Updated: Jun 7
Ahhh, the restaurant industry. One of the most alluring industries in the world for anyone dreaming of financial freedom and the opportunity to get a little taste of what it's like to be a man (or woman). You did it and you're still doing it, so congratulations, we couldn't be more excited for you!!
In this blog, we'll share with you the biggest food cost mistake that could be costing your restaurant tens of thousands of dollars per year in lost inventory. Then we'll share our top 5 list of things that you shouldn't do if you want to control your food cost.
The biggest problem potentially affecting your restaurant's food cost.
Have you ever taken a road trip to somewhere you've never been and made the drive without directions? Or have you ever driven somewhere, not aware of where you were going, but you ended up exactly where you wanted to be. Although these statements sound like a metaphor for life, the reality is that you've probably never done either of these and why would you!
Driving to your destination without knowing if you're going in the right direction isn't very smart but this is exactly what a lot of restaurants are doing when it comes to managing their food cost!
Based on our experience, we've found that most restaurants will calculate their food cost in one of two ways. They'll either calculate their cost using an actual inventory count or they'll simply use their purchases. While both of these will work to calculate your cost, the problem is what they're actually comparing their cost against.
If you're like most restauranteurs, you established your food cost budget in one of two ways. You either used a random number based on the industry standard or you took the average cost of all your menu items and designated that average as your target budget.
Obviously using a random number for your budget is not the best practice and it shouldn't require an explanation as to why. But the problem with using an average menu cost for your budget is that your cost will actually fluctuate based on what is sold, and the fluctuation can be significant.
We have found that for a number of restaurants, their true food cost budget can be 4%-6% lower than the average menu budget that they might use to compare against their actual cost. For a restaurant generating $100K in monthly revenue, that's a variance as high as $6K per month or $72K per year.
For example: let's say that Tim's restaurant has an average menu cost of 32% and Tim decides to use that as his target budget. Now let's say that he calculates his food cost to be at 33.1% for the period. This would mean that Tim is just 1.1% over his target budget and he might be comfortable with that. Now let's say that Tim looks at his CooksTime Restaurant Inventory App and it reads that his true weighted average budget should be 28%. This would mean that Tim isn't over budget by 1.1%, he's actually over budget by 5.1%. And this is the biggest time your restaurant could be making when it comes to managing your food cost. It's essential that you calculate your budget based on a weighted average and compare it against your actual sales.
Here are 5 mistakes to avoid when managing your restaurant food cost
1. Don't receive your deliveries without confirming them.
First, this might seem like a no-brainer to some but you'll be shocked by how many restaurants will lose thousands of dollars in inventory this year because they don't double-check their deliveries. Typically the driver will have a restaurant employee sign for the items they deliver. At this point, the employee should go line by line on the invoice and confirm that each item has arrived and is in the correct quantity.
2. Don't wing it with your recipes.
Let your staff know that you understand how a kitchen should be managed and that you care! People who aren't in the restaurant industry are often shocked to discover how many restaurants will operate without a recipe or how inconsistent the kitchen team can be when it comes to putting together a dish.
This inconsistency can range from the number of detailed ingredients to use, what ingredients to use, how long to cook the dish, and how many ounces to serve. Yes, it's true that some recipes are easier to create compared to other recipes but regardless, you should have recipe details for every item on your menu and your kitchen staff should have it as well and be vigorously trained on it before they step on the line.
For any restaurant, the process of proper training can have a major impact on how your employees will perceive your restaurant which will ultimately result in how they treat your restaurant. In other words, the less they think you know, the less they think you care, and the less they will care!
3. Don't re-order new inventory without doing these three things first.
In our study, we've found that the ordering process for most kitchen managers includes grabbing their clipboard and a blank inventory sheet, walking past each shelf, and noting what needs to be replenished.
Although the amount that you're ordering could be the correct amount to simply replenish your inventory, keep in mind that without going through all the proper checks, you could be ordering inventory simply to replenish inventory that was lost.
Here are the three steps you should take prior to ordering your inventory if you want to truly control your food cost.
1. Count the amount of inventory on your shelves.
This doesn't have to be an extremely detailed count but you should always walk your kitchen, shelves, and cooler prior to ordering.
2. Operate off a par.
Having the correct par can keep you from losing money by ordering too much or too little. Too much inventory means that your food could go bad and ordering too little means that you could run out of inventory to sell.
3. Review what was sold dating back to the last order you received up to your new order date.
This step is essential because it helps identify problems very quickly. For example - if you notice that you need an additional 200lbs of brisket based on what is on the shelf, however, your sales report shows that you only sold 120lbs. The difference between the amount you think you need and what was actually sold is the amount of inventory that was very likely lost.
4. Don't try to avoid counting your inventory.
Counting inventory can be a time-consuming pain but we advise you to do a full detailed inventory count at least once per month. Although there are other ways to identify problems that can be very accurate, counting inventory is the only way to know if you're missing something, 100% for sure.
5. Don't make bad assumptions, protect your inventory.
Your restaurant's inventory can be lost in numerous ways regardless if you spent $30K to start your restaurant or $3M to start your restaurant. If you assume that your restaurant can't lose money because "you have the best staff" and/or "you're not that type of establishment" then the odds are that you'll operate carelessly and your bad assumptions will become too costly to bear at some point.
Here's a short list of ways that your restaurant could lose money in the kitchen:
· Ordering too much food that goes bad
· Delivery errors - not received or receiving incorrect quantities
· Employees eating and failing to account for it
· Unauthorized free meals to friends and family of employees
· Poor training of kitchen staff that results in using incorrect ingredient sizes
· Poor training of kitchen staff resulting in inconsistent serving sizes
· Poor training of kitchen staff resulted in customer complaints and food being returned
· Prep'ing too much in batch sizes that goes bad
· Failure to properly calculate your recipe cost
· Employee theft via the back door or trash cans
· Accidents such as broken jars
· Lack of kitchen organization
Managing your inventory doesn't have to be difficult and it should be taken seriously. For restaurants of all sizes, there are affordable options that will connect with your POS, sync with your vendors, have data readily available via their mobile app, and provide the insight that you need to stay healthy. Programs like CooksTime can help identify problems, track your inventory, provide a budget, help with setting pars, provide suggestions when ordering, count inventory, and more. In addition, they'll do 90% of the setup work with potential savings ranging from $400 - $600 per week, and their cost starts at just $79 per month.