Connections for Success



Don’t Let Food Costs Eat Your Bottom Line

A key to success for any restaurant is to verify that its food costs are in order. Since the cost of food can easily comprise a third or more of your total costs, it directly impacts the profitability of your establishment. Profitable restaurants typically maintain a food cost within the range of 28%-40% of total costs. The wide range is simply because different concepts will carry healthy food costs at different levels. For example, food cost percentages for an Italian restaurant would likely differ quite a bit from the food costs at a steakhouse. Additionally, different food items will, of course, have different costs as a percentage of sales.; soft drink costs will differ from liquor costs, which will both vary as a percentage of sales from food costs. To help you improve operations and your bottom line, food and beverage cost percentages should be regularly reviewed and management should have a solid understanding of what the numbers are telling them. Of course, good analysis begins with timely and accurate accounting records. It is also important to calculate and analyze food costs on a regular basis; many successful restaurants will monitor costs weekly or even daily.

It is widely known that menu prices will impact food cost percentages, but it is important to keep in mind that they are additionally impacted by the accuracy of inventory counts, amount of food waste, theft and other factors. If the market will not allow for a menu price increase or even if it will, consider other areas to improve in this area first. To put simple numbers to this, consider a restaurant that does $2,000,000 in gross restaurant sales and decreases its food costs by a single percentage point. This results in a bottom line savings of $20,000.

Once you accurately calculate food costs you will need to compare to prior periods, industry averages and most importantly to your restaurant’s specific situation. This will help determine if your costs are in line with those necessary to be profitable. Calculating and analyzing food costs regularly will help you identify both problems and success while allowing you to increase your bottom line.

For questions on food costing, contact Jason Miller at [email protected] or call him at 312.670.7444. You can also visit ORBA’s Restaurant Group page for more information.

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