Do you have a food cost problem?

How often do you monitor your food costs?  As a minimum, we recommend you should do this monthly, and if possible weekly as this will ensure you are of potential problems earlier rather than later.

When you experience an increase in your food costs you should review your procedures. 

• Make sure all goods are checked in.

• Check the invoice prices, are these in-line with your agreed prices?Are substitute items being sold to you at the agreed price for the original product or has the cost price been hiked?

• Are all items on the invoice necessary for the business?If not, this could be an indicator of theft.

• Look in the bins, has production wastage increased?

Even with proper controls many operators rarely hit their target food cost.  If this is the case for you then it maybe that the food cost target needs reviewing

When did you last cost your menu?  Whether using sophisticated software, spreadsheet or had written calculations you should keep the cost of each item up to date. Once you know your food cost for each menu item you need to calculate your food cost based on your sales mix. 

Create a spreadsheet with the food cost for each item alongside the dish.  At the end of the week, or month, enter the number of each dish sold.  Multiply the food cost by numbers sold to calculate your food cost based on your sales mix.

Now having completed a closing stock count calculate your actual food cost;

Opening stock + purchases – closing stock = Food Cost

In theory, your “theoretical food cost” from the first calculation and your actual food cost should be the same.  Any variance will be down to production problems, pricing or theft.

Remember your theoretical food cost will vary depending on your sales mix as some dishes will cost more to produce than others.  This doesn’t mean that you have a food cost problem.

A food cost problem is when you have a significant difference between the theoretical and actual food costs in the financial period.

A variance of 2% for a restaurant that does £20,000 net food sales with a food cost of 40% amount to a weekly loss of £160, annually this would be £8,320.  If your food cost calculations are inaccurate you will be left scratching your head trying to work out where you have lost that money.

If you or your team don’t have time to complete in-house stocktakes it is worthwhile getting an external stock taker to complete them at least every 3 months, though more frequently is better.  We initially schedule stocktakes for clients monthly, reducing the frequency as the business performance improves.  Our systems also ensure the food costs are up to date ensuring the theoretical food costs are as accurate as possible.

Here are some tips on how to know what your theoretical cost should be:

1. Accurately cost out each menu item.
2. Make sure that each menu item has its own POS key (this enables you to track the unit sales of each item).
3. Create a spreadsheet that calculates the cost of each menu item times the number of items sold from the POS report to give the “Theoretical Cost”.
4. Compare the Theoretical Cost to the Actual Cost calculation in your P&L.

For many operators who regularly compare their "Theoretical" to their "Actual" food cost, a variance of greater than 1% of sales indicates a food cost problem.