Food costs… it’s one of the Big 3.
And that means it’s really important that you get it right.
As a restaurant, 1/3 of your budget goes to food costs… and by default that makes it a big ticket item in your budget, but it’s more than that… it can also be a business killer if you don’t manage it closely.
The reality is that food prices have steadily risen… the NRA says by 25% over the past 5 years… and sadly this has translated into shrinking margins for everyone.
So when you talk about managing food costs… it’s do or die for restaurants.
Controlling it isn’t a choice… it’s a necessity. Figure out a way to manage it properly or risk the fate of closing your doors for good.
So how do you keep your food costs below that coveted 30% when it seems like everything is working against you?
We’ve got you covered…
Here are 5 must-have tactics for gaining control of your food costs. These tips will help your restaurant keep costs low, stay competitive, and turn a healthy profit.
1. Track Your Food Costs Weekly & Pay Attention to Supplier Pricing Weekly
There’s no better way to get control of your food costs than by keeping an eye on your spend and pricing.
It sounds so simple, but we’re constantly amazed by how many restaurants don’t track pricing or have a handle on weekly spend.
While that may sound daunting considering the 500+ items you have on hand… it’s not as hard as you might think.
Let’s start with 80/20 rule. 80% of your costs are driven by 20% of your ingredients.
Manage those correctly and you’re on your way.
Build a list of the top 20 items you purchased by dollar volume over the last three months.
Now let’s compare pricing. Next, to the ingredient, list the spend amount. Then list the first month’s cost and the last month’s cost.
Calculate the difference in how much the price has changed.
For example, say the price of chicken rose from $1.39 to $1.44 per pound over a three-month time period.
It’s a $.05 increase… not a big deal, right?
Wrong. A few pennies may not seem like a lot of money when you eyeball it… but when you add it up, it actually represents a 16% increase.
And if you’re spending $20,000 a month on chicken breast… yeah, 16% is a BIG number.
Just getting a 10% price break on chicken will save you a significant amount of money… and this compounds, since you’re stopping future price increases on this item by addressing the problem.
And that’s just one item… do this on 20 items and those price breaks are significant.
It adds up.
2. Know Your Recipe Costs, Price Your Menu Profitably & Check It Monthly
Now that you’re getting a handle on spend, it’s time to price the menu for profitability.
Recipe plate costing is a necessary part of running your restaurant.
Understanding what your dishes cost allows you to create a dish that is both culinary genius and a financial delight.
You need a profitable menu… and recipe plate costing gets you there.
That being said, recipe plate costing can be complex.
So those who use it to manage their food costs have to realize the down-to-the-penny accuracy it promises just isn’t going to happen all the time.
In the day-to-day of a real restaurant, the server drops a plate, the chef adds extra cheese, and the kitchen manager misreads an order… Real life happens in the kitchen.
All that to say recipe plate costing has its place, but its accuracy needs some wiggle room.
And not only do you have to be flexible to make recipe plate costing work, you’re also going to have to be consistent with updating it… at least as often as the dishes on your menu change.
Knowing your recipe costs and pricing your menu can be a challenge… but the effort is well worth the increase in profits.
3. Buy in Bulk
That half case… it’s costing you more than you think.
When it comes to controlling food costs, buying in bulk can make a world of difference.
This means taking a consistent inventory so you know how much you use of each item from week to week… and then ordering in bulk when it’s appropriate.
Purchasing bulk orders of any item will always mean you are paying less.
But that means you have to look at the pack size you order – and count during inventory – to assess whether it’s worth it to buy it in bulk.
It may seem like a no-brainer…
But many restaurants only take advantage of this tactic for larger items like french fries, condiments, and paper supplies.
What you may not realize is that by purchasing bulk on other items, you can save even more of your hard-earned money.
4. Have A Formal Quarterly Review With Your Suppliers
Suppliers don’t provide restaurants with any standard price charts or indexes. It’s a mysterious – but accepted – oddity of the restaurant industry.
But that’s good news for you… it means all your prices are negotiable.
That’s why it’s so important to regularly meet with your suppliers… to negotiate price relief on your most important items.
In fact, we recommend sitting down with your suppliers at least once every three months to have a practical conversation about pricing.
You can use these 7 bulletproof steps to guide the conversation.
Your goal by the end of the meeting will be to ask for price relief on important items and items with a high percentage of increase…
Because that’s where the money savings comes in.
In fact, by implementing this simple tactic… you can save thousands of dollars a quarter on your food spend and dramatically increase your margins.
5. Look for Waste Intentionally
Food represents a third of your budget… but on average, full-service restaurants waste 3.11% of their food.
There’s no getting around it. Food waste can kill your profits.
Which is why you need to be intentional about locating waste and stopping it.
It’s true you can’t do anything about the food you throw out after the plates come in from the dining room… but you can certainly get a handle on waste before the food even hits the plate.
First, stop the over-ordering frenzy.
Many managers over order food because they don’t want to be responsible for running out of a dish during a busy shift.
While this is understandable, it can lead to items going bad faster than you can use them.
Another contributor to restaurant waste?
Perishable items not being used up fast enough due to slow business or decreased popularity with customers.
The best way to track and stop both kinds of waste is to take consistent inventories.
Counting what’s on hand every week will show you right away if someone is over ordering or if you’re holding onto other items longer than you should be.
And that allows you to make money-saving changes right away to use up that extra stock.
It’s true that you’re always going to have waste at your restaurant… but by intentionally looking for it, you can reduce the impact it has on your bottom line.
Conclusion: Controlling Food Costs Doesn’t Have to Be So Hard
When you look at the numbers plaguing the restaurant industry, it’s easy to be overwhelmed.
Controlling your food costs is a simple matter of making a few changes in how you run your restaurant… and you can start by implementing these 5 practical tips:
- Understand your spend and know your prices
- Know your recipe costs and price your menu profitably
- Buy in bulk
- Meet with your suppliers regularly
- Look for waste intentionally
There’s also a way to fight back.
Orderly is designed to manage your food spend and show you supplier pricing automatically… so you can always get the best deal.
It provides a national & local view of price trends on hundreds of popular ingredients restaurants are buying – ingredients that will matter to you.
And it shows you real prices restaurants are paying their suppliers in your local market.
Now, you’ll know if you’re overpaying for everything from eggs to onions to the various other items in your stockroom.
And you’ll have the hard data you need to negotiate better pricing with suppliers.
It’s really the best way to get control of your food costs.