting period. This represents what's left in stock after sales and usage.

Regularly calculate COGS and food cost percentage to identify areas to reduce food cost.

Total Food Costs

The direct cost of ingredients is the biggest part of your total food costs. However, it is important to recognize and include other expenses that add to your overall food spending. These often-overlooked costs can include:

• Delivery Charges: Fees associated with suppliers delivering your food orders.
• Waste Disposal Costs: Expenses related to disposing of food waste.
• Storage Costs: Costs associated with refrigeration and freezer operation.
• Spoilage and Waste: The cost of spoiled or is wasted food. This can happen due to over-portioning, poor storage, or bad inventory management.

Proven Strategies to Control Food Costs

Once you understand your restaurant food cost, implement these strategies to reduce food cost and improve your bottom line.

1. Menu Engineering: Design for Profitability

Menu engineering designs menus for maximum profit margins, understanding each menu item's profitability and popularity.

• Categorise Menu Items: Classify each menu item based on its profitability and popularity. A common approach is the "Menu Matrix," which categorises items as:
  • Stars: High popularity, high profitability. These are your winning dishes.
  • Plow-horses: High popularity, low profitability. Consider increasing prices slightly or reducing ingredient costs.
  • Puzzles: Low popularity, high profitability. Consider repositioning them on the menu or promoting them more effectively.
  • Dogs: Low popularity, low profitability. These are often candidates for removal or significant re-engineering.
• Optimise Menu Placement: Strategically place high-profit menu item in prime positions on your menu (e.g., top right corner, highlighted boxes) to draw customer attention. Less profitable items can be placed in less prominent locations.
• Ingredient Utilisation: Design your menu to utilise ingredients across multiple dishes. This reduces waste and allows for bulk purchasing, potentially lowering your ingredient costs. For example, roast chicken can be used in sandwiches, salads, and soups.
• Pricing Strategies: Carefully consider your pricing strategy. While you want to remain competitive, underpricing menu item can significantly impact your profit margins. Calculate your ideal price point based on food cost percentage, desired profit margin, and competitor pricing.

Menu engineering guides customers to profitable menu item, improving finances.

2. Portion Control: Consistency Saves Costs

Inconsistent portion size increases restaurant food cost. Strict portion size control saving money and maintains food cost percentage.

• Standardised Recipes: Use recipes with precise ingredient and portion size.
• Portioning Tools: Use scoops, ladles, scales, and portion size spoons.
• Visual Aids & Training: Use charts and training to reinforce portion size control.
• Pre-portioning: Pre-portion high-cost items to save time and ensure consistency.

Robust portion size control reduces food cost, minimise waste, and ensure consistent customer experiences.

3. Smart Inventory Management: Reduce Waste, Maximise Freshness

Inefficient inventory drives up restaurant food cost. Effective inventory management is key to reduce waste, reduce food cost, and ensure ingredient availability.

• Regular Inventory Checks: Implement a system for regular inventory checks, ideally daily or weekly. This allows you to track stock levels, identify slow-moving items, and detect potential spoilage early.
• First-In, First-Out (FIFO): Adopt the FIFO method for stock rotation. Ensure older stock is used before newer stock to minimise spoilage and maintain freshness. Proper labelling and organisation are crucial for FIFO.
• Accurate Forecasting: Use historical sales data and upcoming reservations to forecast demand and order accordingly. Avoid over-ordering perishable items.
• Optimise Ordering Frequency: Adjust your ordering frequency based on ingredient shelf life and demand. For highly perishable items, consider more frequent, smaller orders.
• Supplier Relationships: Build strong relationships with your suppliers. Open communication can help you negotiate better prices, adjust order quantities, and ensure timely deliveries, saving time and money.

Effective inventory management reduces waste, reduce food cost, and improves menu item quality.

4. Strategic Supplier Negotiation: Better Prices Through Relationships

Ingredient prices directly impact restaurant food cost. Negotiation saving money and helps cut food costs.

• Shop Around: Compare prices from multiple suppliers.
• Volume Discounts: Negotiate discounts for bulk purchases to reduce food cost.
• Seasonal Purchasing: Use cheaper, seasonal produce.
• Long-Term Relationships: Loyalty can improve pricing.
• Payment Terms: Negotiate better payment terms for cash flow.

Strategic negotiation is key to cut food costs.

5. Waste Reduction: Trash to Treasure

Food waste hurts restaurant profit margins. WRAP UK states £0.18 waste for every £1 spent. Reducing waste is ethical and reduces food cost, improving the bottom line.

• Track and Analyse Waste: Implement a system for tracking and analysing food waste. Categorise waste (e.g., spoilage, trim waste, plate waste) to identify areas where waste is most prevalent.
• Proper Food Storage: Ensure proper food storage techniques are followed. Store food at the correct temperatures, use airtight containers, and label and date all stored items to prevent spoilage.
• Trim Waste Minimisation: Train kitchen staff to minimise trim waste when preparing ingredients. Use vegetable trimmings for stocks and soups, and utilise meat trimmings for other dishes or staff meals.
• Plate Waste Reduction: Analyse plate waste to understand why customers are leaving food uneaten. This could indicate issues with portion size, menu item appeal, or food quality. Consider offering smaller portion size options or adjusting recipes based on feedback.
• Composting & Recycling: Explore composting food waste and recycling other restaurant waste to reduce waste disposal costs and enhance your restaurant's sustainability efforts.

Reducing waste significantly reduces food cost and appeals to eco-conscious diners.

6. Empower Staff: Training for Cost Consciousness

Trained staff are key to food cost control, helping save money.

• Comprehensive Training: Train on food cost control, reducing waste, portion size, and storage.
• Recipe Adherence Training: Train on standardised recipes.
• Waste Awareness Programmes: Encourage staff to reduce waste with awareness programmes.
• Regular Communication: Discuss food cost percentage and food cost control with staff.

Investing in staff training and fostering a culture of cost awareness empowers your team to become active participants in food cost control, leading to a more efficient and profitable restaurant

Technology for Food Cost Control

EPOS systems streamline food cost control and save time.

• Inventory Management Features: Many EPOS systems offer integrated inventory management modules that automate stock tracking, generate purchase orders, and provide real-time inventory data.
• Sales Data and Analytics: EPOS systems collect detailed sales data. This helps you analyse how menu items perform. You can track sales trends and find out which dishes are profitable and which are not.
• Recipe and Portion Control Integration: Some advanced EPOS systems can work with recipe management software. This lets you connect recipes to menu items and track food cost percentages automatically.
• Waste Tracking Modules: Some EPOS systems have modules to track food waste. These help you see waste patterns and create plans to reduce it.

Continuous Monitoring and Review

Food cost control is ongoing. Track food cost percentage, analyse spending, and review strategies regularly.

• Regular Reporting: Track food cost percentage, COGS, and inventory weekly/monthly.
• Performance Reviews: Review menu item performance and supplier agreements.
• Adapt & Refine: Adjust strategies to market changes.

Conclusion: Control Costs, Control Success

Mastering food cost control builds a profitable restaurant. By managing total food costs and implementing strategies like menu engineering, portion size, inventory, suppliers, waste reduction, and training, you reduce food cost, improve profit margins, and boost your bottom line.

For restaurant operators, proactive food cost control ensures long-term success, delivering great dining and sustainable profits.

For almost 20 years, 3S POS has offered one of the most flexible EPOS systems and Restaurant Payment Solution. Our clients include international brands such as Caffe Concerto, Chaiiwala, Heavenly Desserts, Pepe’s Piri Piri, GDK and thousands more delighted customers.

If you are looking for an Restaurant POS System that will not just help you accept payments but includes staff management, inventory management, multi-site management, loyalty programs, and much more, speak to our sales for a free demo.