By Paul Molinari

Isn’t it remarkable how many opportunities there are for restaurant food cost problems to crop up? Between when a product is ordered to the time it’s served there are many chances for operators to lose control of their costs.  The following article looks at the most significant trouble spots in a product's lifecycle and a few ideas about how those trouble spots can help you better understand how to manage your food costs.

When trying to quantify food costs, there are two areas you’ll want to focus on:  Accuracy – you want to make sure the costs you capture are accurate; and Actual Cost vs. Theoretical Cost Variance – where you compare the difference between the product’s actual cost to its theoretical cost (e.g. what costs should have been in a perfect world of no waste, ideal portions, etc.).

When trying to maintain accuracy, there are a number of factors that can throw off your numbers.  Here are the common trouble spots:

  1. Receiving
    1. Amounts may be recorded incorrectly
    2. Short shipments can be missed
    3. Pricing can be wrong
  2. Inventory
    1. Inaccurate counts
    2. Data entry errors
  3. Unit conversions
    1. Products that can be counted using more than one unit type (e.g. pound, each, case) must be converted to a single unit type for proper inventory measurement
  4. Recipe amounts
    1. When recipe card amounts don't reflect what's actually used in prep, the counts of completed recipes on hand will be inaccurate

Veteran managers use their knowledge of these trouble spots as the basis of an action plan.  When faced with food costs that appear to be too high or too low, they first locate the product that is most problematic and then review the phases in its lifecycle looking for mistakes. 

In the paragraph above, the key phrase is "food costs that appear to be too high or too low."  You may be asking, “Too high or too low compared to what?”  For most foodservice companies the answer to that question is "Compared to what I'm used to."  However, a much better answer would be "Compared to what they should have been, if we'd done everything right."

How do you figure out what those costs should have been?   It requires that you know:

  1. How much of each recipe you sold (from your menu mix data)
  2. How much of each product is spec'd in each recipe
  3. That your prices paid are accurate (from your receiving and invoice records)

Those facts determine what should have been spent on each product... all amounts above that number are suspect, and can be attributed to things such as the trouble spots mentioned earlier, plus other things like shrinkage, breakage, and portioning problems. 

There's no question that knowing what theoretical food costs are will create an excellent benchmark for deciding if the team is doing a good job at controlling actual costs. It will create a reference point that is critical for cost-recovery efforts.  Your stores will be able solve problems by:

  1. Identifying those products that contribute the greatest cost variance
  2. Reviewing those suspect products for the cost-accuracy issues created in trouble spots
  3. Reviewing possible operational issues for those products (portioning, proper recording of waste, potential theft)

Is this all hard to capture?  Yes and no.  If you’re attempting to control food costs and establishing a defined process using only spreadsheets, invoices, receiving logs, and inventory count sheets – yes. It will be overwhelming even for the most hardened restaurateur.  There is a faster, better way…

A comprehensive BOH restaurant back office solution tied into the POS system (so it can capture menu mix data) can make the job far easier. It captures all necessary info in real time, and will generate reports that reveal what food costs should be, plus highlight the products to investigate with actual costs that look problematic. It will also alert operators to potential data entry errors and pricing problems as they occur (which is a lot easier than sifting through paperwork trying finding them later). The best part is that all of this can be accomplished in seconds, making it a snap to find where your food costs problems are hiding.   

If you want to learn more about how to see a 2 – 5% reduction in costs against revenue, click here and let us show you.