How to Control Restaurant Food Cost with Your POS System - Includes Demo

If you're a restaurant owner, and you want to be able to really take control of your food costs, you need to understand how important your point of sale system is to that journey. In this video I’m talking about mastering your restaurant food cost and giving you a quick-start guide to setting up your POS system for success.

Before I get into it, I'd be remiss if I didn't start with the why. Let's start with the basics of where your food cost should be. Let me be clear your food cost is not based off of a national average. There are many places online and within organizations that say the average full service restaurant should run an average 34 percent food cost. Here is the problem with giving you an average to aim for: you are not average. Your restaurant has its own conditions – location, type of food, type of service, customers, etc. That 34 percent average includes pizzerias and steakhouses, which should not have the same average food cost.

Instead, there is a wide range for food cost.

To really understand that range and where your restaurant should fall, it’s helpful to understand prime cost. Basically, prime cost is the total of your labor cost and cost of goods sold combined. I preach that if you do $850,000 a year or more in sales your prime cost target is 55%. You can get to a 55% through any combination of labor and COGS percentage, e.g., a 25% COGS and a 30% labor cost or vice versa or any combination.

Now, how do you know where your food cost should be based on the current menu you have if it's not supposed to be 34%. You need to learn how to calculate your ideal food cost, which requires accurate, up-to-date recipe costing cards and your POS system’s product mix report (PMIX) or velocity report. This tells you every item that you sell to your guests and how many they purchased of each one of those things. Then you can gather the cost of that recipe, what you sell it for, and how many guests actually purchased it to calculate ]your ideal food cost. Your ideal food cost is what your food cost would be if there was no waste, no theft, or no spoilage, which is impossible. A typical restaurant runs seven to nine points above that ideal food cost, which gives you a lot of room for improvement. Then, once you’re close to that ideal, know you’re always going to run a couple of points above that ideal food cost because a perfect restaurant doesn’t exist.

Your food cost is basically a weighted average. It allows you to sell anchor appetizers out of a box into a fryer at 38% food cost because you sell the living heck out of your hand cut, fresh cut French fries at a 5% cost. If you sell more of the 5% appetizers, it lowers your food cost. (Watch calculating your ideal food cost here.)

Now let's talk about the challenge of getting your ideal food cost using your POS system.

There are two big challenges that prevent you from getting a good number from your POS system: side dishes and modifiers. This is mostly because most restaurants program their POS system for speed. This is usually having one item to represent many variations, e.g., a hamburger, and then using universal modifies to show the customization of that item. The problem with this is you’re not accurately pricing each burger if you’re using universal modifiers. When it comes to side dishes, it’s the same problem. If you don’t have each side dish as an individual option in the POS system, then you’re not accurately pricing or calculating costs. For example, if you sell a breakfast item with bread as a side dish, all bread is not priced the same. But if you don’t include all the types of bread in the list of modifiers, you’re not getting accurate pricing. It also makes it hard to know what product you’ve sold the most of.

While it takes some time to set up, creating individual modifier lists for each individual item is the answer. This will ensure that you can grab your menu mix and appropriately calculate your ideal food cost because you will know how many of each of those things you sell.

You also need to create recipe costing cards for your batch recipes, which are those items such as sauces, dressings, side dishes, etc., that you make in your restaurant and are part of your menu items.

Watch the video above to see an example of a recipe costing card for a batch recipe, again a batch recipe can be a component to a dish, to a dessert, to a dressing or soup, or whatever. In this case I’m using it to find from the product mix from your POS system, what your ideal or average weighted side dish is for a barbecue sandwich that has a choice of two sides. In the video, I walk you through the process and the calculation.

I recommend food and beverage software, such as Margin Edge, so you can compare your ideal product usage to your actual product usage, which will tell you ideally what you should have used based on your menu mix and how much, according to your ideal food cost, you should have used. If you should have used 350 pounds of chicken based on what your customers actually purchased, but you actually used 400 pounds, now you can highlight it and fix the exact problem that's running your food cost up and you can start hitting your food cost budget.