TIPS: HOW TO CALCULATE FOOD COST

Control Your Food Cost
Track Your Food Cost and Inventory
Order Wisely
Control Portion Size
Decrease Waste
Balance Your Menu
Work with FOH
Avoid Menu Price Increases

Restaurant margins are notoriously slim, so figuring out how to control costs, more often than not, boils down to a do or die scenario. Food cost plays a major role in any restaurant’s success or failure—that French foie gras may be awesome, but not if it kills profit. As 2009 Seattle Rising Star Restaurateur Ethan Stowell says, “As a chef you have to wear the hat of a business man sometimes,” especially when it comes to food cost.

But first, what is food cost? It’s the percentage of total restaurant sales spent on food product. The formula for calculating food cost is simple: net food purchases divided by net food sales (net means after the change in inventory). The rule of thumb within the fine dining industry is to maintain a 30% food cost, or less.

When 2009 Boston Rising Star Chris Chung opens his restaurant AKA Bistro in Boston’s Lincoln Park, he anticipates his food cost to be at 33% the first month, but to reduce it to 30% afterward. Similarly, 2008 Las Vegas Rising Star Zach Allen, who heads up the kitchens of all three of Mario Batali and Joe Bastianich’s Las Vegas outposts, was able to lower his food cost at all three venues in the last year: Enoteca San Marco runs at 24%; B+B Ristorante at 28.5% (lower than its targeted 30%); Carnevino 30.5% (also lower than its target of 32%—a rarity for a steakhouse).

How do they do it? Controlling food costs is multifaceted to be sure, but simple at heart. Chung summarizes his method to control food cost into a four basic principles: order as necessary, maximize each ingredient, cook seasonally, and have more than one vendor. For Stowell, who operates four successful restaurants in Seattle (Union, Tavolàta, How to Cook a Wolf, and Anchovies & Olives), the starting point and key is keeping a finger on the pulse of food cost at all times.

Track Your Food Cost and Inventory

Stowell’s chefs are required to track food costs on a daily basis, so Stowell and each of his kitchen leads know where they are each day. “I know exactly what my food costs are daily; I look every day,” he explains. “If I find out in the third week [of the month] that food costs are 5% too high, I can look and say we had a soft month, that’s the reason, or we’ve been selling too much of this or not enough of that. I look at what menu items are not selling. If you have a consistent idea of where you’re at, it gives you an idea of where to look.” Stowell and his team adjust their ordering, dishes and menu to compensate for their food costs, or if they’re on target, they know they can order and run a more expensive dish. It’s a very organic and flexible methodology, but one that works for Stowell.

Robbie Lewis is the corporate chef for the software company Oracle in Northern California’s Silicon Valley. He oversees eight cafes on the corporate campus and has an annual food budget; they run a weekly inventory in each café and order daily. Zach Allen’s inventory assessment depends on the product: “we do a nightly inventory on our cut steaks and usage at our steakhouse [Carnevino]... we do a weekly inventory on our beef warehouse... [and] a monthly inventory on all items.” No matter the system, it pays to know what you have and the rate at which you burn through your inventory.

Order Wisely

Allen is certain that ordering is essential for his exceptional food cost. “The best way that we control food cost is by ordering correctly.” In other words, know what you need and how much—something that keeping inventory will tell you. Allen also order in bulk for certain items they use in large quantity—for three high volume Italian restaurants that translates to containers of extra virgin olive oil, San Marzano tomatoes, sea salt, and specialty pastas. But because so many of the products Allen gets are from Italy, the chef has to be careful of the exchange rate. “With the Euro being so strong, that hurts us a lot.”

Stowell also takes advantage of his buying power: “Having four restaurants, I buy more direct from the source than I used to, whether straight from the farm or fish auction, so there’s no middle man. Whereas, if you have one restaurant, it’s harder to buy anything from a fish auction. They’re like, ‘you’re not buying enough with only 20 pounds at a time,’ but with four restaurants you can buy 150 pounds at a time.”

Control Portion Size

Sometimes even small things can be the difference in meeting a target food cost. For Allen, portion control has been that detail—“that’s our biggest area of concern,” he says. “We have to be very diligent with our staff to make sure that they are portioning the proteins at the proper weight,” Allen goes on. Training staff to know that one ounce—not two—of duck prosciutto goes on the plate or that each portion of salmon fillet should be four ounces and not any more, can make the difference to meet a food cost target, order the right quantities, not raise menu prices, and potentially have a profitable restaurant—not to mention a consistent dish for your patrons.

Decrease Waste

Chris Chung is careful to train his employees on his rules about not wasting food. A factor that’s especially crucial for a restaurant that specializes in a high-cost—not to mention highly perishable—item like seafood. Chung makes a point to have his cooks understand the value of using every piece of a product and to be creative with the scraps.

Allen concurs: “We find many outlets for every part of the protein or vegetable that we use from—braised beet greens for raviolis to ciccoli from the pork that is left from making salumi.” To decrease waste from spoilage, he orders proteins and other short shelf life items daily and advises chefs to “not be afraid to 86 items” from the menu during service.

Balance Your Menu

Dealing with an annual budget for multiple themed venues, corporate chef Lewis looks to find a menu balance between all of the cafes. “The food costs are different for all eight cafes, which are themed, based on cuisine,” he explains. “We have rice-heavy cuisine, protein-heavy cuisine... the Chinese [café] is cheap because there’s lots of rice [used]; the taqueria is protein-heavy and more expensive; it all has to balance.” Lewis analyzes each menu and “delves into the subtleties of the cuisine to figure our major food costs” and how they can cut back. While some cafes will have a food cost of 40%, others will be significantly less at 23%, but averaging off at the golden 30% mark.

Stowell finds success in weighing his menu with both low and high cost items, and adjusting the menu to meet their food cost targets. “Make your menu work for you,” he counsels. “Some months we have to sell more pasta. In every restaurant I have, I have homemade gnocchi because it’s a low cost item people really enjoy. If food costs are really low, I can have a steak dish and not charge as much—those things balance out. I can run turbot as a fish: a portion costs you $10 to put it on the plate; I don’t feel comfortable charging $35 for it, so I run other lower cost food items to balance it out so I can charge $18 that item. I take a hit on it, but I do it because I enjoy it. But I have to be smart about my menu and balance.”

Slow months are when you have to be the most mindful of upward creeping food costs, but Stowell says they should still remain the same as even your busiest month with careful attention. “If you’re expecting January and February to be softer months, you don’t want as many high food cost items.”

Work with FOH

Additionally, Stowell advises chefs to be “more interactive with servers” to tell them what menu items needs to be pushed. When food costs are running higher than he likes, or when business is dropped off, he tells his wait staff what low cost menu items to sell to customers. “If you have lower food cost items on your menu, you have to motivate your staff to sell those at certain times,” he explains.

Avoid Menu Price Increases

For all four chefs, raising menu prices is a last resort or not an option at all. Robbie Lewis says flat out “we don’t raise prices” for the campus cafes; instead, they “reconstruct the dish to include less expensive ingredients.” Stowell institutes price caps for each of his restaurants. He explains, “My goal in Seattle is to keep prices as low as possible. I have rules with maximum prices at each restaurant so guests don’t feel uncomfortable going.” And he continues, “I don’t preach if you’re food cost is high, you’re not charging enough. I don’t believe in that. If your food cost is high and you say you’re not charging enough—that’s how restaurants get into trouble! By raising their prices when they can really make their food costs work for them, and make their menu function in a way that is good for the restaurant.”

In the end, Stowell reminds chefs that “food cost has to be a living and breathing thing.” Knowing where it’s at—if it’s running high or low—and working with your menu, your staff, and vendors to reduce waste, order wisely, and control portions are all essential elements that play a crucial role in food cost. “You have to pay attention,” Stowell says, “it’s better to find out your food costs on the 17th than the 22nd [of the month]. Then you can react to that and say, ‘okay, fine. It’s been slow this month, so I can’t run the turbot, but I can still put on the gnocchi dish because that’s a low cost item.“