Ideal or actual cost of food in the restaurant business

Most culinary schools today are still teaching their students how to calculate the cost of the wrong foods. Granted, the math is correct, but the dollars involved are hurting the bottom line for our restaurants. The problem arises from the separation of percentage points and dollars.

Banks use dollars, not percentage points

One thing I’m pretty sure about is that banks don’t accept percentage points as deposits, believe me I’ve tried! For some reason, the cashier looked at me dumbfounded and then started laughing. In fact, he was so amused that he showed the cashier next to him, who responded in kind. I didn’t find the humor in it as I had bills to pay, products to buy and employees who wanted their cash too. To rectify the situation, I shrugged off the pressure and ran a revised deposit slip using the required dollar standard.

So if you can’t deposit percentage points, why do most restaurants use this as their primary goal? Shouldn’t establishments focus on dollars instead? You are absolutely right they should.

Higher food cost does not mean theft or waste

It is the end of your period and the accountant has just brought in the P&L. A quick scan shows that your food cost is 35%. What! The first thought that crosses the mind of most operators and managers is that we have a robbery or product waste problem. Well, that may be true, but before you run to the staff and start ranting and raging, you need to find out if that’s the truth. You may very well have to swallow those words after reading this article. In fact, they may need to be praised instead.

What is then the ideal cost of food?

Well, let’s take a look at what the real value of the cost of food is and how it is divided. To calculate the true cost of food, take the cost of the product you need to produce the food and divide it by the revenue from sales of that food. You can calculate the cost of food for an individual dish or for a specific period of time. For example, if the product costs you $3.50 and you sell the item for $12.00, the cost of the meal is $3.50/$12.00 = 0.2916 or 29.16%.

29% food cost, that’s great

Yes, 29% of the cost of the meal is not bad, but is it the best thing for the restaurant? Let’s take a look at a sample full-service restaurant. Looking at some of their menu selections, we have a chicken plate that is on the menu for $15.00, steak for $19.00, and a steak and lobster plate for $28.00. When we look at the cost side, the chicken is $4.00, the steak is $7.00, and the steak and lobster is $12.00. We do our food costs on these to get the chicken plate at 27%, the steak at 37%, and the steak and lobster at 43% food cost.

It’s pretty clear, if you want to run under that magic number of 30% of food cost, go chicken! But, like I said when we started, the bank doesn’t like percentages on deposit slips, so convert them to dollars. Well, since they sold a chicken dish for $15.00 and it cost them $4.00, it’s easy, $15.00 – $4.00 = $11.00. Are they happy now? They have their food cost of 27% and deposited $11.00. All great until someone tells them of their mistake. Sure they ran a good cost of food, but they could have deposited more money. How? Selling any of the other dishes. The steak, which cost them $7.00 to produce and sold for $19.00, would have brought them $12.00 and the steak and lobster would have brought them a whopping $16.00.

If I had to go to the bank to make the deposit, I would rather deposit $16.00 for the steak and lobster than dump the $11.00 for the chicken and take 43% of the associated food cost with a smile. So, the next time actual food cost figures come up, run the ideal food cost figures for comparison before you lose control with your staff. The difference between your actual and actual food costs is where associated issues can be found regarding product theft or waste issues.

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