Food costs have been rising on a weekly basis for darn near two decades now. Most restaurant operators are quick to attribute their high food cost to these price changes. On top of that, the echo chamber of the Internet keeps compounding the problem, feeding you bad information like the average food cost for a restaurant is 34 percent or TV shows touting a three times markup.
But these two ideas are myths. If you want to lower your food cost, let’s review why moving past these two food cost myths will help you focus on restaurant food cost saving ideas for independent owners.
Fallacy number one: the price I was paying for my products was the real problem. A lot of restaurant owners want to blame their high food cost on their distributors. That’s what I thought when I was the operations manager of a multi-unit brew pub.
Fallacy number two: you’re supposed to operate based on an industry average food cost target. The problem is what is average, and does it really apply to your restaurant?
Let’s start with fallacy number one: it really wasn’t my suppliers. It was how we handled our product in the restaurant.
One of the things I’ve learned coaching independent restaurants since 2003 is that most restaurants run seven to nine points above their ideal food cost.
What is ideal food cost? Ideal food cost is if everybody ran perfectly, portions went out perfectly, there was no waste, no theft, no spoilage, if you ran a perfect restaurant, based on what your customers order, you would hit your ideal food cost. But the average is just that – a number somewhere in the middle of all restaurants combined. If you’re a pizzeria, maybe you have a 24 percent ideal food cost. A steakhouse could have a 35 percent ideal food cost.
Just using those two numbers as an example, imagine most restaurants are running seven to nine points above that because they’re making mistakes in the kitchen. It’s not the 15 cents more a pound of cheese that your purveyor just hit you with because maybe it’s a commodity product.
So how do you deal with this? How do you stop making those mistakes? Here is a short list of items you can put in place to help you gain some savings on food cost.
- Key Item Tracker: tracks five to 15 items on a shift-by-shift basis to make sure they’re not stolen. This is high protein items, high movers, things that are important to you, things you don’t want stolen.
- Waste Tracker: tracks what you’re throwing away such as that half a case of tomatoes every Thursday because you’re over ordering on Monday. You’ll find problems like somebody is burning steaks. So once you root out these reasons for waste, you can fix those problems today.
- Restaurant Checkbook Guardian: give up ordering without giving up your checkbook. Allow your managers to place orders within a budget. And then they can’t go over budget without asking you for permission. Plus, if they need to go over budget, they need to come to you with what the problems are and what they plan to do to fix it.
- Portion controls: make sure every dish goes out the same every single time. Not only do portion controls help you control your costs, but they increase your sales because you give your guests the same experience every single time.
- Line checklists: make sure everything is in the right place, that you have the right portion controls so everything tastes right.
- Time-temp checklists: check the temperatures of your coolers on a regular basis so you’re not throwing away product because it’s going bad.
Now, the second reason restaurant owners’ food cost is so high, the biggest fallacy, is they are operating under the wrong assumption that food cost can or should be at 34 percent. To understand why that average is probably not your restaurant’s target food cost, you have to understand prime cost, budgets, ideal food cost and menu engineering.
Prime cost is total cost of goods sold, plus total labor costs, including taxes, benefits and insurance. I teach restaurant owners to shoot for a 55 percent prime cost – not the national average of 65 percent – and that you can run a higher food cost, lower labor costs, or a higher labor cost with a lower food cost. It doesn’t matter how you get to those 55 points.
Using a budget allows you to set your plan in progress for how you’re going to lower your food cost to where your food cost needs to be. For example, you can put the Key Item Tracker, Waste Tracker and the Restaurant Checkbook Guardian in place to reduce your food cost by three points right out of the gate. You do need to train everyone one month and then hold them accountable the next because it’s not a post-it-and-forget-it set of systems. But these three simple systems start working right away.
Recipe costing cards are the second most important system for a restaurant, next to the budget, but it may take you four months to do recipe cards so you can figure out what your ideal food cost is based on no waste, no theft and no spoilage. Once you have those, though, you can use menu engineering techniques and consider raising prices, changing products on some items, reducing portions, adding new items, removing items, etc. The important thing is you’ll be making these decisions based on real data – not your gut. Any of these things can be part of the work to lower your food cost.
With minimum wage coming up on a federal level soon and a pandemic you need to recover from, you need to run a profitable restaurant. Now that we’ve busted these two harmful myths, you can start your journey to lowering your food cost. You can create a plan and use this short list of systems to be on your way to a profitable restaurant.