How to Control Food Costs in a Restaurant

Food costs are the most essential consideration for restaurants, as they determine how much profit can be made. How is food cost calculated? Food cost is the sum of the purchase price, waste, and labor. Managing these three components is key to success. It is crucial to have a system that streamlines your food and beverage procurement processes to keep food costs under control within your restaurant.

One effective solution for managing food costs is using software tools that help you monitor food and beverage costs in real-time, monitor purchasing trends, and identify opportunities for food cost savings. These tools allow you to stay on top of food pricing fluctuations, identify areas where waste can be reduced, and optimize your ordering processes to maximize efficiency.

By using software solutions tailored specifically to food and beverage procurement processes, you can keep on top of your supplier relationships and ensure you are leveraging your buying power appropriately. Here are five ways a software platform can effectively manage your food costs:

CONTRACT LIFECYCLE MANAGEMENT

Andy Wishart, CPO of Agiloft, a business software provider, says that contract lifecycle management will be one of the critical trends for 2022. This becomes especially critical within the food industry with the ever-changing price of commodities.

What does this look like within a restaurant? Having visibility into current supplier contracts allows you to maintain existing competitive agreements and take steps to maintain a buffer against rising costs proactively. Having a platform to store all your supplier agreements is the best way to manage this. With so many ingredients to manage, it’s vital to be proactive as you approach the end of a contract, so you can partner with your suppliers to renew pricing.

AGILE SUPPLIER MANAGEMENT

Managing your suppliers, regardless of their size, will be the key to keeping your business flexible, according to Supply and Demand Executive, a leading supply chain online resource.

Identifying new opportunities and reacting to market changes quickly is essential for food businesses. A software solution that offers supplier management capabilities will allow you to track supplier performance, manage supplier information, and create a database of approved suppliers. This will allow you to quickly identify new potential suppliers and assess their suitability for your business.

MANAGING TALENT SHORTAGES

With available labor at a premium, it is more important than ever to allow your team to focus on your customers and use available tools to help support your food and beverage procurement.

A great platform will support the weekly purchasing cycle from quoting, to tracking purchase orders, to invoice reconciliation. These tasks can be manual, time-consuming, and prone to error. Moving these tasks into being managed by software will reduce errors and free up your staff to manage your business. Let your team focus on your customer’s experience and let the software handle the complex procurement work.

The other benefits of using a system to manage procurement are retention and turnover. Typically, in manual purchasing processes, the management of buying lives in someone’s head, and having the processes in a software platform minimizes business interruption when people leave your business.

Having a great system to manage to buy is an excellent part of your retention toolkit by simplifying and streamlining a frustrating process for your team.

EFFECTIVE PAR LEVEL MANAGEMENT

Maintaining appropriate par levels is a critical food and beverage cost control measure. Par levels are the minimum and maximum amounts of an item that should be on hand at any given time. Managing par levels is all about maintaining a balance between having too much and too little inventory on-hand. Having too much food on hand can lead to waste, while having too little food can lead to lost sales and unhappy customers.

A robust system will alert you at precisely the right time to reorder. This can be triggered by setting a minimum amount of inventory on hand, which the system will reorder if it drops below.

What is Par Level in a Restaurant?

Par level in a restaurant refers to the optimal quantity of inventory items, such as ingredients or supplies, that should be maintained on hand at any given time to meet customer demand without excessive waste or stockouts. Establishing par levels involves considering factors such as consumption rates, lead times for replenishment, storage capacity, and seasonal demand fluctuations. Maintaining appropriate par levels ensures smooth operations by preventing shortages that can result in lost sales or customer dissatisfaction, as well as minimizing excess inventory that may lead to waste or tie up capital. Regularly monitoring and adjusting par levels based on changing circumstances and consumption patterns is essential for effective inventory management and cost control in a restaurant.

Restaurant Purchasing

Restaurant purchasing encompasses the process of acquiring goods and services essential for food and beverage operations. This includes sourcing ingredients, supplies, equipment, and services necessary for food preparation, service, and facility maintenance. Effective restaurant purchasing involves various activities, such as identifying reliable suppliers, negotiating favorable terms and pricing, placing orders, receiving and inspecting deliveries, and managing inventory levels. Streamlining purchasing processes, leveraging technology solutions, and fostering strong supplier relationships are key strategies for optimizing efficiency, controlling costs, and ensuring consistent quality in restaurant operations.

USING DATA

Data about procurement trends within your business is a great way to manage food costs.

A software platform will allow you to collect and analyze food procurement data through automated purchase order reports, supplier performance management reports, and more. This data can identify areas that need improvement and allow you to shift your focus as needed.

Data about your procurement, alongside data from your Point of Sale (POS), lets you quickly isolate potential sources of waste by comparing what you buy to what you sell to see if any patterns or differences emerge.

One of the most significant components of food cost management is having a great handle on your product costs. In a competitive environment, shifting menu prices to your customers can be challenging to execute. From consumer resistance to physically changing your menus, it can be complex to do. With this in mind, managing your costs is the simplest way to impact your food costs.

Historical pricing for the items you purchase is critical in managing your food costs. Watching your prices weekly allows you to get ahead of volatile commodity pricing and variances in your supplier pricing strategies.

Sourcing Food for a Restaurant Company

Sourcing food for a restaurant company involves selecting and acquiring high-quality ingredients and products from reliable suppliers to meet the culinary needs and standards of the establishment. This process encompasses identifying reputable suppliers that offer fresh, sustainable, and cost-effective options aligned with the restaurant's menu concept and customer preferences. Conducting thorough supplier assessments, including evaluating product quality, pricing, delivery reliability, and ethical practices, is essential for making informed sourcing decisions. Collaborating closely with suppliers, staying informed about market trends, and exploring diverse sourcing channels can help restaurant companies secure a diverse range of quality ingredients while optimizing procurement costs and supporting sustainable practices.

The last way to use data to manage profitability is to look for opportunities to drive profitable items on your menu. Increasing the sales of more profitable items on your menu and reducing the volume on the less profitable ones will considerably impact overall profitability.

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CONCLUSION

Managing your food costs within your restaurant is critical to your success. It has become essential to continue offering value to your customers in today’s ultra-competitive market while maintaining a profitable business.

By using food procurement software solutions, you can maintain control of food costs within your restaurant and optimize your operations to maximize performance and profitability. Studies have shown a potential savings of up to 20% with adopting a procurement solution. With a focus on efficiency, visibility, and talent management, you can ensure that food costs are always under control and that your business is prepared for any changes in the food industry landscape.

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