To run a successful restaurant, you need to determine the food cost accurately, if you are not careful it can cripple your business! It is essential to calculate the food cost before you open up a restaurant as this would help you set the right menu prices, and help you increase your profits.
Trading Economics released a report stating that the cost of food in the United Arab Emirates increased 2.60 percent in July of 2018. If the prices keep going up, this would further add to the troubles of the already saturated restaurant industry of UAE.
The average food cost for a profitable restaurant in the UAE should be around 30%. However, it may differ according to the restaurant format and type. Since food costs impact your revenue, you should calculate it with precision and take steps to keep it under check.
Calculating restaurant food cost is essential for every restaurant owner, as it helps you understand your finances and assist you in managing it better.
How To Calculate The Food Cost For Your Restaurant In UAE
The following points would help you determine the correct food cost and why is it important to know it.
Firstly, you need to know the different types of food costs that you need to take into consideration when calculating the actual food cost.
- Direct cost: This is the actual cost of the food which is broken down to ingredients, usage, and waste
- Indirect cost: This is the cost of procuring the raw materials, labor cost and all the other behind-the-scenes cost. Recipe cost: This is the cost of how much raw material is being used for preparing a particular dish
- Volatile value: This is the cost that keeps fluctuating due to economic condition, natural calamities, etc.
- Menu sale price: This is the final price that the customer pays for the dish
All of these components are taken into consideration when deciding the correct food cost. Even the slightest error and this could affect the profits dramatically. You need to add up all the expenses like VAT, space rent, etc. when determining the selling cost of a food item. You also need to make sure the food cost that you decide is competitive; therefore, you should be up-to-date with the prices.
Food Cost Percentage Formula
The food cost formula helps in determining the correct food cost by showing the percentage of the expense of preparing a dish.
Food cost = Total cost of ingredients / Sale price
How To Control Your Restaurant Food Costs
Once you have calculated the food cost percentage, you also need to ensure that it is optimized and you get more out of it. Here are some tips that you can abide by to optimize the food cost percentage.
1. Consider Various Vendors
The first and the most important step for optimizing the food cost percentage is considering more than one vendor. Consider comparing the prices that different vendors have to offer for the same raw materials. This would also help you in negotiating and procuring the best deal.
Although it is usually advised to get all the raw materials from one vendor itself since they might give you a discount based on the bulk orders you make or the trust you have built over years of professional relationships but, what if on a given month the vendor decides to increase the cost due to a poor crop production? The extra cost would be passed to you. Therefore, it is essential to buy raw materials from different vendors or have other vendors in your mind if one of them decides to hike up their prices. This would ensure that the food cost percentage you have calculated is not impacted by the weather patterns, seasonal ups, and downs, etc.
2. Portion The Food Properly
It is crucial to portion your food correctly. This ensures that you are not over or under filling the plates. You can check if the food portion is correct or not by checking the plates when they come back to the kitchen and see if there are leftovers now and then. This is a clear indicator that you are overfilling the plates. On the other hand, Serving small portions would lead to a bad reputation, and ultimately you would be known as a place that serves small portions at high costs, and this could lead to bad reviews.
Recipe management and stock management also helps you keep track of the raw materials consumed. If you are serving more portion of food than the specified recipe, your stock management software will give you the report that overconsumption is happening at your restaurant. Calculating restaurant food cost gives you a clear idea of what the ideal pricing of the food must be to meet profits.
It is important to practice proper portion control since it leads to wastage of food and also inconsistency in service.
You can work with the cook and manage the portion sizes. Planning out and executing the same should go hand in hand. You can measure the raw material that is being used by using measuring cups and set standard measurements to ensure consistency.
3. Monitor The Inventory
To increase the profit percentage, you have to monitor the inventory closely. It is critical to keep a check of the inventory to prevent any losses. You can use a POS system to track of the total and individual stock items consumed during the day. This would help you control the inventory in real-time by using the stock-in and stock-out details. You can also use it to keep track of the ideal stock that should have been consumed in a day and check if there is a considerable variation.
Often, food costs tend to rise because of the wastage of raw materials on the shelf itself. Smart inventory management software allows you to keep track of the shelf life of the items.
Having a POS system would eliminate any human errors and would also prevent theft of the raw material.
4. Menu Analysis
Another way of cutting down the food cost is by analyzing the menu now and then. You need to eliminate the dishes that are not performing well for you. Considering the dynamic consumer trends in the UAE, it is important to analyze and innovate your menu constantly. While examining the menu, the items that are doing good and are more profitable, experiment with those profitable items and come up with more such items.
Check through the food costing reports, to do that you can use an advanced POS system that can show you the detailed insights on which items are selling the most and the least.
Menu analysis helps in saving resources as you won’t be investing in the raw materials required for cooking the least favorite dish. Instead, you can remove that dish and invest more in the recipe that is the top seller at your restaurant.
Every business owner wants to make profits as this keeps the business up and running. The restaurant business is no different; every restauranteur wants to earn more than what they have invested. Calculating the food cost also known as the cost-saving formula for restaurants, and then taking steps to control it helps you achieve that. You need to stay on top of the numbers so you can manage the food costs.