Besides labor and rent, the cost of food is probably one of the biggest expenses for a foodservice business. Complicated by the perishability of raw ingredients, fluctuating sales and storage costs, managing food costs can be very challenging.
At FanFood, we’re all about leveraging technology to help you increase profit margins — which is essentially determined by sales and expenses. We have plenty of resources discussing how to increase your top-line revenue and reduce various costs. In this week’s blog, we want to discuss top tips on specifically food cost management, and how technology could help.
1. Closely monitor your inventory level
Monitoring inventory level entails tracking what ingredients come into your kitchen, what is being used up and what is left over. We recommend that at least once a week, you should conduct an inventory tally of your food, beverages and serving supplies to monitor your food cost.
With a regular inventory check, you can have a better idea what’s being used, lost or even stolen. Not only will you understand how fast items are being used, you’ll also start to see on what days or weeks your items are being used more. For example, if on certain days sales are moving slow and fresh ingredients are expiring, consider splitting up the bulk orders to reduce food waste.
When you use a digital ordering platform and enter the correct inventory numbers on the backend, the system can automatically help you calculate how much is used up and left over. This saves you time in manually counting quantities and allows you to export a report of leftover inventory at the end of the day.
2. Have better forecasting on your sales
If you can forecast future sales based on historical data, you’ll be able to reduce food costs over time by better predicting inventory levels needed. Granted, it will probably take a while for you to accumulate enough historical data for accurate prediction. You’ll also likely need a smart management system that can help you build data models to forecast future sales by location and period.
Another quicker and easier way to forecast sales is taking pre-orders. By incentivizing or even only allowing pre-orders, you can predict exactly how much inventory you need to prep to fulfill the orders. With a digital ordering system, you can easily toggle “Order Ahead” on and off, and set a cut-off time for those pre-orders. If applicable, pre-orders can really help you make smarter staffing and inventory decisions to minimize food costs.
3. Consistently track food prices
By closely tracking food prices, you can adjust your menus and recipes accordingly to react to supply costs. The USDA routinely releases macro price trend data to help you make future decisions.
For example, in 2016 the USDA expected beef and veal prices to decrease by 2-3%, the poultry prices to rise by up to 1%, the egg prices to decrease by 9-10% and fresh fruit prices to increase by 2-3%. If your menu relies heavily on some of these ingredients, you can react accordingly by scaling up or down items requiring those ingredients. For example, you can consider offering more egg options given the expected drop in egg prices, and reap a higher margin that way.
4. Monitor and manage food waste
There are a few types of food waste and it’s important that you keep a record of all the waste your business generates. For example, food can be wasted because:
- It was returned because of incorrect preparation.
- Spillage that happened in the kitchen or dining area.
- Excessive portion sizes that get thrown away.
- Food that was burned or discarded during preparation.
- Extra ingredients purchased that weren’t necessary.
By recording different reasons for food waste, you can improve efficiently and operations, as well as reduce your food waste percentage.
5. Join a purchasing group
Definitely consider if there are other ways of ordering inventory that will reduce your supply costs. For example, by joining a purchasing group, you’ll get to enjoy lower costs due to the higher order volume and purchasing power represented by the purchasing group.
This is especially great for independent restaurants and food stands to compete with larger chain operations who already exert massive purchasing and negotiation power by the sheer volume of their demand.
6. Promote high margin items on your menu
By promoting high margin items on your menu, you can reach the same sales numbers without incurring as high of a food cost. Try making your high profitability items also the most popular items with a combination of menu engineering and marketing techniques.
If you use a mobile or online ordering platform, you can easily edit or customize your menus without having to re-print all your physical menus. This way you can easily create combo items to bundle high profit margin items with high popularity items, or come up with creative names and tempting imagery to promote high profitability items.
7. Optimize your recipes
To lower the cost of your ingredients, you want to first lower the overall cost of each food item on your menu. Start by breaking down the cost details of each menu item to individual ingredients and portion size, detailed to the penny. This way you can easily see which items cost you more, as well as what ingredients in what item cost you the most.
Once you have a better idea of the cost of individual ingredient in individual menu item, you can start optimizing by adjusting the ingredient compositions and portions in each item to maximize the profit margins.
8. Minimize the gap between actual and theoretical food costs
Theoretical food cost refers to what your food costs should be in theory, taking into consideration the current cost of all ingredients over a period of time. Actual food cost is the actual amount that you spend on the ingredients over the same period of time.
More often than not, you’ll find discrepancies between the two types of costs, mostly due to improper invoicing, kitchen waste, employee theft, imperfect portion sizes and more.
Tracking your actual and theoretical food cost gives you important information about your operations, and helps you reduce unnecessary cost leaks in the whole kitchen operation process. Ideally you want to keep the gap as little as possible, and as consistent as possible.
In conclusion, while chasing after higher sales numbers and per cap is important, what truly matters at the end of the day is the profitability of your business. Cost control is a crucial part of your operation, and should be given as much attention as driving sales. On top of following the 8 tactics recommended above, we definitely recommend that you make use of existing technologies out there to help you better predict and manage food costs, so that you can achieve higher accuracy and efficiency.