A Collection of the Best Tips for Cutting Restaurant Food Cost

Hey there restaurant pros. It’s Dave Scott Peters and Welcome to Episode 101 from season one of the restaurant prosperity formula. I’ve been coaching restaurant owners since 2003. And the restaurant prosperity formula is based on what the most successful restaurant owners I’ve worked with do on a daily basis to achieve their success. The basic premise of the formula centers around achieving prosperity, Freedom restaurant and financial freedom you deserve to achieve prosperity you have to follow a very specific formula made up of leadership systems training, accountability and taking action.

The next few episodes are going to be compilations of a few of the best tips from the last 100 episodes in areas such as food cost systems leadership and labor cost.

Today’s episode is going to focus on food cost. We’ll be diving into how high food costs are often self inflicted. A quick walkthrough on how food cost is calculated. We’re going to dive into the concept of ideal food cost and finish with some menu engineering basics. Whether you’re new to my podcast or a longtime listener, this is an episode you will not want to miss.

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What if I told you that wild food prices are certainly certainly having a negative impact as the food prices go up? It’s having a negative impact on your bottom line. The truth is the majority of the issues of high food costs are self inflicted. Let me explain.

Did you know that most restaurants operate seven and nine points above their ideal food costs. I’ve been following for any length of time. You should know that with with recipe costing cards, your product mix from your point of sale system, what your customers actually purchase. We can come up with what your ideal food cost is something that some national average of 34% that was just pulled out of the air because you’re not average. Maybe you’re a pizza pasta place and should be in the low 20s Or your Steakhouse and you could be in the high 30s and still make money. We’re not going to grab onto a national averages 34% That’s not going to work.

But we need to knows what your food costs should be based on accurate up to date recipe costs and cards what your customers actually purchase. And by putting this together, we’re gonna have items that have a small food cost five 6% of these hand cut french fries you make but you also have these anchor appetizers out of a box into a fryer and they have a 38% food cost but ultimately based on what your customers order something called a weighted average your menu mix, we’re going to discover your ideal food cost should be 30%. Maybe it’s 22. Maybe it’s 32. Doesn’t matter what is your food cost based on your menu and your operation.

So with that said if it’s 30% Did you know that typical restaurant runs seven to nine points above that number. So is that all the distributor? No, but I’ll get to that.

Oh, there’s this stuff called waste and spoilage. Waste and spoilage. That means every time you order too many tomatoes you throw them away because well they’re bad. That’s usage that’s product left the shelves money you didn’t get for it.

What about waste that when Lerch is on the line and uses his hand to put what you think is supposed to be six ounces of French fries on a plate but eight or nine goes on the plane every single time you’re wasting product is when that server says hey can I need to get some dressing and you say just go into the cooler grab it and they pour four ounces of dressing into a portion cup instead of a two ounce portion cup and filling it up for every two ounces. Extra that’s going out is money out of your back pocket.

So over portioning throwing away product product because you you butchered it improperly, right you’re not getting the right yields or you’re throwing away product because it’s spoiled. Doesn’t matter. product that you’re wasting that soil increases your use. I want you to think about this.

Do you remember that 30% ideal food cost we came up with? Well we use this theory right? Well, I said a typical restaurant runs seven or nine points above the ideal, but look at this beyond anything else, one thing alone can make a huge difference. You know that if your staff over portion by 10% So if I were a Mexican food restaurant, could you see 10% More shredded cheese on a plate? No. Could you see 10% More shredded beef? No. Easy 10% more sauce? No. Could you see 10% more chips? No beans, no rice? No. So your I can’t see 10% More being over portion 10% And it goes out Dish after dish after dish. You take that 30% ideal food cost and you now make it 33% So in a million dollar business, that’s a lot of money. If your 2 million, 3 million and so on. This can break your bank for lack of a better term.

What about that? Well, I know you don’t have any thieves. Whatever it happens in the restaurant business. This is going to be very important about culture. And you might say Hey, David, I’ve got security cameras. Well, I love security cameras. I really do. But they’re great for acts of violence, theft, harassment. burglaries are after the fact that you’re gonna watch the video it’s already happened what I want is systems in place to control or prevent that. And managers inspecting those systems. But if you have product go out your back door that wasn’t paid for by your guest instead it was paid for by you, then your food cost is gonna go up what about the owner? You the owner taking tax advantage of your business? I would. That’s where you say yeah, I’m gonna have a barbecue this weekend. You pull up your truck and you you say take a keg of beer you take you know bottles of vodka and bottles of whiskey and you get ribs. And hotdogs and buns and burgers and fries and you help yourself like it’s your own grocery store. Well, I would do that. Absolutely. But if you don’t put it on a waste sheet and understand that you’re kind of taking that as a benefit of your business. Your food costs is going to look high because that product disappears and no money came in for it. Trust me, you your kitchen manager your chef is going to want credit for that meaning you took product my food cost aside but it’s not my fault.

See the food cost formula is beginning inventory plus purchases. That’s the inventory you took at the end of last period. Hopefully that’s on a weekly basis could be on a monthly basis. Let’s now assume it’s a weekly basis. So Sunday night, your Monday through Sunday work week you close Sunday night you take your inventory Sunday night, what’s the value of the product of everything on my shelves, that’s components the dishes, soups, side dishes, sauces, desserts that I make? Those would be my batch recipes plus all the products I purchased from all my vendors.

Well, that’s my beginning inventory plus all the purchases. So every invoice that comes through the door whether paid for or not. It’s an expense that day and only the food portion of those invoices. So take my beginning inventory plus purchases that gives me what I could use. That’s my total product available. I subtract from that my ending inventory at the end of the week. They end up that next Sunday. And by doing so, I’m going to find out how much product actually left the shelves for the money that’s come in. Right so whatever left the shelves does that matter if it was sold, stolen, wasted spoiled, we’ll talk about that again in just a second. Its uses use meaning it’s gone. Use again is you sell it use again is wasted spoiled, use, again is stolen, use again. Is you taking product out of the kitchen. See the math of it the arithmetic if you will is blind. It just knows that you started this with this much product you purchase this much You ended with this much and the difference of that is what you used. It has no idea if it was stolen whether it was wasted spoiled or you sold it or you took it out the back door.

Now you can see very quickly how your food cost if the equation is use divided by sales if your use goes up because of theft, your use goes up because you’re over portioning use goes up because you throw away product use goes up because you took it out the back door. Anything other than selling it, you can quickly see how that could increase your food cost percentage and the dollars you use. So many of the practices that we do in our internally are a factor. Now again, use your food sales your sorry your use the product that left the shelves divided by your food sales gives you your food cost percentage. So if I So in your section headers, they appetizers I want to use a sans serif font that’s like a Helvetica and Arial they’re straight letters. Where when I talk about the item I like a sans serif as well. But when I do the descriptive I like Serif fonts, save says a little curlicues on the head like Times Roman. It makes life so much easier for me to read the items which ultimately means I’m gonna buy it.

I want you to avoid having a price list. That’s when you have the menu item going straight across and sometimes you have dot dot, dot dot dot bold dollar sign and price. You train your guests to find how much they want to spend or what they don’t want to spend and they hone in on certain items ignoring the rest of your menu. You do not want to have a price list it will crush your food cost.

Did you know that if you have 10 items listed five side by side that the first second on the right if I look at it on the left hand side the first item the second item and the last item on the right hand side. Do you know those will outsell anything else the first second and last so if I know what I want to merchandise and I can put it in the right spot, I can outsell anything.

I want you also to think about labeling your prices. So when we have the descriptive copy, I want you to have a space no dollar sign. I don’t want you to make it so large. It’s so small that it’s either screaming that would be a capital letter. Right? If I text message you in all caps 795 yelling at you or I don’t want it’s so small that I’m whispering and I can barely see it. I want you to think your prices are one space after the descriptive copy, no dollar sign not bolded but I have font size to full font size smaller than a capital letter. It should be in between a capital and lowercase just making a little more subtle.

And I also don’t want to orphan it and that means it’s on its line by itself.

Now, I want you to create price flexibility by using what I call odd set pricing is something that I learned a long long time ago. With odd set pricing you make it harder for your customers to detect increase now this doesn’t work for those you use 00 Right. If you’re going to raise the price, you’re going to raise it $1 That’s just the way it is. But if you’re using pennies on your prices, I like having 25 cents 50 cents, 75 cents and 95 cents because let’s say I’ve got my burger now at $15 which blows my mind right do you think we’d ever come to where we are selling a burger for $15 If I sell it for 1525 and there’s a change in pricing my costs and I want to jump it up to from 1525 to 1550 Does my guests really notice no. But go to 75 Do they notice no. If I go to 95 Do they notice no. When I go to $16 then they notice so that gives me the opportunity to kind of hide my increases without shocking the guest.

Now I’m gonna tell you this is an important one I like 50% whitespace whitespace is literally whitespace I don’t care if it’s a red menu on the background black or whatever but whitespace meaning there is space around each menu item that I can see that half your menu should not have text on it. Now I will tell you warning. This does not mean bigger paper. It means fewer items which is a whole nother topic we can talk about another time.

I also remember we talked about 10 items first second last outsell anything else. Did you know if you put a box around something? It will outsell the first second and last item. Do you know if I put a picture on it? If you’re a concept of restaurant concept that pictures are applicable, they’re appropriate for your restaurant. That picture will outsell the first second last and any box item like we can influence what our guests actually purchase.

And I will tell you the power of pictures is unbelievable. Put a picture on the menu, one in each section, maybe two in each section. If it’s appropriate. Watch those items get sold like crazy.

Hey, that was an awesome episode. I want to thank you for taking the time to take action on building a better more prosperous restaurant.

Before you go I want to give you these three thoughts. One by combining leadership and taking action with systems and training being checked by accountability. You are on your way to creating prosperity for you and your restaurant, too. I something I need from you. Please leave a review on Apple podcasts. Spotify or wherever you happen to listen to podcast by leaving us a review other restaurant pros seeking out this information are able to find it. I read the reviews and hearing how this information has benefited you. does wonders for me. And three. If you find any of the discussions helpful share them, the more restaurant pros who have access to them, the better we become as an industry. For more restaurant resources or to get in contact with me. Connect with me at David Scott peters.com. Be passionate about what you’re doing. Be persistent, but more importantly become better and help everyone around you become better and your restaurant is going to kick some ass.

if I use it, how to come up with a 30% food cost that means for every dollar that comes in, I use 30 cents in food product. Hopefully I sold it but it could have stolen wasted spoiled took it out the back door myself. So while many get upset at it, well the price of cheese is gone up 15 cents on a pound for you want to just yell at your distributor What are you doing to me? How you operate your kitchen has more to do with why your food causes high not your distributor. One lack of systems to control your food cost and to the lack of leadership in your kitchen. That’s right. You running your kitchen, not having controls in place and not having management to lead control. Teach hold people accountable to those systems is why your food cost is high. It’s not your really your distributor. You see systems allowing you impose your will without being there that people are following your recipe costing cards to a tee. People are following your systems ensure the guest gets the same experience every single time which not only controls your costs but increases your sales because they are consistent with your product systems ensure everyone is doing things your way. But without management inspecting those systems, each and every one of those systems every shift every day. Means your systems are not going to be used. See putting systems in place is very easy. That’s a task. Making sure people know how to use them, making sure they’re being used on a daily basis and holding people accountable to those systems. That’s where the magic happens. It’s the people part of the business. That’s the challenge and it ain’t easy. But that’s why we have managed. So here’s your restaurant owner reality check. If your food cost is higher than you think it should be. You’re not managing your kitchen correctly. You don’t have the right systems in place to control your food costs. And if you have recipe costing cards, you don’t know what to do with them. So what systems am I talking about? That would reduce your food cost prevent theft and ensure you hit your target food cost? Let me provide you with a list of systems every restaurant needs to have in place. Before that. Let me remind you to know where your food costs should be. You must have a budget. That’s a whole nother discussion. So let’s run down these kitchen systems to control your food costs to lower your food costs to ensure you are going to make the money you deserve. You’re going to put in the key item tracker. That’s where we count five to 15 items every shift to make sure those items are not stolen. It’s a little more complicated. We start with what we had. We bring in what we prepped or purchased what we ended with we go to our POS system, find how many we sold and see the difference. Along with that, it should all match there. Should be no variance if there’s a variance of better beyond the waist tracker. If not I have worse than death if managers not using the damn systems I put in place to control that. But the waist tracker all we’re doing is writing down things that we wasted whether we ended the night and had to dump a knife pit and ninth pan of rice or we throw away case a tomato so as I said in the past, or maybe we lost the case of salmon because it spoiled. Maybe we have a new cook on the pizza oven and burned a pizza we throw it away. See doesn’t matter why it was wasted. It’s a proactive management tool. Not only do we know the product value we wasted but when you see there’s a problem right then in there. It’s a proactive system that you can change your trajectory. Hey, John’s been burning steaks. I’m going to retrain John reposition John before he hits the grill independently or maybe it’s gone on for so long. I’m going to terminate John, I’m going to stop losing stakes instead of waiting for the end of the month looking backwards going why is my food cost high? The system I call the restaurant checkbook Guardian otherwise known as the purchase allotment system, where I give my managers based on my budget my forecast my actual purchases and my DSR. I tell each one of my managers how much money they can spend on their next order to be within budget. And by doing so I can put my kitchen manager my chef on a budget with a little leeway. And if they want to go over that budget they need to find what the problem is. They need to tell me what they did to fix it. And I get to make the final decision because there’s only one person allowed to go over budget that’s me in my business. Now all of a sudden, just think about that if you can stop dumbass mistakes, you can reduce theft and you can put your kitchen routine on a budget. You can see how quickly I’ll guarantee you a two three point drop in your food costs alone right then and there without naming other systems. Now before we go through menu engineering, the techniques involved let me be sure we understand the concept of ideal food cost. So here’s the deal. If you have accurate up to date recipe costing cards, your product mix from your POS system. So when it costs what you what you charge your guests for and how many you sold each. You’re going to find out what your ideal food cost should be not some national average of 34% You could be a pizza place with pasta and maybe run a 22% ideal food cost. You can be a steakhouse and being the high 30s Does not matter in this instance. It’s based on what we call a weighted average. It allows me to sell anchor appetizers frozen out of a box like when I was a franchisor into the fryer at a 38% cost of goods sold but in sell so many of them but we did sell the hell out of our hand cut fresh cut daily cut, french fries at 5% cost consoled so the more I sold french fries, the more the 38% did not affect me. So the best way to describe that is let’s say we have a two item menu that’s all we have one item is a 99% food cost and the other one has a 1% food cost. And in the calendar month you sell 100 items 99 of them at 99% food costs and one of 1% What’s your food cost? 99% What if the same menu next month? 100 items 99 items are sold at 1% food cost him 199 What’s your food cost? 1% See, you can’t know what your food cost should be in your restaurant without accurate up to date recipe costing cards, your product mix period. Because this is based on your restaurant the food you should have used for the money came in now this is called ideal cost. Meaning there’s no waste no theft, no spoilage perfect restaurant which does not exist. So I want to be perfectly clear that you will never hit your ideal food cost. It is impossible. If you do then somebody screwed up the recipe cards on purpose or by accident. So the key is I will tell you that most restaurants run seven to nine points above ideal so we’ve all this room to fix things. But that’s not what we’re going to talk about. We’re going to talk about just as a reminder, a rockstar kitchen manager chef will run one and a half to two points above ideal. So our threshold when we reinjure Randy rear engineer our menu and we’re trying to reach a certain food cost we know our ideal food cost needs to be at least two points lower and that we have our ship together and the kitchen reducing theft stopping dumbass mistakes training. You get the picture. Now let’s dive into menu engineering basics. To start off when talking about the three different kinds of menus we have a single panel menu that you know that if from the middle up if you eyes, hit the middle of the menu and go up you’ll sell more at the top of that single panel menu. You know if you have a two panel menu that opens side by side, right so you have two panels in front of you that in the upper left hand corner all the way up in the upper left hand corner to a quarter way down on the right side. Anything this upper right hand side will sell more. You know if you had a three panel menu, one that opens to the left then opens to the right that there are three panels dead in front of you that your eyes start in the center and then move to the upper right across to the upper left down to the bottom left, back up to the upper right down to the bottom right and finally to the middle of the center panel. That means in that upper right hand side of the third panel to your far right. Anything in there has three eye movement passes to it. It also means that in that center panel all the way at the bottom our eyes barely ever got there. This is where we put our sodas our side dishes our our food warnings are helpful warnings right? So by putting things in a certain spot, you can influence what your guests are going to buy, thereby changing your food cost. Menu copy is so important. So for instance we don’t want in the sandwich section breast of chicken sandwich, lettuce, tomato mayo and provolone cheese 1095 That’s a grocery list who wants to spend money on that? Or you could say we have a teriyaki chicken burger, a savory grilled chicken breast brushed with a sweet teriyaki sauce top with Hawaiian pineapple and melted cheddar for 1250 Which one would you rather buy? I’d spend the $2 More on that item because it makes me want it. So descriptive copy matters. Once you think about make it easy for me to read. I’m 55 years old. I do not like to travel with my reading glasses so I don’t and so when you see me turn on the light on my phone to read your menu, you got a menu problem. If you see my hands reaching away from my body as far as I can because I don’t want my readers you got a problem. But along with that one of the things that makes it hard for me to read menus is when you have cutesy fonts. I’m going to tell you now the principles behind this are don’t use more than three fonts on your menu.