Food Cost - How to calculate and control

Food cost is one of the most important numbers that any food service organisation will ever have to deal with, and if it is not correctly managed then it cannot be stressed enough that the business will fail.

The food cost though is surprisingly something of a taboo subject even for senior kitchen team, but as it is one of the most important benchmarks that a business operates around, it is something that must be understood by all back-of-house staff.

For the record, the magic equation is:

Food Purchases / Food Sales OR Cost of Food Sales / Food Sales

Obviously this is calculated after change in relative inventories.  This is where most food cost budgets fail, as they do not determine the fact that stock on hand falls and rises with sales and orders.

To factor inventory:

Cost of Food Sales = Purchases + or – Inventory Adjustment

All too complicated?  Here is an example:

Total purchases - $1000
Beginning Inventory - $1500
Ending Inventory - $1250
= $1000 + $250 (amount of food from inventory) = FOOD PURCHASES
$1250 / Food Sales = Food Cost

Another simple method is:

Take the cost of food / The revenue earned * 100

A final but not often used calculation is to work out a costing based on a desired cost:

Cost of product / .30 (desired food cost 30%) = Sale price of item

So much though can alter this, and it is important that you ensure that everything is calculated into your actual food purchases as the cost of the actual meal made may not factor in other intangibles.

For example a steak dish should not be just calculated in regards to how much the meat itself costs, but should include the secondary items/wraps on the plate (vegetables, salads, etc).

Everything on the plate must be factored.

Do not forget as well that tea and coffee and even juice should be calculated as food.

What constitutes a good food cost can vary from the style of the venue through to the volume of the establishment – noting that high customer covers in a restaurant is vastly different to the numbers that take place in a catering or events environment.

Some restaurants aim for 25%, which is quite aggressive.  Other venues will allow numbers as high as 35%, while large scale functions should come in even lower, considering that the food will likely be bulk prepared and not made to order.

Food cost is maintained by the kitchen, even though the owners or managers of a particular venue may set the budget.  The amount of money that can be spent on a purchase should be dictated by that set budget, but in this it must be altered if a figure is not met or exceeded.

As I consistently preach in hospitality improvement, communication here is crucial.

If systems can be set up to assist, such as a specific purchase order system, this in theory makes the job easier.  But make sure that for all the bells and whistles used to measure and track food cost, that the basic fundamentals – revenue (be it daily/weekly, etc), total purchases on food, forecasting covers, and adjusting based on trading numbers – are always open not only between the “powers that be” but with anyone who has responsibility for food ordering.

Specific kitchen controls, such as wastage and portion control need to be monitored by the back-of-house staff.

Portion control is crucial, and one of the best ways to do this outside of setting specific portions is to spot check preparation staff and make sure that laziness and lack of care doesn’t result in 50 steaks being cut a few grams heavier than allowed.

Large international chains such as McDonalds live and die by such practices, and it is no coincidence that the strictest portion controls operate in these types of venues.

Another important factor in maintaining food costs is stock control, so never underestimate the importance of stocktaking and keeping strict records on inventory.