Restaurant food costs have been rising, and restaurants continue to feel the pressure. A great deal of that pressure comes from the need to determine food cost percentages to be profitable.
Rather than seeing food cost percentage as an annoying number you have to calculate, see it as an opportunity to ensure your bottom line remains strong and healthy. Or, speed up the entire process with food costing software.
You know that calculating food cost percentages is a must. If you don’t have a handle on your food cost percentage, you could run your business into the ground without even realizing it. That’s why it’s important to understand restaurant food costs and how to calculate food cost percentages.
What is Restaurant Food Cost?
Restaurant food cost is the amount of money a restaurant spends on food. This includes the labor cost, cost of ingredients, and other overhead expenses. Restaurant food cost is an important restaurant KPI to track, and is usually expressed as a percentage of sales, which is one of the most critical factors in determining a restaurant’s profitability.
Average Restaurant Food Cost in the Industry
The average restaurant food cost is between 28 and 35%. This means that, on average, restaurants spend approximately one-third of their operating expenses budget on food. While this may seem like a lot, it is essential to remember that food always takes up a large portion of restaurant expenses.
In order to provide customers with high-quality meals, restaurants must be willing to invest in good ingredients and experienced cooks. By carefully managing food costs, restaurants ensure they provide delicious meals at a fair price to both their ideal customer profile and the business.
What Should Restaurant Food Costs Be? Restaurant?
Several studies have proven that quick service restaurants have an average food cost between 25% and 35%, while full-service enterprises sport a cost closer to 28% through 40%.
Several factors affect food costs in your restaurants. Consider these elements as you analyze the use of food costing and strategic intervention in your restaurant. :
A quick service restaurant typically has a lower food cost than fine dining or a Michelin Star restaurant. This is because fast food restaurants generally serve simpler dishes that require less expensive ingredients.
A study by the University of Georgia found that restaurants in rural areas have a 5-10% higher food cost than those in urban areas.
Restaurants in rural areas often have a higher food cost than those in urban areas because rural restaurants transport most ingredients further, driving up the cost of the food.
The Culinary Institute of America found recently that complex menus have a food cost that can be up to 10% higher than those with simpler menus–for the entire restaurant!
Restaurants with more elaborate menus will typically have a higher food cost than those with simpler menus. This is because dishes with more ingredients and complex preparation methods tend to be more expensive to make.
Time of year
The cost of food fluctuates depending on the time of year. For example, restaurants may see a spike in prices during winter when fruits and vegetables are not in season.
the Bureau of Labor Statistics, the price of fresh fruits and vegetables can be up to 50% higher during the winter months compared to the summer months. There’s a drop in prices during summer months when fresh produce is readily available.
By understanding these various factors that affect food costs, restaurant owners can be better prepared to manage their budgets and keep their costs under control.
How to Calculate Food Cost Percentage
As a restaurant owner, knowing your food cost percentage is essential. This will give you an idea of how much of your revenue is going towards food and help you budget accordingly. Here’s how to calculate restaurant food costs:
- Begin by finding the value of your beginning inventory. This is the total value of all the food and drinks you have on hand at the start of your measuring period (usually a month).
- Add up all the food and drink purchases made during that period.
- Find the value of your ending inventory. This is what you have on hand at the end of the period.
- To get your total food sales, add all the revenue from food and drink sales for that period.
- Calculate the food cost percentage. Food cost percentage is calculated by dividing the cost of goods sold (COGS) by the total revenue from food sales.
How to Calculate Food Cost Percentage
To calculate your food cost percentage, use the following formula:
Food Cost Percentage = (Beginning Inventory + Purchases – Ending Inventory) ÷ Food Sales
For example, let’s say your beginning inventory was worth $10000, you made $7500 in purchases, and your ending inventory was worth $15000. Your total food sales would be $8500.
Food Cost Percentage = (10000 + 7500 – 15000) ÷ 8500
= 2500 ÷ 8500
=0.2941 (or 29.41%)
Your food cost percentage would be 29.41%
Knowing your food cost percentage is important because it can help you make informed pricing, menu planning, and purchasing decisions. If your food cost percentage is too high, it may be time to reassess your menu or make changes to your purchasing decisions.
On the other hand, if your food cost percentage is low, it could mean you are overspending on food or not pricing your menu items correctly.
Regardless of your food cost percentage, keeping track of and monitoring it over time is vital. This way, you can make changes as necessary to ensure that your business is running as efficiently as possible.
How to Control Restaurant Food Cost?
No matter what restaurant you are running, one thing is sure – food cost is always a significant concern. As a restaurant manager, it is essential to understand how to control food costs to keep your business profitable.
There are several different strategies that you can use to help control food costs. Here are ten tips:
1. Know Your Food Cost Percentage
The first step in controlling food costs is to know your current food cost percentage. This will give you a baseline to work from and will help you track your progress from restaurant data analytics over time. You can calculate your food cost percentage by taking your total food cost for the period and dividing it by your total sales for the period.
2. Manage Inventory Control
Another important aspect of controlling food costs is inventory tracking regularly. This means knowing how much of each ingredient you have on hand and keeping track of how much you use daily. By doing this, you’ll be able to identify trends and areas where you may lose money due to overstocking or spoilage and adjust your ordering habits accordingly.
3. Negotiate With Suppliers
One way to reduce food costs is to negotiate better terms with your suppliers. This may include longer payment terms, bulk shipping discounts, or other concessions.
Supplier relationship management is key to getting the best discounts and products from your suppliers. By maintaining good communication and keeping your supplier informed of your needs, you can ensure that you get the best possible service.
4. Menu Engineering
Menu engineering is the process of analyzing your menu items in terms of their profitability. This involves looking closely at each menu item and determining its food cost percentage, gross profit margin, and contribution margin.
Learn from experts how to make a menu. By doing this, you’ll infuseinformed decisions about which menu items are worth keeping and which ones might need to be tweaked or removed altogether to optimize your restaurant.
5. Manage Your Food Orders
Another way to control food costs in your restaurant is to be mindful of the quantities you order from your suppliers. If you find that you’re constantly throwing away unused food, you’re likely ordering too much, to begin with. Try only to order the amount of food you know you’ll be able to use within a reasonable timeframe.
6. Standardize Your Recipes and Portion Sizes
One way to cut down on food waste and reduce overall food costs is by using a standardized recipe and portion sizes. This means having a set recipe for each dish you serve and ensuring that each portion is precisely the same size. Doing this helps you avoid over- or under-portioning, prevents food waste, and ensures that you are not overspending on ingredients.
7. Use of First In, First Out (FIFO) Method
The FIFO method is a stock management system that ensures that the first items purchased are used first before the newer ones. This helps prevent food waste and ensures you get the most out of your ingredients.
8. Utilize Your Daily Specials
If you have any ingredients close to expiring, consider using them in your daily specials. This way, you can sell them before they go bad and reduce your food cost simultaneously.
9. Adapting Your Menu
As the seasons change, so does the available produce. This can significantly impact your food cost, as seasonal ingredients may be more or less expensive than what you typically use. To keep your costs under control, it’s important to adjust your menu according to seasonality.
This means featuring seasonal menu items that are plentiful and reasonably priced, while minimizing or eliminating items that are scarce or costly. Doing so allows you to keep your food cost consistent regardless of the time of year.
Beyond this, you can also add new, innovative menu design ideas to improve it as a cost-saving measure. Sustainability in restaurants is becoming more popular because owners are seeing how profitable it can be to protect natural resources (especially with smart food cost strategies).
Food data analytics\, tech solutions, and restaurant AI can all help you spot the hidden patterns within your existing POS and CRM data. Find out what customers want then make it sustainable, fresh, and cost-saving.
10. Use Local and Seasonal Ingredients
Another great way to reduce food costs is to use local and seasonal ingredients whenever possible. This involves sourcing ingredients from farmers’ markets or other local sources. Not only will this save you money, but it will also support your local economy and reduce your carbon footprint.
By following these tips, you can effectively control food costs in your restaurant and keep your business profitable.
Frequently Asked Questions About Restaurant Food Cost
Restaurant food cost is an important aspect of running a successful operation. The following Q&A will help you understand this topic better.
What is the ideal food cost for a restaurant?
Since restaurant owners know food cost as a great expense, the lower percentages are preferred.
You can expect that most restaurants have a food cost between 25% and 40%. Since time, menu, restaurant tyoe, and location affect the ideal food cost fo ryour restaurant.
How do you calculate food cost percentages?
To calculate food cost as a percentage, divide the cost of your used stock against the total from those food sales.
You’re equation would look like this: Food Cost % = Cost of Stock Used / Sales Total
For example, if your wagyu beef cost $10,000 over a year, and the total sales volume for this item over a year was 35,000. Divide the two, and you produce a food cost of about 35%.
How do you control restaurant food costs?
Controlling food costs demands a careful analysis of your restaurant, its ordering data, and its inventory costs.
By following trends through times of year, industry disruptions, and new technologies, restaurant owners can make informed choices about future menu planning and recipe creation.
What is Standard Portion Cost?
Standard portion cost is the average cost of a specific menu item, determined by dividing the total cost of all ingredients for the dish by the number of servings it yields. This provides a good starting point for pricing menu items, as it covers the basic costs of making the dish.
However, other factors, such as overhead costs and desired profit margins, should also be considered when setting menu prices.
How do you calculate food cost for buffets?
There are several ways to calculate food costs for a buffet. The most common method is to use a standard food cost percentage calculation.
Another way is to use a per-person calculation. This takes the total cost of the food and divides it by the number of people who will be eating at the buffet.
What is Minimum Selling Price?
A minimum selling price is the lowest price that a seller is willing to sell their goods or services for. The seller generally sets this price to ensure that they can cover their costs and make a profit.
The minimum selling price may also be influenced by other factors, such as market demand and competition.