Food cost management is particularly important during a recession or economic downturn, as many restaurant owners are finding right now. That said, food cost management can be challenging. Manual calculation can be a painstaking, time-consuming process that must be done regularly to ensure costs accurately reflect changing market rates.
The good news? It doesn’t have to be as daunting or complicated a task. Not when to understand how to simply the required calculations and the food controls you can implement. This guide covers these factors-and more!
Why is Food Cost Important?
Food costs are no doubt one of the biggest expenses for restaurants. Knowing and controlling these costs will impact your bottom line.
First, food costs will always be a key consideration in menu pricing. The bottom line is that you will consider food cost when determining what price to set for each menu item in order to make a margin.
Secondly, your food costs will affect your overall prime costs. Based on your food costs, you can determine whether or not you need to control other costs in order to realize a profit or achiever cost targets.
What Is Restaurant Food Cost?
Succinctly put, restaurant food cost is the total combined cost of a restaurant’s food. However, finding that cost is a little more complicated than that.
When restaurants talk about food cost, they’re usually talking about two types: plate cost and period cost.
Plate cost, also known as portion or recipe cost, is the total cost of a dish before margins are added. Calculating plate cost involves listing out and costing out all of the individual ingredients that go into a single dish.
Period cost, on the other hand, is the total food cost over a specific 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.
What Is Restaurant Food Cost Percentage?
Most restaurateurs will express plate and period costs as a percentage rather than raw numbers. This is known as a restaurant’s food cost percentage.
It’s calculated by either taking the total costs for a specific period and dividing it by the total sales for the same period (e.g., the period cost) or the cost price of a menu item and dividing it by the sales price (e.g., the plate cost)—and then multiplying the ratio by 100.
What Is a Good Food Cost Percentage?
While you may want to ask competitors and other industry players about their food cost percentage, it is crucial to understand that what may be a good percentage for your restaurant may not be good for another.
In determining your best food cost percentage, have a reference maximum allowable food cost (MFC) to help you with that. This is the figure that you shouldn’t exceed in order to make a profit and meet your business goals.
Tips To Manage your Food Costs
- Comparison Shopping
Don’t let loyalty stand in the way of your bottom-line. Shop around, compare prices and go for vendors offering you a good price. Always track price changes so you know when to switch between vendors.
- Stay on top of Inventory Management
How well you manage your inventory will affect your food costs, and by extension, determine your profitability. Be sure to take inventory every so often so you know exactly what you need and don’t end up under-or over-ordering. Order way more than you need and you risk the food items going bad over time, leading to food wastage. On the other hand, if you under-order, you may be forced to gap the discrepancy by buying the items you may have left out, but in this case, at a higher cost, because of the smaller quantities.
- Reduce Food Waste
Apart from not over-ordering, you can reduce food waste by re-purposing some food items. Be creative and you will not waste. Fruits that are overripen, for example, would be great for making jams and jellies.
Also, watch your portion sizes. It will be such a waste of good food to have so many of your patrons return a big portion of their meals at the end of the meal.
- Invest in Restaurant Food Cost Management
No doubt about it, food cost management can be quite exhausting, and complicated to say the least. The good news is that there are software solutions such as Kitchen Hub which provide data analysis tools to help you stay profitable.
Additionally, KitchenHub offers excellent inventory management to help you eliminate food waste. Other features include purchase and order management to help you check your orders, schedule, place and track orders. With this feature-rich software, you can look confidently look forward to achieving the food cost percentage you desire for your restaurant.