Dale Shelabarger
Many restaurant operators assume they’ve got a complete handle on their food costs. After all, they can see what they’re spending on ingredients and what’s being generated in sales. They also have in place a rigid schedule of stock checks and regularly review supplier invoices.
The problem is that food costs are influenced by much more than purchasing decisions alone. Behind the scenes, small operational inefficiencies drive costs up. Here are five common reasons why your food costs may be higher than you think.
Key Takeaways
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Food costs tend to be inflated by operational issues rather than supplier pricing alone
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Small inefficiencies compound into substantial losses over time
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Better inventory management and reporting can uncover hidden costs.
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Technology can help identify and reduce food cost leakage
1. Inventory Discrepancies are Distorting Your Food Costs
It’s a common misconception among operators that holding regular stock counts will provide them with an accurate picture of inventory levels. The truth is that inventory records are only as reliable as the processes behind them.
Unfortunately, it’s an operational area that’s prone to errors, typically missed stock transfers, unrecorded waste and even basic data entry mistakes. All of these can create discrepancies between what your system says you have in stock and what’s actually on your shelves.
If stock levels are overstated, your food costs will likely appear lower than they are. Conversely, should they be understated, they’ll show a sudden spike without any obvious explanation.
What to Look Out For
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Significant deviations in food cost percentages from one period to the next
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Frequent stock shortages despite regular ordering
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Substantial differences between actual and theoretical food costs
What to Do About It
Consistency is the best defence against inventory discrepancies. Standardised counting procedures, regular stock checks and accurate waste recording are the best remedies. Tech assistance is particularly helpful too with real-time inventory monitoring supported by reminders and alerts make it easier to identify issues and maintain accurate records.
2. Food Waste is Higher Than You Realise
Food waste tends to be viewed as an inevitable part of running a restaurant. And while it’s true that some level of waste is unavoidable, some operators underestimate just how much it drives food costs up.
Spoiled ingredients, overproduction and plate waste all represent costs that cannot be recovered through a sale. This causes food cost percentages to increase which puts pressure on a restaurant’s profit margin.
The problem is that waste tends to accumulate gradually. Sporadically discarded ingredients here and there may not seem all that significant. But ultimately, the costs can add up surprisingly quickly over the weeks and months.
What to Look Out For
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Frequent disposal of spoiled or expired ingredients
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Overproduction during quieter trading periods
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Consistently high levels of plate waste
What to Do About It
Ensuring visibility is the first step. Set up tracking for recording wasted stock and the reason for disposal. Periodic waste audits will help identify patterns and root causes.
Accurate demand forecasting also plays an important role in preventing over-ordering and overproduction. In the kitchen, centralised recipe and portion control help to ensure that ingredients are used efficiently.
3. Portion Sizes Have Slowly Increased
Even restaurants that implement detailed recipe and portion guidelines can experience gradual increases in serving sizes over time. This is usually the kind of thing that happens without anyone noticing.
Staff may add a little more to improve presentation, to please customers or simply because portion measurement can be difficult during busy periods. Again, these differences may seem insignificant in isolation. But across hundreds of orders, they’ll have a significant impact on food costs.
Identifying the issue can be difficult though. Instead of presenting as a single, obvious problem, over-portioning will gradually increase your ingredient usage.
What to Look Out For
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Actual food costs consistently exceed theoretical food costs
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Significant differences in portion sizes between shifts or employees
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Frequent stock shortages without a clear explanation
What to Do About It
Consistency is of course the most effective solution to controlling portion size. Standardised, centralised recipes should clearly and precisely define ingredient quantities, preparation methods and serving sizes. This should be supported by effective staff training and processes that help enforce consistency.
Regular recipe audits and spot checks can also help to identify inconsistencies before they start to have an impact on profitability. Scales, scoops and measuring equipment can help further, especially for high-volume menu items.
4. Supplier Price Changes are Going Unnoticed
With the current industry climate as it is, the volatility of supplier prices is a constant concern. Yet for a lot of operators, small price increases often go unnoticed, particularly when they affect multiple ingredients across different suppliers.
Unfortunately, keeping on top of the problem is complicated by the fact that ingredient costs do not affect every menu item equally. A small increase in the price of meat, dairy, or cooking oil can significantly reduce the profitability of dishes that rely heavily on those ingredients.
At the same time, other menu items may be affected very little, creating a situation where some dishes continue to deliver healthy margins while others quietly become far less profitable. Unless recipes are costed regularly, those changes can therefore be difficult to spot.
What to Look Out For
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Food costs are increasing despite stable sales volumes
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Certain menu items are generating lower margins than expected
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Popular dishes are becoming less profitable
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Gross profit margins are declining without any obvious operational issues
What to Do About It
Regular supplier reviews are an essential starting point. These should include profitability analysis, supplier comparisons, and ongoing price monitoring to ensure increases are identified before they begin affecting margins.
Ongoing recipe costing is important too because it makes it much easier to understand how ingredient price changes affect the profitability of individual dishes.
You should also review menu performance on a regular basis, paying particular attention to those dishes which rely heavily on ingredients vulnerable to price increases. To counteract any changes, menu price adjustments may be necessary or the sourcing of alternative ingredients.
5. Your Reporting Doesn’t Show the Whole Picture
In today’s tech-driven sector, many operators have access to a wealth of data covering all operational processes. The challenge here is that the data is often spread across multiple reports – food costs, stock levels and supplier pricing are viewed separately.
This can make it difficult to identify the root cause of rising food costs. Is the issue being driven by waste, inventory discrepancies, supplier price increases, over-portioning, or a combination of factors? Without a connected view of the operation, finding the answer isn't always straightforward.
What to Look Out For
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Multiple reports are needed to investigate a single issue
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Different systems produce conflicting figures
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Trends are identified only after they have affected profitability
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Significant time is spent compiling data rather than acting on it
What to Do About It
Use a platform that centralises processes including data analysis. Bringing inventory, purchasing, sales, and reporting together in one place makes it easier to identify trends, investigate issues, and understand what's driving food costs.
This not only improves visibility but also makes it easier to take corrective action before margins are affected.
Frequently Asked Questions
Why are my food costs higher than expected?
Food costs are influenced by more than just ingredient prices. Inventory discrepancies, food waste, over-portioning, supplier price increases, and poor visibility into operational data can all contribute to higher-than-expected costs.
What is considered a good food cost percentage?
While it varies by concept, most restaurants aim for a food cost percentage between 28% and 35%. However, the ideal figure will depend on factors such as menu mix, pricing strategy, and operating model.
What is the biggest cause of high food costs in restaurants?
There is rarely a single cause. Common contributors include food waste, inaccurate inventory records, inconsistent portion sizes, and rising supplier costs. Understanding which factor is having the greatest impact requires regular monitoring and analysis.
How can restaurants reduce food costs?
Restaurants can reduce food costs by improving inventory accuracy, tracking waste, standardising recipes, controlling portion sizes, reviewing supplier pricing, and monitoring menu profitability.
How often should restaurants review food costs?
Food costs should be monitored continuously, with formal reviews conducted at least monthly. High-volume restaurants may benefit from weekly reviews of inventory, purchasing, waste, and menu performance.
What is the difference between actual and theoretical food cost?
Theoretical food cost is what ingredients should cost based on recipes and sales data. Actual food cost reflects what was actually spent. A large gap between the two can indicate issues such as waste, over-portioning, theft, or inventory inaccuracies.
Can restaurant software help reduce food costs?
Yes. Restaurant management software can help operators track inventory, monitor waste, analyse purchasing trends, review menu profitability, and gain greater visibility into the factors affecting food costs.
