Food cost is a percentage of sales that determines how much money we make (or lose) on what we sell as operators.
To be a little more precise, actual food cost is an equation. Add your beginning inventory and purchases together, then subtract them from your ending inventory. Once you have this, your actual food cost, which is also known as 'usage', divide it from your total food sales. The resulting number is your food cost percentage.
((Beginning Inventory + Purchases - Ending Inventory) / Food Sales) = Food Cost
Your food cost is an integral ratio and key to the success of any restaurant or bar because of its direct impact on profitability. A profitable restaurant typically operates between 28-35% food cost. Add your labor costs on top, and suddenly these expenses are consuming up to 75% of total sales.
The impact that food cost makes on an operation is why it’s one of the first things you should examine if your venue is losing profits. Food cost can run amuck very simply: if you stop tracking inventory, your food cost will rise.
Savvy operators calculate their weekly food inventory on the same day, so that if there is a problem, they can attack it right away.
You would be amazed at the amount of chefs who tell me, “I’ve got a great food cost!” But in reality, most chefs don’t- know their actual numbers.
If you want to know your actual numbers, you need to know these three things:
- How much inventory you have on hand
- How much you purchased
- How much you sold
With food costs rising and customers spending less, restaurant and bar operators must check their menus to ensure they are profitable. Thousands of independent restaurants fail each year, and most of them because they did not manage food costs wisely.
I can't say it enough: you need to know your food cost. What a plate is being sold for on a menu verses what it costs to prepare it can save a business.
Once you're trained on food cost calculations, make it a habit to regularly ask your chefs and sous chefs for their inventory. Once you start doing this, you'll be able to run a great food cost.
Chef Brian Duffy is an Executive Council member, and is speaking at Bar & Restaurant Expo (formerly Nightclub & Bar Show) March 21-23, 2022. Early bird registration is now open! Click here to get your tickets and take advantage of the best possible rates.
This story was originally published in 2013. It was edited and re-published in December, 2021.