Controlling food costs is one of the most important keys to running a profitable restaurant or F&B Unit because of its direct impact on profitability.
A profitable F&B venue typically generates a 25%-40% food cost depending on seasonality, the source of food items, type of food they serve in their venues. When you add labour costs, these expenses consume 50%-75% of total sales. Due to its impact, it is one of the first things you should examine if your venue is losing profits. There are several rules and principles you should follow to keep track and control food cost which we will review it in this article.
Taking aside the food cost there is other two big cost centre; Beverage cost and Labour cost which I will cover in another article.
Food Cost = A percent of sales that determines how much money we make or lose on what we sell.
Food Cost % = (Beginning Inventory + Purchases – Ending Inventory) / Food Sales
Or we would like to simplify
Food Cost % = Total Food COS / Total Food Revenue
and the formula to identify Ideal Food Cost;
Ideal Food Cost % = Ideal Food Cost / Total Food Revenue
In today’s world especially Brexit on the horizon, pound getting weaker increased both the value of food purchased outside of the UK as well as transportation costs. Due to these economic challenges, food costs rising and customers spending less. Considering the rise of independent restaurants in London especially, we need check menus to ensure they are profitable. According to a research, while opening thousands of new venues, thousands of independent restaurants fail each year and nearly 92% of them because they did not manage food costs wisely. Therefore, know your food costs. What a plate is being sold for on a menu versus what it costs to prepare it can save a business.
10 Key Principles of Food Cost Control
Regardless of the type of venue you have, there are a number of basic principles that should form the foundation of any management’s efforts to control food costs. I will cover key 10 principles for the best control of your food cost;
1. Suppliers Selection
While getting supplies through one or two suppliers may result in quantity discounts and pricing built through years of a professional relationship, oftentimes it is even cheaper to have more than one vendor. This is because having one vendor can mean you are subject to any fluctuations or changes in their cost structure. Having more than one supplier, or at the very least knowledge of more than one, gives you the flexibility to quickly shop around for the best price. This set up allows you to monitor external variables and be a proactive buyer instead of a reactive one.
Most of the times weather patterns, seasonal ups and downs, supply chain anomalies can easily affect the cost of your food and supplies. You might not be able to predict these variables, lessons learnt from the past and previous experiences could help you to anticipate future supply and demand anomalies and proactively act on it before prices are prohibitive or supply is limited.
2. Goods Receiving Controls
This is where Food Cost control starts for the operators. It is critical that whoever receives your purchases checks;
Weights and quantity of receiving goods; as it differs depending on how the item priced (some items priced based on the weight, can, pack etc)
Ensure that not just the proper amount is present but that the food supplies are in good condition and not already spoiled
Last “used by date”, the condition of cans checked
Certain items should check their temperature
Purchased and invoice amounts are matching with receiving goods
Damaged and/or returned goods are properly registered and credited to your account
No matter how well you do anything else mentioned in this guide if you are inaccurately receiving what you have purchased you will not be able to control food costs.
3. Balancing Menu
It is true that your menu largely dictated by the type of your venue, location and sometimes corporate offices. However, you need to make your menu to work for you and the carefully constructed menu is key to the success of your establishment.
There should be a fine balance for popular and profitable food items. This means you will have low and high-cost items on your menu and it is important that you need to place add-on’s carefully to attract your customers to buy in to make the balance. Construct your menu in a way that brings people into your venue for your delicious food and varieties, and you will reap the rewards of higher revenue per person and return visits.
When the things do not go well, one of the biggest mistakes in our industry is the increase the menu prices. The best option is using Menu engineering proactively use its findings to amend and change menu items accordingly. Sometimes the easier option is reconstructing the dish to include less expensive ingredients. Of course, do not forget to make adjustments as needed as food supplies and costs change over time. Using seasonal menu change periods could work well smoothly if you are reasonably increasing prices.
You need to have a proper system in place so that you know your food cost any given time. If something goes wrong you will identify it in earlier stage let’s say 17th or 20th of each month and have a chance to act on it timely manner.
4. Controlling Cost of Buffet & Salad Bars
Either you have main Hotel restaurant for Breakfast Buffet or a venue which offers buffet food or salad bar options, it is crucial to strike the balance between variety, quality and the cost.
Whatever you are operating the aim is either selling hotel rooms better with B&B options or filling seats that lead to more purchases. It could be detrimental if you do not control a variety of offerings and cost control in this environment.
I will provide a quick summary of what could be done accurately cost out these types of food offerings;
Record all costs to set up and replenish the buffet during a day
At the end of the day subtract the cost of food that is still in good enough condition to be used later
As you identify the net cost already, divide this number by the number of customers who ate at the buffet. This will give you a cost per customer.
Compare your cost per customer to what you are charging for the buffet.
Adjust pricing or cost control measures as needed
If there is a big differentiation between the days of the week, you can do this for a reasonable one-week period to identify a better picture. Depending on busy days and periods, you can also introduce big or small serving equipment for dishes as well as two sets of same items to provide a rich variety and improve operational efficiencies in terms of queues and waiting times.
5. Controlling Portion Size and Proper Training for Consistency
Sometimes even small things can make the difference in meeting food cost target and portion control has been that detail. Preparing fully detailed and pictured SOP’s and training staff accordingly can make the difference to meet a food cost target, order the right quantities, not raise menu prices, and potentially have a profitable venue. Also, it is fundamentally important to provide high quality and consistent dish for your customers.
We also need to understand that inconsistencies of portion sizes could potentially damage your reputation.
One of the easy way to determine the portion sizes are evaluating plates returning to the kitchen. If there are certain trends for certain dishes which consistently come back with an excess of food than it allows you reduce the portion sizes of these dishes. This will quickly lead to savings that can be used in other areas where portion sizes may be too small.
Menu engineering would be also a good way to evaluate menu items and changing/adjusting them accordingly.
Another good practise I having daily waste sheets; this tracking can be done with paper and pen or digitally. This process will point management to processes that may need improvement and finding the proper balance between offering their most popular and profitable dishes.
6. Regular Inventory Control
Regularly and properly counting food inventory will help reduce waste tremendously. Depending on the type of menu and shelve life some items could be checked daily, weekly and monthly basis to control it effectively and smooth ordering process.
This also enables and encourage (FIFO) First In, First Out inventory management method and avoid wasting food simply because it is unorganized in storage and newer items are used first!
Using also Menu Engineering system could allow you to look at what menu items are not selling. If you have a consistent idea of where you are at, it gives you an idea of where to look. You can adjust their ordering or if they are on target, then it allows you to order and run a more expensive dish on your menu. This is very easy and flexible methodology but it works wonders.
7. Order Proper Quantities
Ordering wisely is essential for exceptional food cost. The key is knowing how much your venue uses on any given day or seasonal period.
You can order in bulk for certain items you use in large quantity or has longer shelve life to save money (Just keep exchange rate in mind in today’s fast-changing economic climate).
Another way is taking advantage of buying power if you have more than a couple of venues and require huge amount. Sometimes buying from the source such as from the local farm or fish auction could help you to get favourable prices as there is no middleman.
Measuring the waste, having and sticking the portion sizes becomes more important to determine correct and consistent food supply needs and making better ordering choices. Ordering wisely will help you reducing waste and also avoid paying premium prices for stop-gap inventory needs.
8. Waste Control and Human Factor
Waste is one of the key areas to control the cost of food. There are two ways which waste occurs; spoilage and human error or apathy.
You can prevent spoilage by applying proper ordering processes which we have discussed earlier. This is particularly the case with extremely perishable foods such as fruit, vegetables and fresh seafood products. You can eliminate wastage by introducing regular inventory checks and ordering three nightly or even daily ordering system.
When it comes to human factor it boils down to proper training and creating a culture to take ownership for improving efficiencies.
We need to train carefully to all employees to ensure that food is not lost starting from preparation phase to eliminate food being overcooked, dropped or incorrectly prepared. And also, staff should be trained and understand the value of using every piece of a product and to be creative with the scraps. To be able to accommodate it, Chef’s also needs to design the Menu items to use scraps or seldom used parts of the food.
9. Incentivize Employees for their positive contribution
There are ways to engage both Kitchen and Serving staff to our processes by incentivising them in both eliminating wastes and promote/sell low-cost menu items.
When food cost are running high or business is dropped off in a certain period, you have to motive your staff to sell lower food cost items on your menu.
Incentives can range from monetary bonuses or other perks for kitchen and/or serving staff who control food waste or promote/sell low-cost menu items. As with all compensation plans it needs to be fair and realistic. When done correctly, it can help out tremendously.
10. Sales Recording
So far, we have covered different aspects of controlling food cost. It is important to understand that having proper policy and procedures in place to record accurate sales figures. All Food and Beverage venues should have a proper (POS) Point Of Sale system in place and strictly following “No Docket, No Food” approach. This is the easiest and simple rule which means no food prepared or served unless proper docket presented by serving staff. This includes any management, complimentary, staff or guest related orders.
It is important to highlight that any missed or under-recorded sales figures will inflate your food cost percentages. You might have all policy and procedures in place and work well to control the cost, however, if your sale figures are not accurate, all your efforts will be pointless. Having an accurate system in place could easily reduce your food cost up to 5-10%.
While there are other principles and practices to food cost control, implementing those listed above should put any Food and Beverage venue well on their way to controlling half of their prime costs. On the other hand, while it is important to remember that food cost control is an ongoing process that should be continually refined to ensure there is a balance struck between cost control and making happy customers.
Another quick tip if your Food Cost dramatically goes too high or too low;
You physically counted items incorrectly during inventory, this happens especially busy periods on month-ends as it might be counted too many or too few items.
You counted and input units different than the inventory pricing; you might count as cans for some products, however, you might be charged by the case.
You are missing the invoice for the product you have counted into inventory; make sure that you get the invoices in on time before closing the period.
You got an invoice processed for the product you do not have; it might be either a returned product due to wrong order or does not fit to expectations. You have to make sure that proper credits are processed.
You have transfers that have not been credited to your costs; this happens especially multi-unit deliveries and/or when you borrow or lend products between units or neighbours.
In summary, controlling food costs may seem complicated but when you follow basic principles it might make it easier;
Order as necessary,
Maximize each ingredient,
Have more than one vendor.
And of course, keeping a finger on the pulse of food cost at all times.
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