Food costs have been rising on a weekly basis for darn near two decades now. Most restaurant operators are quick to attribute their high food cost to these price changes. On top of that, the echo chamber of the Internet keeps compounding the problem, feeding you bad information like the average food cost for a restaurant is 34 percent or TV shows touting a three times markup. If you want to lower your food cost, let’s review why moving past these two food cost myths will help you focus on restaurant food cost saving ideas for independent owners. Click the video below or keep scrolling for the tips.
I can remember as the operations manager from a multiunit brewpub and cafe earlier in my career, I was tasked with creating food systems to lower our food costs, using an industry average of 34 percent as our target.
First where did this number come from? Well, for me, it was the owner of the company who did all the research. He wasn't a restaurateur in the first place. He was a banker. He got out there and read all the trade magazines, subscribed to the National Restaurant Association’s bulletins and found that the average food cost for a full-service restaurant was 34 percent. And you probably hear this number quoted over and over and over again. It has to be correct, right? The first place most restaurant owners go to cut their food cost and hit that target is their food distributors.
I did the same thing when I was an operations manager. To hit that 34 percent food cost, I created a cherry picker system. At the time I was a spreadsheet geek. I literally had stacks of thick books that cost me $50 apiece so I could build complex Excel spreadsheets. That was the beginning of me learning how to make spreadsheets look like and operate like software. This was before really any software was available. This was in the early 90s and I worked really, really hard to create this cherry picker system. What's a cherry picker? It's a really bad practice today, and I'll tell you why I don't like it today. But back then what we did was grab bids from all the vendors, put them into a spreadsheet and with the click of a button, it sorted them and fired off the cheapest of every one of those items that we purchased. Through an old and complicated method we had to use before there was wifi and cloud storage (yes, I’m that old!), my managers would order based on the cheapest price for each product.
I thought I was a superhero. I was doing a great job. But the truth of the matter is, when you cherry pick, number one, you're only really paying attention to your proteins, your high dollar items, and you're probably getting screwed on paper and janitorial and things like that. Second, I was a full-time operations manager for two locations. It takes a Herculean effort and insane amounts of time to truly cherry pick. And the truth of the matter is that's not where the problem is. It’s a whole lot of effort to solve a problem at the wrong the source.
See, while this was somewhat effective based on my available time and my interest in creating mock software, I was wrong because there were two fallacies I was operating under here. What are they?
Fallacy number one: the price I was paying for my products was the real problem.
That's what I was thinking. Isn't that what you think?
Fallacy number two: you're supposed to operate based on an industry average food cost target.
Problem is what is average? What do I mean?
First, let’s start with fallacy number one: it really wasn't my suppliers. It was how we handled our product in the restaurant.
One of the things I've learned coaching independent restaurants since 2003 is that most restaurants run seven to nine points above their ideal food cost.
What is ideal food cost? Ideal food cost is if everybody ran perfectly, portions went out perfectly. There was no waste, no theft, no spoilage. It’s a perfect restaurant, which does not exist. But if you were perfect, you would, based on what your customers order, hit your ideal food cost. Your ideal food cost is not thirty four percent. If you're a pizzeria, maybe you have a 24 percent ideal food cost. A steakhouse could have a 35 percent ideal food cost.
Just using those two numbers as an example, imagine most restaurants are running seven to nine points above that because you're making mistakes in your kitchen. It's not the fifteen cents more a pound of cheese that your purveyor just hit you with because maybe it's a commodity product.
So how do you deal with this? How do you stop making those dumb ass mistakes?
Here is a short list of items you can put in place to help you gain some savings on food cost.
Now, the second reason restaurant owners' food cost is so high, the biggest fallacy, is they are operating under the wrong assumption that food cost can or should be at 34 percent. To understand why that average is probably not your restaurant’s target food cost, you have to understand prime cost, budgets, ideal food cost and menu engineering. What do I mean?
To learn about prime cost, read this article. The basic explanation is it's total cost of goods sold, plus total labor costs, including taxes, benefits, insurance. I teach restaurant owners to shoot for a 55 percent prime cost – not the national average of 65 percent – and that you can run a higher food cost, lower labor costs, or a higher labor cost with a lower food cost. It doesn’t matter how you get to those 55 points.
Using a budget allows you to set your plan in progress for how you're going to lower your food cost to where your food cost needs to be. For example, you can put the Key Item Tracker, Waste Tracker and the Restaurant Checkbook Guardian in place to reduce your food cost by three points right out of the gate. You do need to train everyone one month and then hold them accountable the next because it’s not a post-it-and-forget-it set of systems. But these three simple systems start working right away.
Recipe costing cards are the second most important system for a restaurant, next to the budget, but it may take you four months to do recipe cards so you can figure out what your ideal food cost is, remember, based on no waste, no theft, no spoilage. Once you have those, though, you can use menu engineering techniques and consider raising prices, changing products on some items, reducing portions, adding new items, removing items, etc. The important thing is you'll be making these decisions based on real data – not your gut. Any of these things can be part of the work to lower your food cost.
With minimum wage coming up on a federal level soon and a pandemic you need to recover from, you need to run a profitable restaurant. You need to start your journey to lowering your food cost. You need to create a plan to implement and use this short list of systems and you'll be on your way to a profitable restaurant.
If you would like to learn how to own a restaurant that doesn't depend on you to be successful, watch this free video course that teaches you three key principles to running a successful restaurant.
Be sure to visit my YouTube channel for more helpful restaurant management video tips.
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