Food Cost Control: Strategies for Restaurant Profitability

In the competitive world of restaurant management, controlling food costs is crucial for maintaining profitability. Effective restaurant food cost management can mean the difference between a thriving establishment and one that struggles to keep its doors open. This comprehensive guide will explore various strategies to help restaurant owners and managers optimise their food costs without compromising on quality or customer satisfaction.

Understanding Gross Profit and Food Cost

Before diving into specific strategies, it's essential to understand the concepts of gross profit and its relation to food cost. This perspective provides a clearer picture of your restaurant's profitability.

Gross Profit

Gross profit is the difference between your total food sales and the cost of goods sold (COGS). This is calculated excluding VAT. To get the ExVAT price, divide the menu sale item by the VAT rate (currently 20% in the UK). For example: Menu Price = £10. Ex VAT price = £10/1.2 = £8.33.

The formula for gross profit is:

Gross Profit = Total Food Sales - Cost of Goods Sold

For example, if your restaurant's food sales for a month are £100,000 ExVAT and your COGS is £35,000, your gross profit would be £65,000.

Gross Profit Margin

The gross profit margin is expressed as a percentage and shows how much of each dollar of sales is left over after accounting for the cost of food.

The formula for Gross Profit Margin is:

Gross Profit Margin = (Gross Profit / Total Food Sales) x 100

Using the example above: Gross Profit Margin = (£65,000 / £100,000) x 100 = 65%

This means that 65% of your food sales revenue is left after accounting for the cost of food.

Food Cost Percentage

Food cost percentage is the inverse of the gross profit margin when considering only food sales and food costs.

The formula is:

Food Cost Percentage = (Cost of Goods Sold / Total Food Sales) x 100

Using the same example: Food Cost Percentage = (£35,000 / £100,000) x 100 = 35%

Industry standards suggest that food costs should typically fall between 28% and 35% of total food sales, though this can vary depending on the type of restaurant and its pricing strategy. This means that the gross profit margin for food sales should ideally be between 65% and 72%. I personally like restaurants to aim for gross profit margins of 75% and above.

The Relationship Between Gross Profit and Food Cost

Understanding the relationship between gross profit and food cost is crucial for restaurant profitability:

1. As food cost percentage decreases, gross profit increases.

2. Every percentage point reduction in food cost translates directly to an increase in gross profit.

3. Focusing on increasing gross profit (rather than just reducing costs) can lead to more balanced decision-making, considering both cost control and revenue growth.

For example, if you can reduce your food cost from 35% to 32% without affecting sales, your gross profit margin would increase from 65% to 68%, representing a significant boost in profitability. It can be very simply things that can drastically improve your profit margin/reduce your cost base. A simple example of this would be only include one sachet of ketchup instead of a handful. Make your own biscuit with a coffee instead of a branded wrapped biscuit.

A very simple way to improve your margin is to increase your price. Take a bottle of coke for example; increase your price by £0.15 would have very little effect on the number of bottles sold over a year. But imagine 50 bottles sold a day.... 50 x £0.15 x 365 Days = £2737! This goes straight onto your bottom line!

By focusing on gross profit alongside food cost percentage, you gain a more comprehensive view of your restaurant's financial health. This approach encourages a balanced strategy that considers both cost control and revenue growth, leading to more sustainable profitability.

Key Strategies for Restaurant Food Cost Management

1. Accurate Menu Pricing

One of the foundational elements of food cost control is setting appropriate menu prices. You should be extremely thorough with this and include every single ingredient/process. This way you will construct a menu that is priced correctly. If the correct menu sale price is too high for the market to purchase, change the dish. Do not become loyal to a dish just because you like it.

This is where I believe it is beneficial to include chef costs in menu pricing. For example, take a simple dish like a soup. It might take 2hours of a chefs time at £20ph to make 40 portions. (£20ph x 2hours / 40 portions = £1 per portion) This in my option is a Cost of good sold. Lets change this to a beef wellington, same 2 hours and £20 but only 6 portions (£20ph x 2hours / 6 portions = £6.67 per portion. You have to engineer the sale price accounting for this, the beef wellington labour would be £13 per portion at 50% GP, whereas the soup would be £2.

Accurate menu pricing involves:

• Calculating the exact cost of each ingredient in a dish

• Factoring in labour costs and overhead

• Considering market prices and competitor pricing

• Regularly reviewing and adjusting prices as needed

Action item: Conduct a thorough review of your menu pricing quarterly, ensuring each dish is priced to maintain your target food cost percentage. As your suppliers change their prices, so should yours.

1. Inventory Management

Effective inventory management is crucial for controlling food costs. It is one of the easiest ways to increase profitability of a restaurant, as wastage accounts for a large amount of costs. Knowing what is getting wasted and where is key to run a successful restaurant.

Inventory Management Includes:

• Implementing a first-in, first-out (FIFO) system to reduce spoilage

• Conducting regular inventory counts (weekly or bi-weekly)

• Using inventory management software for accurate tracking

• Training staff on proper storage techniques to extend ingredient shelf life

Action item: Implement a digital inventory management system and schedule weekly inventory counts. Ammonite Hospitality can help arrange this as part of a monthly relationship package.

1. Portion Control

Consistent portion sizes help maintain food costs and ensure customer satisfaction. We have found that it is easy to see over a couple days whether your portion sizes are too big. Simply track what comes back to the kitchen

• Use standardised recipes for all menu items

• Provide staff with proper measuring tools (scales, scoops, ladles)

• Train kitchen staff on proper portioning techniques

• Regularly audit plated dishes to ensure consistency

Action item: Create a visual guide for portion sizes for each dish and conduct monthly portion audits.

1. Supplier Management

Building strong relationships with suppliers can lead to better prices and quality. Having good relationships with your suppliers is never a bad thing, you might even get better payment terms for being "nice"

• Regularly compare prices among different suppliers

• Negotiate bulk discounts for frequently used items

• Consider group purchasing options. Multi sites get better discounts

• Maintain open communication with suppliers about quality expectations

Action item: Schedule quarterly meetings with your top suppliers to review prices and explore cost-saving opportunities.

1. Menu Engineering

Analyse your menu to identify high-profit and popular items. These items should be standout on the menu, top of the page, ideally with a box around them. Show your most best items off. Have a look at big multinational chains, they all do it. Why do they always have a box around burgers... because they are mega profitable and popular.

• Categorise menu items based on popularity and profitability

• Promote high-profit items through strategic menu placement and staff recommendations

• Consider removing or redesigning low-profit, unpopular items

• Implement seasonal menus to take advantage of cheaper, in-season ingredients

Action item: Conduct a menu engineering analysis every six months and adjust your menu accordingly. Remove items ruthlessly. There is no point in ordering and prepping ingredients for a dish that you only sell one per day of, the wastage will be very high and your chefs can get better us of their time focussing on other dishes. The only way you would consider keeping a low selling item is if it solely made of trimmings from another popular dish.

1. Waste Reduction

Minimising waste is a direct way to control food costs. Not only will your food bills be lower, but you will also save on less wheelie bins. Nobody likes wastage, but unfortunately it is part of running a restaurant.

• Implement a waste tracking system to identify problem areas

• Train staff on proper food handling and storage techniques

• Use trim and off-cuts creatively in other dishes

• Consider composting or donating unused, safe-to-eat food

Action item: Implement a daily waste log and review it weekly to identify trends and areas for improvement. Also consider adding staff meals to the waste log. You'll be able to accurately track all food that is going in and out, to maintain margins as well as reduce unnecessarily throwing items in the bin.

1. Staff Training and Involvement

Well-trained staff can significantly contribute to food cost control. Staff can play a key role with pushing items that are close to their sell by date. For example if you have some pies that need eating in the next 2 days, incentivise staff to push this as a special. It doesn't have to be a monetary incentive, but money motivates most people.

• Educate staff about the importance of food cost management

• Provide regular training on portion control and waste reduction

• Implement an incentive program for staff who contribute to cost-saving initiatives

• Encourage staff to share ideas for improving efficiency and reducing waste

Action item: Schedule monthly staff training sessions focused on different aspects of food cost control. Include all staff; management, front of house, bar staff and even cleaners, KPIs and support staff. Every member of staff will have something to add to improve efficiency.

1. Technology Utilisation

Leverage technology to streamline processes and improve accuracy:

• Use point-of-sale (POS) systems that integrate with inventory management

• Implement kitchen display systems to improve order accuracy and reduce waste

• Utilise recipe costing software to maintain accurate food costs

• Consider using AI-powered forecasting tools for more accurate ordering

Action item: Evaluate your current technology stack and identify areas where new tools could improve efficiency. As a bare minimum, you should be using an up to date POS system. We would love to help you install this and maintain it, send us a message here for a chat about POS systems.

Quick Wins for Immediate Impact On Profitability

While many strategies for restaurant food cost management require long-term commitment, here are some "quick wins" that can have an immediate impact:

1. Conduct a "menu audit" to identify and adjust any significantly underpriced items.

2. Implement a "daily specials" program to use up excess inventory before it spoils.

3. Start a pre-shift meeting routine to brief staff on inventory levels and push specific menu items.

4. Introduce a "family meal" program using trim and near-expiry ingredients to reduce waste and feed staff.

5. Negotiate a short-term deal with your main supplier for a discount on your top 5 most-used ingredients.

6. Implement a "waste bucket" system in the kitchen to visually track and reduce food waste.

7. Create a cross-utilisation chart to identify ingredients that can be used across multiple dishes.

8. Start tracking plate returns to identify portion size issues or unpopular dish components.

9. Implement a "par level" system for your top 20 ingredients to prevent over-ordering.

10. Introduce a staff meal cost challenge, rewarding the team that creates the most cost-effective (but still delicious) staff meal each week.

Conclusion

Effective restaurant food cost management is an ongoing process that requires attention to detail, staff involvement, and a willingness to continuously adapt and improve. By implementing these strategies and quick wins, restaurant owners and managers can significantly improve their bottom line without sacrificing quality or customer satisfaction. Remember, even small improvements in food cost can have a substantial impact on overall profitability. Start with one or two areas for improvement and gradually expand your efforts for long-term success in controlling your restaurant's food costs.

Please send Ammonite Hospitality an email to discuss how we can work together to improve the profitability of your restaurant. You're too busy running it, let us handle the nitty gritty. Drop us a line at hello@ammonitehospitality.com