Why Your High Restaurant Food Cost Is Probably Your Fault
After coaching restaurant owners since 2003, I can tell you with 100% certainty that what almost every restaurant owner wants to know is how to control food cost. It doesn't matter if they’re brand new to the restaurant business, or they’re a seasoned veteran, food cost challenges present themselves all the time. There are a lot of outside forces that affect restaurant food cost – from your food distributor to natural disaster that affects the cost of a commodity like oranges – but most of the time it's really self-inflicted. How do you figure out if you're the problem when your food costs are rising? Click the video below or keep scrolling to learn.
Let’s start with hardly any restaurant gets high order totals or a high food cost on their profit and loss statement and then looks to see if there's a problem in the restaurant. They point fingers at the food distributors and assume they’re getting screwed.
If you’re not calculating your food cost properly and taking inventories, you don’t even have the right food cost to be able to find why it’s too high.
The right restaurant food cost formula
The right food cost formula is beginning inventory plus purchases minus ending gives you use divided by sales equals your food cost percentage. If you’re not taking inventory, you don't know what left the shelves. (That is covered later in this tip.)
What if I told you that while food prices are certainly having a negative impact on your bottom line, the truth is, the majority of the issues of high food cost are self-inflicted. Let me explain. Did you know that most restaurants operate 7–9% above their ideal food cost.
If you've been following me for any length of time, you should know that with recipe costing cards, your product mix from your point of sale system and your customers’ actual purchases, you can come up with what your ideal food cost is. It’s specific to your operation and not some national average of 34% that was just pulled out of the air. Maybe you're a pizza/pasta place and your food cost should be in the low 20s, or you’re a steakhouse and you could be in the high 30s and still make money. A national average of 34% is not going to work.
What we need to know is what your food cost should be based off accurate, up-to-date recipe costing cards. Let’s assume, after using what your customers actually purchase, a weighted average, and your menu mix, you discover your ideal food cost is 30%. (It could be 22% or 32%, but for the sake of an easy example, let’s go with 30%.)
If it's 30%, and if a typical restaurant runs 7-9 points above that number, there are other places to look for cost issues, not just your distributor, such as waste and spoilage.
Issues that drive up restaurant food cost
For example, every time you order too many tomatoes, you throw them away because they go bad. That’s waste, product that left the shelves and money you didn't get for it. Or when you have a line employee who has a heavy hand with French fries, putting 8 or 9 ounces on a plate when the portion is supposed to be 6 ounces, that’s waste. It's when that server says, hey, I need to get some dressing, and the kitchen says just go into the cooler and grab it. Then they pour 4 ounces of dressing into a portion cup instead of the intended 2 ounces. Every 2 ounces extra that's going out is money out of your back pocket. So over portioning, throwing away product because you butchered it, or you’re not getting the right yields, or you're throwing away product because it's spoiled, it doesn't matter. Product that you're wasting or that spoils increases your use.
Let’s say you run a Mexican food restaurant, do you think you could see 10% more shredded cheese on a plate, or 10% more shredded beef? No. So if your eye can't see an item being over portioned 10% on dish after dish after dish, what happens to that theoretical 30% food cost? It becomes 33%. In a $1 million business, that's a lot of money. If you're a $2 million, $3 million business, this can break your bank.
Every restaurant also has theft. This is an important about culture. You might feel secure because you have cameras, but they aren’t great for employee theft. They’re great for violence, a burglary, harassment and things like that. But employee theft has already happened and the product is gone. You can fire someone, but I would argue it’s better to prevent theft in the first place. Systems – like the ones I teach – control or prevent theft. Managers inspecting those systems make sure they’re followed.
What about the owner? You the owner taking tax advantage of your business. An example is having a barbecue on the weekend and pulling your truck up and loading it with a keg of beer, a few bottles of vodka and whiskey, ribs and hot dogs, you can do that. You’re the owner. I would, absolutely! But if you don't put it on a waste sheet and understand that you're taking that as a benefit of your business, your food cost is going to look high because that product disappears and no money came in for it. Your kitchen manager, your chef isn’t going to watch to take a hit on their food cost for that.
Rising restaurant food cost from rising product costs
When we were in the pandemic and chicken wings went from $70 a case to a $160 a case, that had a major impact on your bottom line. Now, while that was a freak of nature event, as we know today, our food costs keep going up because there's always a freak of nature event. Your broadline distributor, all your vendors, they do have an impact on your bottom line. But again, let's be very clear, you have a lot you can do to control it.
The food cost formula starts with beginning inventory plus purchases. That's the inventory you took at the end of last period. Hopefully that's on a weekly basis, or monthly basis at least. Let's now assume it's a weekly basis. If you’re a Monday through Sunday work week, you close Sunday night, you take your inventory Sunday night. What's the value of everything on your shelves, including the components of all your dishes, soups, side dishes, sauces, desserts, plus all the products you purchased from all your vendors. That’s your beginning inventory. 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.
Take beginning inventory plus purchase that gives you what you could use. That's your total product available. Subtract from that your ending inventory at the end of the week. This will tell you how much product actually left the shelve for the money that's come in.
Whatever left the shelves includes what was sold, stolen, wasted, or spoiled. We'll talk about that again in just a second. Use means it's gone. The math is blind. It just knows that you started with this much product, you purchased this much, you ended with this much and the difference of that is what you used.
The formula has no idea if it was stolen, wasted, spoiled, or you sold it or you took it out the back door. Now you can see very quickly how your food cost goes up because of theft, over portioning, because you threw away product, because you took it out the back door, anything other than selling it.
Your use – the product that left the shelves – divided by your food sales gives you your food cost percentage. With a 30% food cost, that means for every dollar that comes in, I used 30 cents in food product. Hopefully you sold it, but it could have been stolen, wasted, spoiled, or taken out the back door yourself.
While many get upset that the price of cheese has gone up 15 cents on a pound, and you want to just yell at your distributor, how you operate your kitchen has more to do with why your food cost is high, not your distributor.
Next, watch this video where I teach you exactly what you need to do to lower your food cost.