Most likely you got into the restaurant biz because of your love for creating delicious cuisine. Good food makes people happy, and great chefs love to make good food that in turn makes people happy. Sounds like a recipe for success, doesn’t it? (pun intended) It’s true, most people don’t open restaurants to satisfy an entrepreneurial itch. You have to love food to step into this industry.
On the flip side, a restaurant is a business. Any restaurateur knows just how much business sense is required to successfully operate a restaurant – perhaps more than you bargained for. Watch any episode of Food Network’s Restaurant: Impossible and you’ll see how few restaurant owners actually know the back end of their business – inventory, sales, food cost, and more. (And then you’ll see chef Robert Irvine’s head explode.) Turns out the “businessy” elements are so crucial, the success of the restaurant depends just as much on them as it does on food quality and good service.
Lucky for you, nowadays restaurants have fabulous technology designed just for them that gathers ALL those necessary elements into one neatly wrapped package, making it super convenient (and leaving you with no excuse).
One of those elements, as mentioned above, is food cost. According to StarChefs.com:
“Restaurant margins are notoriously slim, so figuring out how to control costs, more often than not, boils down to a do or die scenario. Food cost plays a major role in any restaurant’s success or failure.”
But first let’s discuss, what is food cost and how do you calculate it?
Food cost is defined as your total restaurant sales spent on food product. The industry rule of thumb is that you should maintain a food cost of 30% or less.
Food cost is calculated by dividing net food purchases by net food sales. StarChefs.com breaks it down for us in a very handy formula, courtesy of corporate chef Robbie Lewis:
The Formula: Food Cost % = (Beginning Inventory + Purchases – Ending Inventory) / Food Sales
Food cost is calculated by taking your beginning (opening) inventory for the period (e.g., at Oracle it’s one week) and adding all of your purchases to that number. You then subtract the ending (closing) inventory number. This gives you the theoretical value of what you used that week in product. That number is divided by your sales and a percentage of sales is calculated for the cost. So when we say you have a food cost of 40% that means you spent .40 for every dollar you took in sales.
Your data: $10,000 beginning inventory, $2,000 in purchases, $10,500 ending inventory, $5,000 in sales
Your formula: FC% = (BI + P – EI) / S
(10,000 + 2,000 = 12,000) – 10,500 = 1,500
1,500/5,000 =.30 or 30% food cost
Remember the “soup nazi” from Seinfeld?
Well, now you’re the “inventory nazi”. Embrace it!
As stated above, a point of sale (POS) system like POSitouch will automate and streamline the whole process, making it super easy for you to stay on top of what comes in and what goes out of your restaurant.
Also, enforce a policy that all orders be entered into your POS system or cash register in order to prevent unrecorded sales or freebies.
According to the National Restaurant Association, poor portion control is one of the leading causes of food cost variances. Practice pre-portioning and be sure your kitchen staff uses measuring and weighing instruments to properly portion foods, rather than simply “eyeballing” it.
Obviously when you’re dealing with food preparation, some waste is unavoidable. But according to the National Restaurant Association, you can avoid wastefulness by keeping a waste log (documenting meals returned by the customer, kitchen mistakes, and spoilage, for example).
Las Vegas restaurateur Zach Allen recommends finding creative uses for food scraps, and decreasing waste from spoilage by ordering proteins and other short-shelf-life items daily.
StarChefs.com interviewed four successful chefs and all agreed raising prices is either a last resort or not an option.
Here are some alternatives to increasing menu prices (some have already been mentioned above):