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Daily sales and planning is now common and no longer a weekly or monthly task. 

Speed is of the essence; businesses that recognise this and are willing to change and set new standards, will build long-term advantage.

In my experience as a Quality Systems and Food Auditor I have seen companies and business owners who unintentionally take their “eye off the ball”.

Now, is when you need to revisit your systems and review them to streamline your business.

Business has been forced to work in new ways, with clear goals, focused teams, and rapid decision making fast becoming the new norm.

Checking food costs and effective management of inventory.

These are some of the biggest challenges in a restaurant, fast food chain or food retail establishment.

It is difficult to predict the right amount of food required daily, weekly and monthly.

Therefore, it is critical to check your food costs and have efficient inventory management. This is vital to the health and success of a food business and of any food outlet.

A profitable restaurant typically generates a 28-35% food cost. Include labor costs, these expenses consume 50-75% of total sales. Because of the impact food cost has on an operation, it is one of the first things to be examined.

With an accurate food cost, steps can be taken to improve the operation, help savings and improve the bottom line.

The following is a step-by-step method for calculating food cost including an example and a worksheet to figure your own food cost.

Calculating Food Costs

The true cost of sales isn’t what you spend, it’s what you use.

The industry standard is based on the Uniform System of Accounts for Restaurants (a handbook is available from the National Restaurant Association).

In this current climate consider taking inventory and calculating cost of sales weekly as this is far more profitable and generally gain 2% to 10% more profit to the bottom line.

By calculating the cost of sales weekly, problems can quickly be identified. It gives opportunity to react immediately rather than wait a month and lose even more profit, also helping to maintain a tighter control on inventory levels.

Step by step – calculating food cost

Time frame: 1 week – remember to use sales generated only within the allotted time frame.

Food sales: Total reports from point-of-sale registers, only include sales generated from food sources. Sources other than food should be allocated to a “beverage” or “other income” account. Example: Food Sales + Juice, Soda, etc $1,850

Cost of food sales: Cost of purchases and inventory (often not included in determining cost of food sales) level adjustments.

Total all food purchases including delivery charges and non-alcoholic beverages. For example, beginning inventory value $100/week, end inventory value $75, the inventory adjustment is $25 difference, resulting in an increase in cost of food sales because you used $25 worth of inventory and did not replace it with new purchases.

This system clearly identifies what items are included in each part of the food cost formula and is briefly outlined below.

The correct formula for calculating cost of sales is:

Total food purchases + (beginning inventory – ending inventory) = cost of sales

(ADD if Beginning Inventory > Ending Inventory, SUBTRACT if Beginning Inventory < Ending Inventory)

Food purchases in last week $500
Beginning Inventory $750
Ending Inventory $625
= $500 + $125
= $625 Cost of Food Sales

Food cost percentage: The final step – putting the numbers together!
Juices, coffee, soda supplies and other non-alcoholic beverage sales are included in food cost calculations.

Food Cost = Cost of Food Sales / Food Sales

Example Food Cost = $625 /$1,850 = 33.8%

Patterns will go unnoticed if you are not tracking, monitoring and analysing the data properly.

There are four basic steps to manage inventory efficiently.

1. Label and organise inventory

Labelling inventory is critical for food safety and helpful when monitoring inventory. 
Organise food storage areas using the First In, First Out method.

These include:

  •  walk-in and reach-in refrigerator(s), dry storage, prep areas, bar and liquor cabinets

Best practices procedures:

  1. Items received first are used first.
  2. Rotate stock, use oldest first.
  3. Consolidate boxes, keep track of expiry dates, keep storage tidy.
  4. Clearly label and date product not stored in original packaging.
  5. Check best-before dates and expiry dates, discard food items that show signs of spoilage.

All Food Handlers, Kitchen managers and Food Safety Supervisors should have an excellent understanding of stock rotation and inventory control. Further training may be necessary if this is identified as a weak link in your business.

2. Count and record inventory

Count inventory regularly, for accurate counting:

  • count on the same day, at the same time each day, week or month
  • count before you open or after you close
  • count on the day before food deliveries are scheduled to arrive
  • take note of inventory items that are nearing their expiration date

Accurate counting and recording inventory allows you to minimise food waste by making use of foods that will expire soon, work overstocked items into daily specials and ordering less of overstocked items on your next order.

3. Review the numbers

Compare the actual numbers; what is on the shelf to what is recorded in your system.

Good tracking systems can also identify if something may have gone wrong, such as a missing inventory:

  • orders rushed through ‘on the fly’ and never entered into the POS system
  • food items that may have been sent back but not recorded in the POS system
  • expired, spoiled or suspected-to-be spoiled food items that were thrown out but not recorded

Therefore, it is vital that staff is well trained in food safety and operational procedures.

4. Look for patterns

Look for patterns of waste, compare your actual numbers with expected numbers, you may identify issues including:

  • over-portioning
  • over-ordering
  • above-average amount of spoilage

When you identify areas where unnecessary food waste is occurring, you can implement changes this may be to inventory, operational systems and staff training.

REMEMBER: One-third or more of your total operational costs are food costs if you ignore the numbers, you’re throwing money away that should be in your pocket.

Article by Jacqui Ward – Cafe Culture International

Quality Systems & Food Safety Auditor


Resource Library Blog June 2020 Australian Institute of Food Safety

4 Steps to Effective Restaurant Inventory Management

Reduce unnecessary food waste and increase profits with these four steps to effective restaurant inventory management.


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