What's the ideal food cost for a restaurant?

Sometimes called "cost/raw materials ratio", food cost is a key indicator in the restaurant business. Broadly speaking, it refers to what you spend to create a dish. Why is it important? Because a profitable, sustainable restaurant requires a bit of strategy, as well as a bit of greed. So, what's the ideal food cost for your restaurant? How can you optimize it? What to do if it's too high? Malou tells you all!

What is food cost?

As its name suggests, food cost refers to the "cost of food". In other words, the cost of the ingredients in a dish.

👉 The food cost represents the percentage of the cost of the ingredients invested in relation to the revenue generated by the sale of a dish.

Example: your menu offers a burger for €10.

The ingredients (bun, steak, salad) to make this burger cost €3.

The food cost of this burger is therefore 30%.

This means that 30% of the burger's selling price is spent on ingredients. 

This leaves margin of 70% to cover : 

• All other restaurant costs (labor, fixed costs, etc.) ;
• The profit you will generate. 

A restaurateur generally assesses his food cost as soon as he opens his restaurant, or even much earlier, when he draws up his business plan. He then reassesses it once a month or every two months to optimize his day-to-day costs (we talk about this in part 3 of this article👇).

How to calculate your restaurant's food cost?

💡Food cost of a dish = (total cost of raw materials / selling price of dish) x 100

👉 You can also calculate your restaurant's overall food cost.

💡Food cost overall = (beginning inventory + purchases ) - ending inventory / total sales

Example: your initial kitchen stock is €10,000.

Your extra ingredient purchases cost you €6500.

Once the dishes have been prepared, your final stock is €13,000.

Your total sales amounted to €7,500.

(10000 + 6500) - 13000 / 7500 = 0,30

Your overall food cost is therefore 30%. 

But what does this figure mean for your restaurant?

Why is food cost important?

Food cost is an indicator to be taken very seriously if you want to ensure the profitability of your restaurant. The better you understand it, the better equipped you'll be to make important strategic decisions.

👉 By estimating the amount of costs to be incurred for each dish, food cost makes it possible to :

• Set all your prices right ;
• Review your prices over time (using menu engineering or renegotiating with your suppliers, for example);
• Control your margins and optimize your costs;
• Know your food cost per establishment if you manage several restaurants.

💡The lower your food cost, the more you have left over to cover all the other costs of your restaurant (staff costs, rent, etc.).

Warning: a food cost that's too low affects the quality of the dishes and customer satisfaction. Similarly, a "high" or "low" food cost is not always a problem (see below). It's up to you to find the balance that works for your restaurant!

What should a restaurant's average food cost be? What is the ideal food cost?

For a restaurant to be profitable, we often hear that a good food cost should be between 28 and 35%. In other words, your raw materials should represent no more than 35% of your sales. 

In reality, there's no such thing as a perfect figure! A healthy food cost will vary according to the food you serve, the market you're targeting, and even the time of year (higher during the holidays, for example)...

👉 F or example, a brasserie specializing in entrecôte will have a food cost close to 35%. This is normal: quality meat is at the heart of its concept. A pizzeria, on the other hand, can afford to aim for 28%, especially if it buys wholesale dough and seasonal vegetables. Some restaurant concepts are more profitable than others.

Each restaurant must therefore calculate its own percentage, bearing in mind that the higher the quality of the ingredients, the more the menu prices will have to be adjusted accordingly.

💡According to Lighspeed, the formula for calculating the ideal food cost is: total ingredient cost / total food sales.

This formula should enable you to set the prices of your dishes.

Example: your new à la carte dessert, a chocolate cake, costs you €1.80 to make per portion.

If you want to achieve a food cost of 30%, then the selling price should be €6 per share (1.80 divided by 0.30).

If you want to achieve a food cost of 40%, then the selling price should be €4.50. 

Food cost too high or too low: the limits

If we insist in this article on the idea that there is no such thing as a "perfect food cost", it's also because there are other factors to take into account. 

For example: 

• The amount of work required for a dish (too long a preparation time can increase the food cost even though the ingredients do not change);
• High demand for a dish (the food cost is high, but is offset by enormous customer demand and a strong value proposition. For example: a starter based on foie gras);
• The difference between theory and practice (poorly standardized portions, food waste, major losses or private uses such as team meals);
• Economic and social phenomena such as inflation (prices rise at all your suppliers).

So many elements that can vary your food cost. So keep an open mind: a restaurant's profitability is based on much more than just a ratio!

Best practices for optimizing your food costs 

The right reflexes : 

• Estimate the portion of food cost intended solely for team meals and remove it;
• Keep an impeccable inventory to limit losses (expiration dates) or surpluses (unnecessary supplies);
• Check your stocks daily to make sure you're using everything;
• Use 100% of your produce (peels to make broths, anti-gaspi cooking, fermentation techniques or jarring);
• Choose good products that offer the best value for money (local and seasonal products, short distribution channels, etc.).
• Create data sheets, weigh ingredients and standardize portions;
• When you throw away a product, make a note of the reason so that you can tackle the problem in the future.

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Food costs hold no secrets for you! If the profitability of your establishment is a subject that interests you, don't miss our latest e-book: how artificial intelligence can boost restaurant revenues 👇