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If You Operate Fewer Than 10-Restaurants, This Will Be Your Biggest and Costliest Inventory Mistake

Updated: Nov 18, 2022

There's a saying in the restaurant industry, "the trick to winning in the restaurant industry is to lose pennies, not dollars". I first heard this saying about 20 years ago and I never forgot it.

The reality is, that regardless of your efforts to control your restaurant's inventory cost, there's a cook in the kitchen who is going to serve 8 ounces of fries even though your recipe calls for 6 ounces. There's a bartender on the staff that's going to not charge for that double shot of high-end tequila and he'll consistently overpour and there's a server who's going to make more mistakes than normal.

Unfortunately, inventory problems in restaurants can't be eliminated completely because the restaurant industry is unlike any other. In fact, it's one of the only business types that combines the manufacturing of a product with the retail sale of the same product in a face-paced environment where speed and the pressure to be accurate is of the utmost importance.

In short, this means that a lot of mistakes can and will be made in your restaurant and if you're doing this one thing wrong, you may never be aware that a problem exists until the problem becomes so significant that you can see it from space.

If you operate fewer than ten restaurants, then it's very likely that the biggest and costliest mistake that you will make when it comes to managing your inventory cost is that you will rely on the accounting reports to tell you if have a problem with your inventory cost.

Unfortunately, your accounting reports aren't designed for the purpose of inventory management or reporting, they're just missing too many details such as your true restaurant budget, changes in vendor prices, waste, and the identity of potentially missing items.

The problem starts with not knowing your TRUE RESTAURANT BUDGET! We describe it as having a map but not having an idea of where you want to go or if you're on the right path.

Consider this.... if you're reviewing your actual food cost percentage but you have nothing to compare it to, then your cost will have less meaning. And if you're operating like other restaurants, you'll very likely base your food cost budget on a generic number that you believe is acceptable. Or worst, you'll do nothing but simply accept the cost percentage that is given to you.

The problem with comparing your retaurant's true inventory cost to a random inventory budget is that your random budget could be off by anywhere from 1%-8% from your true budgeted cost.

Keep in mind that your budget is dynamic and changes based on the cost of the items that are sold. For example, if you sell more tacos that have a cost of 18% this will mean that your true budgeted cost should be closer to 18%. If you sell more hamburgers that have a cost of 29% then your true budget cost should be closer to 29%.

We estimate that the average restaurant will lose 3%-4% of their total food purchases without knowing it. A 30% food cost compared to a 33% food cost can be a $3,000 loss for every $100K in revenue.

So now that you understand the problem, how do you solve it!

You start by locating or creating a tool that's designed specifically for inventory management. This includes creating your own spreadsheet, downloading an existing spreadsheet from the internet, or investing in a pre-existing software that integrates with your other systems such as your POS and Vendors database.

Here are a few more helpful tips that can help you manage your restaurant's food and alcohol cost

  1. Don't rely solely on your accounting reports, you'll have to dig deeper

  2. Monitor the cost of your individual ingredients

  3. Take steps to reduce waste by monitoring what you purchase and comparing to what you sell

  4. Make your team aware if you find any problems

  5. Be prepared to remove or require an upcharge for food items whose cost might've spiked

  6. Be prepared to remove slow-moving items from your menu

  7. Try to make sure that each of your ingredients can be used in more than one recipe

  8. Re-cost your recipes but with greater accuracy

  9. Don't make assumptions

  10. Invest in inventory software that's designed specifically for restaurants The right software can help your managers achieve your restaurant inventory goals

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