Managing Food Cost for Restaurants: Common Areas of Wastage & How to Avoid Them
Maximise profitability by handling these key cost factors
Time and money are the two biggest investments involved in managing a restaurant, but the work doesn’t stop even after your business is up and running. There’s constant room for improvement, from recipes and menu design to customer service, operational flows, and prime costs.
Of these prime costs, food is a major component, and also one of the trickiest to manage. In this article, we share the common factors that affect food cost, and how best to avoid wastage in order to maximise profitability.
Understanding your audience and setting expectations
Before you delve into the best practices when managing food cost for restaurants, you first need to identify your unique selling points (USP) and the target audience of your business. For example, if your restaurant leans towards fine dining, much of the emphasis would be placed on the quality of produce used and the seasonality of ingredients. You can naturally anticipate higher costs and shorter shelf lives for such products. Consumers would also expect to pay more at such establishments, so dishes can be priced higher for bigger profits.
1. Engage in menu analysis to encourage sales
Menu analysis, also known as menu engineering, is focused on the pricing, popularity, and profitability of your menu items.
Capitalising on trends & upselling seasonal items
As briefly mentioned above, if your restaurant relies on the freshness and seasonality of produce (e.g. pumpkins in autumn and Japanese yellowtail in winter) you might find yourself having to switch up your menu offerings regularly.
If you’re using physical menus, it’s more cost-effective to ensure your menu design is lightweight (less photos, smaller sizes) and easy to change, in order to save on time and printing costs. Otherwise, you could consider making the switch to digital instead.
Businesses who want to capitalise on seasonality and trends can also work with their chefs to whip up one or two special dishes (the same way Starbucks offers seasonal drinks), and set higher price points for these items. You could also consider making seasonal items into add-ons that you can upsell, like offering white truffle shavings or toppings of fresh uni onto pasta dishes. This potentially increases your average order value.
The psychology of price
Creating a sense of value or lower prices by using price psychology can do wonders for managing food cost for restaurants. There’s a reason why so many items are priced with a .99 or .90 value. Customers might be conscious of what you’re doing when you charge $13.90 instead of $14 for a burger, but they still somehow register it as a measurably better deal.
Other times, you can offer an extremely profitable item for a steep discount or in a bundle to create perceived value.
The most profitable items are not always the best
It is good practice to regularly examine which menu items are doing well and which are not. While some dishes might be profitable, they might not be popular—discuss with your kitchen team if this is an issue of limited demand or of over-pricing.
2. Control food wastage to lower costs
Lowering wastage is crucial when managing food cost for restaurants. Wastage can occur in many instances, like when food is spilled, burnt, past its best-by date, or when it’s returned to the kitchen by diners.
Often, wastage can also occur when diners are repeatedly leaving their meals unfinished. This could be a case of portion control, and it’s down to the kitchen team to determine the ideal portion sizes for each dish.
While some wastage is unavoidable, most of these instances can be mitigated with proper staff training and inventory management. Avoiding food wastage requires a deep understanding of demand, and this includes actively tracking the average size of orders and peak periods.
3. Maintain good relationships with multiple food suppliers
A good relationship with your suppliers goes so much further than the transactions you make. By communicating with them frequently, setting your expectations, and building mutual trust and respect, they can help you reduce costs with preferential and consistent rates. This is especially important in an industry that’s prone to supply chain disruptions from fluctuating prices (due to inflation, natural disasters, animal disease outbreaks, etc.).
Furthermore, your suppliers are specialists in the F&B industry, which means they’re often a knowledgeable source on what goods to purchase and upcoming F&B trends. Make sure to have multiple suppliers so you’re not dependent on a singular source!
At the end of the day, spending less time worrying about your supply chain means you can turn your focus onto other aspects of your business.
4. Explore digital solutions when managing food cost for restaurants
There is a wide variety of restaurant management solutions that allow you to accurately track and estimate the demand for your restaurants.
For those offering delivery & takeaway services, having your own e-Shop could help with inventory management. Bakeries and pâtisseries, for example, could benefit from setting their own lead times or pre-order requirements that will give them information on expected demand. Raw ingredient ordering and production can then be done in bulk, minimising wastage.
Similarly, restaurants expecting a high volume of orders for festive occasions like Christmas and Chinese New Year can choose to operate e-Shops just for the season.
When it comes to anticipating dine-in demand, a reservation system—especially one that allows for deposits and pre-payments—is ideal for managing food costs, and is also useful for collecting data like average table size and order value.
Oddle’s omnichannel solutions include both a white-label e-Shop for delivery & takeaways, as well as a reservations platform that’s free of charge. Besides managing food cost in restaurants, our solutions allow you to collect, own, and analyse customer data to understand demand. Most importantly, you’ll be able to save on cover charges, commissions, and unnecessary fees charged by marketplace apps and third-party reservation systems.
View our comparison table on the best food delivery platforms in Singapore, or read more about how a reservations system can help you Solve Supply & Demand Problems.