Trying to understand scope of Food Costs - Please Help

Hello-

We have been in business for 2 years and are doing pretty well, but in light of the escalating costs and increasing min wage, we are going over our costs with a fine tooth comb.

Our food costs are at 36.7% Of which, 34.06% is food and 2.64% is beverage. I tell hubby this is high and he states that this is because we use a better cheese (which we do @ $2.70/lb) and that all of our product are on the invoice, including trash bags, etc

So, I did an exercise where I took out all the non food items (containers, boxes, bleach, dish soap, etc) and it did bring our costs down slightly.

Now they are at 31.58% true food, 2.64% beverage, and 2.48% non food.

My questions are:

• What food costs should we be at?
• Should we have a “better cheese” factor on top of that?
• Are food costs inclusive of beverage and boxes, etc, or exclusive?
• What else should I look at to lower my food costs?

My other costs seem to be in line - Advertising at 1.5% and Payroll is at 16%

I look forward to your expert advice and opinions.
Thank you!

There are a few different ways to come up with the percents…It sounds like you are using invoices against sales?

When I figure food cost for our products I figure each product

Lets say Large Pepperoni pizza and figure out what it costs to make that.

I use a spread sheet and list each item. Figure the price of a dough ball Price of cheese and pepperoni based on our portions for the large pizza. Amount of sauce I use and that cost and the box.

If you do this for each and every menu item you will see some things are real low and some things like wings are real high.

Almost every time I do it we end up taking something off the menu because the food cost has gone out of whack and we replace it with a new menu item with better food cost.

This also helps when coming up with specials. I can add a low food cost item to a pizza and still keep the costs in line.

It is very time consuming to do it, but if you know how to use spreadsheets you can just fill in a doughball and it changes all the other cells with dough balls…make sense?

I know everyone looks for a magic number for food cost. We want to say okay if food cost is … you will be profitable. But that is not the case. You might have the best food cost around but your labor or overhead is way out of line…so you need to start from the top.

Your sales are 100% Your overhead is XXXX% You may have 40%- 65% left over for food and labor or it could be 50% each place is somewhat unique. So if you have high overhead you can run 33% food cost all day long and still be losing money.

Sure there is industry “standards” which I believe are around 32-33 percent. But like I said you need to deal with your REAL numbers.

Start with 100% sales and work your way down to find an ideal food cost for you.

Kris

No one here can tell you what food cost % your business should be run at. Every market is different, every business model is different. Your 36.7% food and cleaning seem a bit high for our industry, but not outragous. Your labor and advertising on the other hand seem very low compared to the industry as a whole. Your “better cheese” factor should be built into your prices. You need to decide your desired overall foodcost and price your menu items based upon this and sales mix. Should food cost be inclusive of beverage and boxes? I’m sure one of the accounting oriented people here will chime in on this but just keep in mind you want to stay consistent with your measurments and use this as just one tool to increse your profitability. Some suggestions for lowering food costs would be to cost out each and every item you offer on your menu and make sure that every item is priced properly to help you reach your food cost goal. Develop procedures to portion control as many items as you can while continuing to operate an efficient business. Work your vendors hard for lower costs on your items, they all seem quick to raise prices but very slow to lower prices. In my business I have a problem with employees applying coupon discounts to orders with no coupon in hand. By slowing this down, my ticket average and my food cost percentage have gotten much better.

It sounds like you know how to figure out food costs. We count everything except for cleaning products. We run around 33% on the sales we have.

Paul is right, you need to figure out what works best for you, your percentage will drop with higher sales, and go higher with lower sales. But everything depends on your standards. Corporation try to set company wide standards, but they’re based on their recipes. So there isn’t really a set amount in independent pizza places.

food cost % of overall sales will kill most.
like everyone has said you must take the time to pick apart ALL of the items on your menu.
one thing to remember,which is very important,is contribution margin.
i sell a cheeseburger @ $3.50 cogs are .99,a margin of 2.51.around 28%
i sell a steak @ $19.99 cogs 8.00 margin of 11.99 around 40%
i would rather sell 20 steaks than 20 burgers

as a former U.S. Marine Corps Auditor, I do things the military way…good, bad or ugly!!!

True food costs are derived from taking a beginning monthly inventory…adding in ONLY food purchases…then subtracting out you ending inventory…that is what I do…then compare that to your net sales (after sales tax) to get a %…

set a goal - say, 55-75% GP (after labor & food)…your business model/plan should guide you to a desired GP…

Boxes, cleaning/office supplies s/also be tracked…

if you use a “better” cheese, then you might be able to charge a higher price…

if you are in a depressed area, you can only demand wht the market will bear - a case of supply & demand…

Semper Fi

I used to count paper, supplies etc apart from food, but it took a lot of time and did not provide me any useful data. As a Delco, boxes cost what they cost. The cost of cleaning supplies etc does not add up to enough to bother tracking as its own category, so we roll it all in together. That is not to say that we do not track how much we pay for these things, we do price shop them, but the variance in how much we use costs less than the time taken to track it.

So, we calculate the cost of all consumable products. That includes food, containers, supplies, condiments, cleaning supplies. If we use it up, we count it. (Boxes and containers might as well be cheese. As a delco, we have to have them) In my opinion, if you provide a container with a product, the container needs to be part of the cost model.

We start with a beginning inventory,
Add all deliveries and purchases
Subtract ending inventory

Divide the result by sales. For our business, our total cost is currently running about 29%. It used to be 28% but recent cost increases have taken a bite despite our price increase.

If you are using better products, you should be able to charge for them. The difference in your cheese price to other mozz right now is about 30 cents on a 16" pie. If you don’t think you can charge a dollar for it, I would have a close look.

Also, one of the best ideas around is to look for nickles rather than dollars. If you need to get from 35% cost down to 30% that amounts to finding a way to save 75 cents on a $15 pizza, or raise the price to $17.50 or some combination of the two.

For example, you might find a way to save 5 cents on the box, 20 cents on the cheese, 5 cents on flour and raise your price by a dollar. Do you grind/shred your own cheese? Block cheese is often 10-15 cents less than shred for the same cheese. Are you watching your portions? It is pretty easy to blow chesse cost by 35 cents per pizza when you are paying $2.70 for cheese. Have you made a prototype pizza exactly the way you want it done and weighed the portions of each item as you assemble it to see how much cheese you should be using? I see postings for flour here on the boards that indicate some people are paying $10 a bag more for flour than others are. With a 25 oz doughball for a 16", that difference comes to nearly 20 cents per pie.

Lastly, if you are using more expensive cheese (or other ingredients) be sure you are telling that story so the customer understands they are getting something special. You do need to tell them!

Thank you all for your suggestions. We are in the middle of the project to see what each and every menu item is costing us.

Take care!

I weighed and measured EVERY food item in my store today, wish I hadnt had the time to do it. but alas I did. So I figured might as well do it. It was a great eye opener. I do not really understand the idea of adding all food costs for a month and subtracting sales? was that what he was saying?
Anyway, I went the spreadsheet route, priced out everything, made a spreadsheet so that when I create a new pizza, or change a topping weight it automatically changes on my food costs, etc.
Glad I did that. Very great tool. And showed me that I am within my food cost range (on average) that I would like to be…

When you create a menu cost model like you did you are on the right track. However, even if your model gives you the cost you want and you impliment a good training program to use it regularly, the cost will not match your actual food cost. This is because of mistakes, spoilage, dropped pies, crew pies etc etc. The actual cost will be a couple of points higher. The way to calculate your cost is monthly (or weekly if your really want to drill down on the issue)

1. Take an end of month inventory and get a value for the food that is on hand. Use the most current costs for all items.
2. Add in all the purchases whether by cash or on invoices at the acual amount paid for product delivered during the month. Be sure to count unpaid invoices waiting to be paid at the end of the month and not count invoices from the previous month which were paid during the subject month.
3. Take another inventory using the new most recent costs and subtract this amount. (because this food was not used yet)

The result is the value of the product used. Here is a rough example:

Starting Inventory + Cash Purchases + New invoices - Ending Inventory = Product Used

Product used / Net sales = Food cost

May 31 inventory: $5,650
Cash purchases: $ 270
New invoices: $8,520
Total: $14,440
less June 30 inventory: $6,125
Food cost: $8,315

If sales for the month were $26,400 food cost would be 8,315 / 26,400 = 31.5% (use net sales; NOT including sales tax)

Whether you choose to combine food and beverage or include supplies or not the basic method is the same. However, if you want to do food and beverage independantly, be sure to use your food sales for food and your beverage sales for beverages so you can track how your costs are moving over time without the other catagory influencing the numbers.