More than ever, the restaurant business is one of tight margins, and one of the most important, fundamental margins that must be understood, controlled and manicured is food cost. Along with alcohol sales, food sales are one of the two main profit centers of just about any restaurant. In some cases it’s the only profit center.
When you’re counting so much on food sales to generate enough gross profit to cover payroll, rent, insurance, costs of goods sold, repairs, marketing, utilities, administration, taxes and fees (I could keep going, but I don’t want to sound pessimistic), and still have something left over to take home, you really want to be as effective as possible with how you handle your food costs. While the gist of it is “buy low, sell high,” there’s more to it than that. Let’s look at the process from start to finish.
First, let’s define what we mean by “food cost.” Technically, we’re referring to the costs of goods sold, in this case food, expressed as a percentage of what we sell it for. Let’s say we’ve figured out that the food on a certain plate costs us $5.00, and we sell it for $20.00. We divide our cost of the food by the selling price and come up with .25, or 25% (5/20 = . 25). This means we have a ‘food cost’ of 25% for that plate. While knowing the food cost for each menu item is important, it’s also important to know your overall food cost. To arrive at this figure for a certain time period, a month is typical, first do an opening inventory of all food. Add to the value of this inventory the cost of any food purchased during the time period in question. Do a closing inventory at the end of the period and subtract its value from the sum of the opening inventory and purchases (this will tell you how much product was used.) Now divide the cost of the food used by your food sales for that same period, and you’ll have your overall food cost percent, the same as you had for an individual dish earlier, but on a bigger scale. Some operators subtract the cost of family meals, promotions and waste from the food cost, but care should be taken with this practice as it may end up being more deceptive than helpful.
Before we discuss how to control this cost, I’d like to bring up two points that are very important that restaurateurs sometimes miss. The first point is stated in my favorite definition of cost control in general: the elimination of any expenses that won’t diminish the quality of goods or services as perceived by the customer. If, in an effort to reduce your food costs to a predetermined point, you lose customers either because your quality goes down or your portions become unacceptable, you lose. Keeping a higher percentage of a lower number (of sales) may be OK, but there’s a good chance it’s not. You have to be careful to control your costs in ways that won’t cost you customers. Another concept to watch out for can be summed up in the old adage, “You can’t spend percents, you can only spend dollars.” Here’s an example of what I mean. Let’s say one of your chicken entrées costs you $4.00 and you sell it for $16.00. That would mean its food cost was 25% (4/16 = . 25). Let’s say your rack of lamb entrée costs you $12.00 and you sell it for $32.00. The lamb dish would then have a food cost of 37.5% (12/32 = . 375). If you only looked at the food cost percent, you’d think you would be better off selling the chicken. After all, 25% food cost is better than 37.5%, right? But consider how much money you make with each dish. With the chicken, you’re taking in $12 (16-4=12), but with the lamb, you’re taking in $20 (32-12=20). The lesson here is, while food cost percents are very important, don’t forget to always see the bigger picture. Higher cost items frequently will have a lower markup than lower cost items, but might still be more profitable. You’ll see the same scenario play out frequently on your wine list.
The first step in controlling your food costs occurs when you write your menu. It is obviously of paramount importance to write a menu that offers a sufficient variety of choices at the right price and style for your restaurant. The menu items should highlight the strengths of your kitchen staff and avoid their weaknesses, while always being practical in terms of equipment and space. Not as obvious, but very important to food costs: the ingredients required to make the menu items should work together to insure maximum usage and no waste. If one of your dishes has finely julienned red peppers in it, consider having a red pepper coulis made from the ribs, tops and bottoms of the peppers somewhere else on the menu. Scraps from onion rings can go into the stockpot, along with a lot of other things that will do your food more good than if they go into the garbage. (There are some exceptions, such as any member of the cabbage family – don’t go overboard.) If you cure your own salmon, make a mousse or spread out of the scraps. If you have enough scraps to put a salmon mousse appetizer on your menu, great. If not, you can always give away salmon mousse bruschetta when your guests first sit down, and start their meal off on the right foot at no real cost, or put the bruschetta on another plate as garnish. Even seemingly miniscule scraps from the preparation of one dish might be sufficient to be a garnish in one of your soups. Trimmings from cuts of beef can go into a Bolognese sauce. Even if it takes you a week to accumulate enough scraps to run a special for one day, do it. At the very least, if you can’t figure out how to get a by-product from one menu item somewhere else on the menu in another form, serve it for family meal and save some money and create goodwill that way. For this concept to work, your kitchen has to be organized enough to make sure that scraps from one station are saved and gotten into the hands of another station who’ll turn them into mise en place. Cooperation and organization, of course, are always good habits to develop and encourage in any kitchen.
The next step on the way to good food cost control is purchasing. The goal of purchasing is to get the right amount of everything you need, when you need it, with the correct specifications, at the best price available with an acceptable level of service. All purchases should be menu driven. The purchasing agent should work closely with the chef and manager, assuming they’re not all the same person, to determine what, when and how much of everything to order. A list of all food items, including pertinent specifications, preferred vendors and price history should be written (spreadsheets are handy for this.) Pertinent information should include brand names, grades and specific cuts of meat (use the NAMP Meat Buyers Guide), type and size of container, the unit (Pounds, each, Gallon…) each price is quoted for and any other information important to your situation. This list will also come in handy when you’re figuring out food costs for individual dishes. Par stocks should be determined and a physical inventory, even if it’s a quick one, should be done before any order is placed. Ordering something you don’t need is as sloppy and expensive as not ordering what you do need. It’s usually advisable to have more than one vendor for each type of product (meat, dairy, dry goods, seafood…) to keep them interested and competitive. However, especially if you’re a small operation, it might be better to give most of your business to fewer purveyors so that you can be a more significant account to them. This is, of course, only for as long as they treat you as if you’re significant. Watch prices like a hawk and always be aware of how timely deliveries are. Also realize that being organized and paying your bills on time go a long way in getting the best service out of any vendor.
After purchasing comes receiving. The goal of receiving is to make sure that you’re getting what you ordered for the price you were quoted. ALWAYS weigh in at least some, if not all, of any meat, seafood or produce order. A friend of mine tells the story of how he noticed his invoices from a fish vendor always had ”NS” written across the top. When asked about it, the driver told him it stood for “No Scale” at the point of delivery, evidently so the people packing the orders would know they could get away with shorting those shipments. The driver may not have been much of an asset to his employer, but he was to my friend (who had a scale in place, and used it, starting the next day. He also found a new fish vendor.) Make sure whoever checks in the orders carefully counts and checks the dry goods, inspects the produce and smells all seafood for freshness. You must also have a system in place to make sure that they are delivering what you have ordered. It’s no good if the invoice the driver shows you indicates 50 pounds of potatoes, he delivers 50 pounds of potatoes, but you ordered 500 pounds of potatoes. Easy returns and refunds for unacceptable product and quick delivery of shorted items are two of the most important criteria for a vendor. Also keep your ears open for any specials they may be offering.
After the food has been received, it must be stored so that you experience minimum loss through spoilage and theft. Dry storage areas should be well ventilated and pest-free with sufficient space and light to make it easy to rotate and inventory stock. Refrigerators and freezers should be checked frequently for correct temperatures and cleanliness. All storage areas should be organized, rotated and straightened on a regular basis to make it as easy as possible for the people doing the ordering and inventory to see at a glance what’s there. Excess inventory and inventory that goes bad before you ever use it is money wasted for no reason other than laziness and lack of attention. Storage areas should also be sufficiently monitored, especially if they’re conveniently located near back doors. Alcohol should be locked-up.
At this point I’d like to reiterate that every ounce (or every 10 pounds) of food purchased that ends up on a plate in the dinning room due to care and effort in menu writing, purchasing, receiving and storing counts just as much towards good food costs and your profits as the more obvious efforts taken in food production.
Once the food arrives in the kitchen, there are some basic practices that should be followed to insure good cost control. Portion control is obviously an important factor both in terms of your costs and your guests’ satisfaction. There are two places where portion control takes place: during prep and at service. When fish and meats are butchered, special attention needs to be paid both to waste and portion size. Any usable trim should be properly stored to be used in a timely fashion, and portions should be very accurate; make sure a portion scale is used! Your kitchen should have both ounce and pound scales for different jobs, and management should check them periodically for accuracy. The butchering process is where the Edible Portion cost, as opposed to the As Purchased cost is figured out. When breaking down a whole snapper, for instance, weigh the whole fish and figure out what you paid for it (the AP cost), then, after cleaning it, weigh the two fillets. Your actual cost of the two fillets is what you paid for the whole fish. Per pound, this is the EP cost. This is the cost you should be using when figuring out menu pricing and food cost per serving. It’s important to make sure your staff is properly trained. If you don’t have the space or staff to butcher on site, consider buying pre-portioned items. The money you save in production, waste and portioning will help defray the higher costs of the product. Also give some thought to which cuts you should have in your kitchen to serve your needs for the best price. For a chicken entrée, buying 6oz. breasts might be worth the money, but for chicken salad, random breasts will work just as well for less. If you’re serving sliced roasted beef tenderloin, it might be worth the extra cost to order 6-up psmos to know you can get nine perfect servings out of each one with little waste.
Some items lend themselves to pre-portioning during prep, others don’t. For sauces and soups, make sure the appropriate size ladle is handy, and that the people plating know to use one ladle-full only. Vegetables and rice might work better with a scoop or kitchen spoon. A spoon might result in a better-looking presentation, but make sure that the cooks are given direction about how full a spoon to use. Spot checking by a sous-chef or manager is never a bad idea. A little mistake here and there is no big deal, but consistent, repetitive mistakes add up fast. Time spent working with your cooks on portioning and presentation is always time well spent.
Although recipes obviously provide direction as to how a dish is made, they are also a great tool to help with cost control. A well-written recipe with accurate yields will not only help you figure out your costs for a particular dish, but it will also be a big help to the chef in terms of his ordering and prep. While occasionally running out of an item or having too much of something left at the end of a shift is to be expected, the less it happens the better. The recipes should be updated as needed, and all weights indicated should be as accurate as possible. If you have recipes that actually represent what you’re producing, as well as the purchasing agent’s list of foods with prices, it’s easy to do costing sheets for each menu item. Simply list out all the ingredients along with their amounts and costs (make sure to use EP costs when applicable), and add them up. Divide by the number of portions the recipe yields and you’ll have your cost per dish. A spreadsheet will make this easier.
The final part of the story of food cost brings us back to where we started, the menu. But at this point, instead of considering the food on the menu, we’re considering the prices. Since the formula for “food cost” is: what you paid for the food you’ve sold divided by what you’ve charged for it, the menu prices are fully half of the story. In other words, the best, most efficient cost control habits used from menu writing to service will still result in a dismal food cost percent if the menu prices are too low. If they’re too high, you’ve also got problems. With no customers, you’ve got no business but, on the other hand, if you’re losing money on every plate of food sold, you can’t make it up in volume. As you already know, balance counts. Having stated this, let me hasten to add that this does not at all discount the importance of controlling food costs in your restaurant. It’s is a big, crucial part in running a successful operation, but there are others, menu pricing being one of them.
Menu pricing is a major topic in and of itself, with many books, theories and methods to explore. One way to start the process, simplistic as it is, is to figure out how much you think you can get away with. Not as much as you’d like, or can imagine, but, HONESTLY taking into consideration your location, competition, clientele, food quality, concept, atmosphere, service, beverage selection, restrooms, parking and all the other factors you can think of that matter to your customers, what do you think they’d be willing to pay for what you’re offering? Also think about if you’d like to be on the lower end of possibilities and make up for it in volume, or the higher end, and make more from less. Don’t forget, after all of your expenses, there has to be a reasonable profit. Some people try to make the second part of the food cost equation (pricing) as arithmetic and linear as the first (cost control.) Because the public is involved with one and not the other, I’m not sure that approach always works.
One thing that is certain, however, is that well-controlled food costs, coupled with intelligent pricing will do wonders for a restaurant’s bottom line.
Top 10 Ways to Improve Your Food Costs
1. Use an accurate scale to check in orders.
2. Do a mini inventory before placing any orders.
3. Rotate your stock: First In, First Out.
4. Pre-portion during prep when possible. Use a scale.
5. Have the correct ladles and scoops on the line at service.
6. Find ways to turn scraps from the prep of one menu item into prep for another.
7. Use accurate recipes to help with ordering.
8. Know your cost for a particular dish before you write the menu price for it.
9. Accept a lower margin on higher-priced items if it’s profitable to do so.
10. Frequently spot check portions for accuracy.