11 Terrible Ways to Manage Food Costs

Manage food costs by avoiding these major common mistakes.

Ask anyone in foodservice for ways to better manage food costs and chances are they will launch into a commentary about how the creative side of the industry lacks solid business sense.

“Chefs are the worst people in the world when it comes to the business side of restaurants,” says restaurant consultant Jeffrey Summers.

“The basic food cost formula is the cost divided by the selling price,” says CPA and former restaurant owner Roger Fields, author of “Restaurant Success by the Numbers.” “A lot of operators don’t take into consideration the denominator.”

Consultant Michael Bonadies, president and CEO of Bonadies Hospitality, adds: “The reality is, many of us got into this business because we didn’t think we would be very good in an office environment.”

After unloading their somewhat invective commentary, Summers, Fields, Bonadies and others in foodservice were nonetheless happy to offer advice on what NOT to do when it comes to wringing a profit from food and beverage sales. Read on.

1. Think your food cost ratio is a one-and-done deal 

Multiplying costs by three doesn’t work across the board. Ask yourself if 30 percent is a good or bad number—or if 25 percent or 28 percent would be better. Summers had a client who couldn’t turn a profit for three years due to his inability to think beyond a single food-cost percentage. “He was killing himself when it came to prices for no real reason,” Summers says. “If you can’t drill down below what that topline food cost ratio is, you are sunk.” 

2. Forget you’re in control of your food cost destiny 

Several factors influence food cost, all of which an operator can control with better management and training. The biggest is the purchase price of ingredients. But there’s also spoilage, waste and theft. “Things don’t magically spoil or walk out the door by themselves,” Fields says. 

3. Ignore the prices of individual ingredients 

Margins will shrink over time if you fail to monitor vendor prices on frequently used ingredients. “A lot of independent operators don’t look at what they are paying for food regularly and all of sudden commodities prices go up and their margins go down,” Fields says. “Now, they’re wondering, ‘What do I do next?’"

4. TAKE YOUR POS FOR GRANTED WHEN OPENING A NEW RESTAURANT 

Always double check menu prices on your point-of-sale system. When Myriad Restaurant Group opened the now-shuttered Rubicon in San Francisco, Michael Bonadies, then a partner, recalls that sales of Dom Pérignon Champagne shot up. “For about three weeks we thought we hit the right market,” he says. The true reason for the hike (and high beverage costs): a data entry clerk left the first numeral off the bubbly’s menu price. 

5. Relax high standards for back-of-the-house staff

Sure, kitchens are creative, adrenaline-fueled workplaces. Yet fail to imbue your employees with best practices for receiving, security and prepping, and costs will inevitably climb. “One standard practice for receiving is to move all the perishables to storage as quickly as possible and to periodically double check the price on every invoice,” Fields says.

6. Buy cheaper ingredients to improve food cost

Trying to shave a point or two from food cost by buying, say, cheaper chicken is a dumb idea. “Your percentage might now be fine,” says consultant Frank Steed, former president of Bonanza Steakhouse and Tony Roma’s, “but don’t think your regular customers won’t notice the difference and maybe decide not to return.” 

7. Mistake passion for expertise when hiring beverage directors

A great wine list may be desirable, but carrying a pricey inventory that doesn’t turn over quickly will hamper cost flow and profitability. It’s a good idea to refrain from putting someone with a “collector” mentality in charge of it, advises Bonadies, author of a wine sales guide called “Sip by Sip.” “These people get carried away when there are great deals or allocated items,” he adds. “They always want the best.”

8. Assume that cooks know which products move the fastest

“Not everybody understands when you throw something out, you are opening your wallet and dumping it over the trash can,” says Chef Zack Bruell, owner of five restaurants in Cleveland.

Make sure your kitchen understands the type of preparations customers like, or you’ll be driving up food costs by throwing away food. Some chefs, Bruell says, just want to show off their skills and fail to learn what dishes really move. “We’re dealing with something very perishable here,” he says. “It isn’t like selling widgets.” 

9. Ignore the concept of penny profits 

Food cost percentage is an important metric, but you take dollars to the bank. Steed recalls years ago trying to convince his then-boss, legendary restaurateur Alan Stillman, to sell more burgers and fries instead of steak, because burgers had a 17 percent food cost. Stillman reminded him that despite steak’s 50 percent food cost, it generated a $3 profit while burgers dropped just a dollar to the bottom line. 

10. Go with your gut when it comes to the numbers

It seems obvious that calculating food cost depends on the price of all the ingredients. Yet even experienced operators have trouble running their business intuitively. Fields says that many operators simply price according to the competitors down the street, and wonder why their restaurants run high food costs. 

11. Get overly focused on food costs in the first place

Think about the concept of food costs long enough, and you’ll figure out that good gauge of waste and theft. “Food cost was designed to be a control factor, not the driver of your profits,” Steed says.


David Farkas is a writer who has been covering the restaurant industry for more than 20 years.

To control food costs, experts suggest the following rules:

  • Order the right specs 
  • Pay the negotiated price for ingredients
  • Make sure you receive what you ordered
  • Keep food and beverage in a secure spot