20 steps to lowering your food or liquor costs

food inventory spreadsheet from O'Dell Restaurant ConsultingThis article will be one of the most important I’ve ever written for restaurant owners and managers in other food services. In this article, I’m going to do something you won’t see from another consultant. I’m going to share with you the exact steps of an action plan I created to help a restaurant create a food cost fitness program, along with some helpful commentary from me. These steps would be the same for liquor costs, but would focus on different employees in a different area of the restaurant. What you won’t find in this list is steps for purchasing. Negotiating lower prices is kind of a “no brainer” in controlling food costs, so it is not mentioned here. Other steps that are not mentioned, but are important none-the-less include proper monitoring of your vendor prices during the year, receiving goods properly, securing storerooms and surveillance of storage areas. In truth, anything you do with your food can affect your food costs. This 20-step list is meant to focus on those 20 things that are my first focus when I am working with a restaurant.

Outlining this plan for you may be to me a little like a restaurant owner publishing their secret recipes, but my main interest is not in keeping the things secret that I do to help restaurants. My main interest is in improving the restaurant and food service industry as a whole.

This list may not be completely comprehensive for every restaurant. There are likely considerations that would change the process slightly for another venue, but I believe if you take this list and apply these 20 steps to your efforts in organizing a food cost fitness program in your restaurant, you will be miles ahead of your competition. Some of these steps include spreadsheets and tools you may not have or may not have the ability to create. If you cannot create them, you should be able to find them in several places on the web to download for a small cost or with a membership to a food service website. One of these places is our webstore at www.bodellconsulting.com/webstore.html. If you can’t find the needed Microsoft Excel or Word templates in our store, we likely still have it available or can direct you to another site that does have it.

There are two main objectives that this 20 step process seeks to accomplish:

  1. It gives you the ability to always measure where your cost fitness is at any given time. If you don’t know where you are, you can’t know how to get where you want to go.
  2. It gives you the ability to measure where your cost fitness should be. This is one step in the process that many owners skip. They do not use ideal or theoretic food costs to measure where theirs should be. Instead they use some made up cost percentage goal that doesn’t take into consideration their menu item sales mix which can affect the ideal cost percentage greatly without it being a good or bad thing. If you don’t know where you should be, knowing where you are doesn’t do you any good.

Lowering food costs is also tied directly to three other areas of food production that these steps will help with. These other three areas are:

  1. Production speed – 80% or more of your sales come from peak periods in your restaurant. Your ability to push as much food out of your kitchen during peak periods as possible without affecting consistency or quality is the key to making money in your restaurant.
  2. Food consistency – Food and beverage consistency is the key to meeting your customer’s expectations when they come in your restaurant. When your customers receive food of a certain quality in your restaurant, they will expect that same quality of food every time they come into your restaurant. You need to have a system for reproducing your food or beverages to the same standard of quality for every order.
  3. Food quality – The quality of your food is the key to delivering on your “promise” to your customers on what to expect from you. While customers in McDonalds don’t expect fresh-never-frozen 1/3 lb. beef patties, they do still have a quality expectation. They want their hamburgers still to be juicy and hot. Your marketing, name and implied level of quality set the expectations for your customers. Now, you have to have a system in place to make sure those expectations are met consistently. It’s okay for quality to be lower than another restaurant, like McDonalds might be to you, if that is what your customers expect and they still feel they receive a good value. The key is to make sure they get as good or better quality than you promise. Your customer’s perception of value inside your restaurant is directly attributable to the quality of your food and beverages.

If you see terminology in this article that you don’t understand or think is important, please follow the links to other articles explaining these terms and their importance. If you have further questions, don’t hestitate to contact me.

Now, without further ado……..

The 20 steps to lowering your food costs

  1. Observe a busy service period in the restaurant. Make any suggestions to staff or management that could immediately increase the speed of service until a system is in place. This could include things like adding an expeditor or increasing staff levels or preparing a sauce for a dish during the prep work instead of when the dish is being plated.
  2. Evaluate the talent level of your existing kitchen staff and chef and gauge their ability to use the cost control tools you would be putting in place. If for example you expect your chef to use spreadsheets and data from your point of sale system to evaluate your costs, then that chef must have strong computer skills and the ability to use those tools.
  3. Evaluate the current kitchen, equipment and setup. Do you have enough storage for all your ingredients considering the number of deliveries you get per week? Does your menu have lots of fried items on it while you only have one fryer? Does your line setup require cooks to cross in front and behind each other during the preparation of dishes?
  4. Evaluate your current P&L and customer counts to determine a needed gross profit per person to later be used in pricing a new menu. The only way to make sure your prices deliver enough dollars to not only pay for the cost of the food, but for labor, rent and every other expense of running your restaurant while still delivering a profit, is to consider ALL those factors when pricing your menu, not just the food cost.
  5. Evaluate your soft beverage, alcoholic beverage and food vendor contract and invoices, and current inventory. Are you getting good pricing compared to other restaurants in the market? How do you know? Are your inventory values up to date? Are you doing an inventory weekly so you don’t have to wait until the end of the month to know there was a problem?
  6. Get feedback from servers and bartenders on menu. Ask for evaluation and suggestions they may have from customers. Organize an informal survey to be conducted with customers by service staff to gather suggestions and feedback. Your servers are the people who know your customers better than anyone. You or the chef should be consulting with them when creating a new menu or evaluating an existing one. They are the only employees in your restaurant that truly know what the customer thinks. Get them on board and the whole process gets much easier and more effective.
  7. Create a menu that can be produced quickly within the constraints of your existing kitchen equipment and the talent level of your kitchen staff. Food would of course have to appeal to your target market and taste delicious, while also contributing the necessary amount of gross profit. Create a manageable menu, not one that asks more than your kitchen or staff can deliver.
  8. Create recipe spreadsheets for all the menu items. Creating these recipes in spreadsheets gives you the ability to link individual ingredients to your inventory spreadsheet so your recipe costs update automatically when you update your inventory prices. A good recipe spreadsheet can also be used for batch recipes on items like sauces and mashed potatoes that have to be made in large batches, then costed into portions. Updated recipe costs can then be used to calculate your ideal food cost.
  9. Create a food inventory spreadsheet that assists in calculating recipe portion costs, and also assists the food ordering process with par levels and automatically calculated order amounts. This spreadsheet is the heart of your food cost fitness program. It not only helps you determine your actual costs of food for the period, but it also provides the necessary information to all the recipes spreadsheets you link to it so recipe costs are updated automatically, which then links to your ideal cost spreadsheet to help calculate what your food should have cost you to sell.
  10. Create an ideal cost spreadsheet to help calculate what the food you sell should have cost you to sell. Ideal costs are calculated by multiplying your sales of each menu item by the recipe cost of that menu item. Adding these individual costs together gives you an ideal or theoretic food cost that should then be compared to your actual food costs for discrepancies. Linking your recipe spreadsheets to your ideal cost spreadsheet keeps your theoretic costs up to date all the time so you can do ideal cost evaluations weekly by only entering sales by item data.
  11. Create a menu analysis spreadsheet that helps you evaluate your best selling items and categorize all your menu items by their popularity and gross profit contribution. There are many versions of this spreadsheet available on the web. I believe the first version was created by a professor at Cornell University. It helps you classify your menu items into categories that assist you in evaluating your menu and determining what changes need to be made. My version of this spreadsheet also helps you calculate ideal gross profits for menu items, which is a number that can be used to strategically price your menu for almost guaranteed profit.
  12. Create a recipe book with plate pictures for all menu items, to stay in the kitchen as a training tool. Train on the new menu for two weeks before implementation. Use nightly features to practice the production of the new items during these two weeks. This is also an incredible training tool for new cooks. Good recipe spreadsheets should include complete instructions on how recipes are prepared. They also allow cooks to see the cost of each of your menu ingredients so they can help you better monitor the prep and waste of those items. Tools like this help turn low level employees into leaders and future managers.
  13. Create menu descriptions for the training of wait staff that includes plate pictures. Train on the new menu for two weeks before implementation. It’s just as important for wait staff to see complete menu descriptions as for the cooks. The wait staff are supposed to be the “expert” on your food in relation to your customers. If you waitstaff doesn’t know your food, they can’t sell your food. These menu descriptions should have already been created in the recipe spreadsheets. For the wait staff, all you have to do is assemble each desription with each picture.
  14. Create prep lists for every station in the kitchen. Prep lists tell each cook exactly what items they have to prep for the shift. When you create a list you create accountability. You have a tool that management can use to verify the employee has done their work. This list should have space for your chef or kitchen manager to add prep items for features or specials for each shift.
  15. Create line setup diagrams for every station in the kitchen. Line setup diagrams show cooks exactly where prepped items are placed in steam wells and coolers so their efficiency of motion is maximized. Since speed is so very important in a kitchen, proper placement of prepped items is also very important. Line setup diagrams should also include a description of the exact utensil that should be used to measure the portion for each prepped item. Portioning is very important to keeping food costs where they should be.
  16. Create job descriptions for all positions in the kitchen. Job descriptions not only tell employees what their duties are, but they also define to them the hierarchy of your restaurant, so they know who they answer too. In addition, a good job description should include the physical demands of the job. Creating good job descriptions also gives you a template to create effective job evaluations for employee reviews. When you tell an employee exactly what their job is, you then have a basis to measure their performance. More informed and properly focused employees are more efficient and can greatly affect your food and liquor costs.
  17. Design a menu that features high gross profit items prominently and employs other known psychological selling tactics to direct diners toward high gross profit items and increase sales. A well designed menu tells customers what they want to order. Once you know how many gross profit dollars each menu item contributes, you can know which items to push on your menu. You can then place items on your menu where they will get seen first, highlighting them with boxes, backgrounds, color and icons. You should also make sure your prices are properly placed, NOT listed in a column, NOT bold typed or highlighted, NOT containing a “$”, NOT listed next to “”……..” and rounded to a whole number OR to “.99” instead of “.95”. That extra .04 per item can add up to thousands of dollars without being noticed by your customers.
  18. Train staff, managers and owners on preparation of new menu items. Now that you’ve created all the tools, the training is organized, focused and much more effective.
  19. Train staff, managers and owners on proper inventory, purchasing and receiving procedures. Having the tools makes the training of key staff and owners much easier, but you also must know the “whys” of inventory, purchasing and receiving. Who should check in the orders? Who should do inventory? Should the chef be the only one purchasing food?
  20. Train staff, managers and owners on use of all spreadsheets and checklists. Any tool you create will be useless without consistent followup, enforcement and discipline. You could have the greatest system in the world, but if no one is managing it, it isn’t likely to work. Likewise, managers need to be managed. They should be regularly questioned and periodically observed on their inspection habits, their use of checklists and their disciplinary procedures. What are the consequences if an employee doesn’t use the checklist? What are the consequences if the manager doesn’t inspect the employee’s work? Set your expectations and let employees and managers know the consequences for not performing up to your standards in advance. The more informed they are and the more consistent you are, the less you’ll have to worry about disciplining anyone.

If you follow these 20 steps to lowering your food or liquor costs, I know your costs will come in line. These are the same steps I use as a food service consultant, and they’ve worked for me many, many times. Remember though that “low” isn’t always the goal with food costs. You are better off selling a $25 steak that costs you $10 to produce ($15 gross profit) than you are an $8 cheeseburger that cost you $2 to produce ($6 gross profit), even though the cost percentage on the steak is 40% while the hamburger is 20%. What you should compare is the gross profit contribution of $15 for the steak to $6 for the hamburger. That extra $9 will go a long ways to pay for labor, rent, expenses and profit. What is more important is that your actual food cost and ideal food cost are within 1.5% of each other. If your food is costing you what it should be costing you to serve, then you know your waste and theft is under control. From there, if you’re not making money, you know the problem is your other expenses or your prices and not your product cost. Without comparing ideal and actual costs, you’re just guessing what the problem is.

Take these steps and implement them in your restaurant. No one solution can make all restaurants profitable, but this one can help eliminate the biggest issue in most restaurants and food service, cost control.

Brandon O’Dell
O’Dell Restaurant Consulting
(888) 571-9069

Creating a manageable menu

Two of my favorite shows are Restaurant Impossible and Gordon Ramsay’s Kitchen Nightmares. If you haven’t seen them, and you’re in the restaurant business, you’re missing out on a lot of free lessons.

Gordon Ramsay is a bit of bully. He likes to push people’s buttons. I think one of his other shows, Hell’s Kitchen, is just a stage for him to berate future chefs for ratings and money. Robert Irvine is a bit more respectful, but still tough. That said, I still think those two show are the most important shows on television for current and would-be restaurateurs.

If you watch Kitchen Nightmares or Restaurant Impossible, you’ll notice a reoccuring theme with many of the failed restaurants Ramsay or Irvine help; large, unfocused, unmanageable menus. I’m not sure what it is about the restaurant business that turns an average cook into an overbearing, pretentious egomaniac chef or restaurant owner that thinks they can stick something on a plate no one has ever heard of before and people will pay them $50 a plate to eat it, but I wish they made a pill to cure that disease. At the very least there should be therapy available to help these people realize that if a world renowned chef like Gordon Ramsay can be humble enough to cook simple food with quality ingredients, then they should be also.

Enough with the whining. I’m starting to annoy myself.

What I really want to talk to you about, is how to create a manageable menu for your own restaurant. There are three main factors I think you should concentrate on when you are putting together your menu.

  1. Your limitations
  2. Your customer’s desires
  3. Your financial needs

Notice that nothing in that list refers to ‘what you want’ to serve. To tell you the truth, it’s not important what you want to serve. For more on that, check out Don’t give your customers what you want.

Your limitations

First things first. Something you’ll see in a lot of independent restaurants is owners or chefs trying to do the impossible by offering a larger selection than their equipment, facility, ability or staff can handle. You need to realize that these things limit what is possible out of your restaurant. You can’t just go and write your dream menu without considering the factors that will affect your ability to produce the food on that menu.

Your menu selection needs to be limited to only the number of items that you have the equipment to cook. It also needs to have items that spread the work load across the different stations and equipment in your kitchen. If you have 10 different saute items, and only 4 burners, you’re going to keep a lot of people waiting for their food. People NOT being served quickly, means that tables aren’t turning, and you aren’t serving as many people during your rush that you can. In most restaurants, at least 80% of the day’s revenue comes from the rush periods where you are putting through as many people as you can possibly serve. If your huge selection means you can’t serve as many people during a rush, then you won’t make as much money as you could.

Your menu should also be limited to only the number of items you have the storage room to store ingredients for. If you’re working with a two door reach in cooler and a top loading, three foot wide deep freeze, you’re not going to be able to offer all those fun creative dishes you learned to make in culinary school. Limited storage space means limited menu. You can make the most of your storage space by getting multiple orders per week, but even then, you’ll have to watch your space. There has to be a spot for everything, and stuffing more things in a cooler or freezer than was meant to be in there means you don’t have quick access to it in a rush, which means slower service and less money as we’ve already covered.

Your ability may be the first limitation you want to consider. Just because you are the best at cooking whatever it is you think is your specialty, doesn’t mean you’re good enough at teaching other people to produce it to your high standards enough to feed a huge angry mob. It also doesn’t mean that people are going to think whatever you’re cooking is as good as you do. You need to be honest with yourself and work within your limitations. Cook what you KNOW how to cook, not what you’ve seen other people cook. If you’re not an expert on everything on your menu, it will show. Maybe your customers won’t know how to verbalize it and let you know that your food really stinks, or maybe they’re just too nice to say it, but it will still show in the ever decreasing number of guests you’ll serve.

Your staff is another limitation you have to take into account when creating a menu. You can’t produce haute nouveau cuisine with minimum wage cooks. Every market is different for hiring talent. Every manager and chef is limited by their own ability to find qualified help. If you can’t find help that can make a two egg hollandaise in a job interview, then you don’t need to have hollandaise on your menu. Limit your offerings to what your staff is qualified to prepare.

Your customer’s desires

If you want a menu that works, it has to work for your potential customers. Whatever idea you have about introducing some new, awesome cuisine to a market that hasn’t seen it yet, forget it unless you have tons of marketing cash to educate the public with. People rarely eat what they don’t understand. I know you think your idea is different, and the food you want to bring to the area is soooo good that people just HAVE to love it, but you’re most likely just projecting your tastes on the general public. Unless you have tens of thousands in marketing dollars to educate a new market enough to create an interest in a new type of food, you’re not likely to bring them in. People try new foods based on buzz. When it starts to get popular, people try it. When it gets to be the “in” thing to eat, people try it. Until your target audience knows about the food you’re going to serve, they won’t have an interest in it. How can they, they don’t even know what it is? Find out what your customers want, not what you want them to eat. Make your menu about them.

Stick to foods your customers are familiar with. A good place to start is at the local farmer’s markets and grocery stores. See what meats and produce the markets carry. Those are the things people in that area buy. Those are the ingredients they know and are comfortable with. If you can find items that are even grown locally, all the better. If you have to have everything flown in from some exotic far away place, people in your area aren’t likely to know what it is or even care. Sure there are some adventurous people out there like me that love to try anything new and interesting they can get their hands on, but we are the exception, not the rule. I checked my ego long ago to make myself realize that it’s not about me, it’s about whoever I’m feeding.

Once you’ve made it about your customers and figured out what they want, create a signature item in each menu category. These signatures items should speak to your unique selling point, and really communicate to your customers what you are all about. I also suggest that you make them the highest gross profit items in their respective categories.

Your financial needs

You’re wasting your time if you’re not making money, so naturally a manageable menu is one that gives you enough money to pay your bills. While I’m not going to go into detail about pricing in this article, I am going to make the obvious point that you’re in business to make money.

When creating a menu, you need to consider how much every item on your menu costs to make. How much does every person who walks through your door cost you in overhead to serve? How much profit do you need to make for this restaurant venture to be worth your while? These three financial considerations combine to give you the information you need to set the prices on your menu. From there, you just have to keep your price points competitive for the market, and make sure your food offers a good value for what it is. Your food doesn’t have to be “the best”, but it does have to be worth what you’re charging.

Pricing your menu by a budgeted food cost isn’t an effective method of ensuring you will collect enough money to pay the bills. You need to consider every cost of running your business including the rent, insurance, utilities, equipment, maintenance, small wares, labor, taxes and benefits to name a few. All together, the other costs of running your business make up a lot larger part of your financial picture than your food costs do. You have to estimate all these, determine how much you need from every customer to cover these, and price your menu based on all the costs of doing business, in addition to profit.

Creating a manageable menu is just the first step in rolling out a new restaurants menu. Read our article on how to roll out a new restaurant menu to get a great step by step guide on getting your menu from conception to implementation.

I hope this article gives you a couple things to think about before creating your menu. Just keep in mind that big menus equal big waste, big theft, big product costs, big ticket times, and big service issues. Less is more. A small focused menu that accurately conveys who you are and what your restaurant is about will make more money than any big menu. I only have to bet my reputation that I’m right, you may have to bet your business you’re not wrong.