Last Updated On September 22, 2020 / Written By Mary Kate Morrow

How Restaurants Adjust for High Food Costs

The Problem with High Food Costs

Food prices are consistently rising over time, making it increasingly difficult for restaurants to stay in business. As the consumer price index changes, food price increases affect everyone, from grocery stores with an established supply chain to small businesses just starting out in the restaurant industry.

There is much to analyze when looking at food costs beyond considering food price increases only. A restaurant's food costs can rise as a result of many factors, including-

1. Improper ingredient ratios- Not balancing out higher-priced ingredients with lower-priced ingredients is a common mistake in the restaurant industry that can have huge financial consequences.

For instance, if you are serving a seafood item, it is best paired with a lower food price side such as pasta or rice. Remember, food cost should generally hover between 30-35% but ideally can be further optimized.

2. Employee theft- Theft can occur in many ways, ranging from directly from a restaurant's food supply via raw materials or through inappropriate food price comps. A great way to avoid your employees from improperly comping meals is to offer them a free meal during their shift and monitor their discount codes.

Management software can be used throughout the supply chain to make sure that none of the raw ingredients in your food supply are being stolen by employees or vendors. Keep your inventory as safe as possible by monitoring your food supply consistently.

3. Food waste- Whether you receive your food supply from a grocery store or independent vendor it is important to use your inventory as effectively as possible to avoid food waste. Consistently increasingly rising food costs make it even more crucial to use your food supply productively.

A well trained and experienced kitchen staff will further find ways to decrease food waste. For example, a creative chef may use chicken bones for stock instead of throwing the bones out.

4. Keep personal finance separate- Food prices at your local grocery store are likely significantly more expensive than those offered by your restaurant's vendor. As a business owner, it can be tempting to use your vendors to obtain decreased or discounted food prices.

Avoiding grocery stores in lieu of adding your groceries to your inventory can be tempting for personal finance benefits. However, involving personal finance in your food supply inappropriately will affect your food cost and profit estimates, potentially destabilizing the established food system at your restaurant.

If you do choose to add in your personal food budget to bulk vendor orders you must clearly note when you do so. Although you may get a better price going through your vendors rather than your local grocery store you must still pay back your restaurant for all the food products you bring home.

How to Tackle High Food Costs

Food price increases are a very real concern for the restaurant industry. Whether you are a small business owner or own one of a large chain of restaurants, prices rising can be combatted with these food cost management tips-

1. Track prices- Research food prices to anticipate and plan for price increases that are projected to occur in the future. The consumer price index is a great place to start analyzing food supply patterns for both your personal finance and your restaurant inventory.

For example, if egg prices decrease by 10% that could indicate that it is time to add more menu items with eggs as the main ingredient. Alternatively, if egg prices were to go up 10% you might decrease your breakfast menu and add in more lunch options that are not as reliant on eggs.

2. Join a purchasing group- A small business should definitely look into joining a purchasing group. This can help keep food prices down through placing bigger orders distributed to multiple small business operations. Larger orders can help combat food price increases by allowing bulk orders otherwise not possible for a small business owner.

3. Increase prep work- Convenience can be costly as food prices are generally higher for prepared food items. For example, it typically costs much less to buy a whole watermelon than to buy pre-cut cubes.

Make sure to factor in the labor costs of prep work to ensure that your restaurant is saving money. In many cases, although labor costs may increase slightly it is worth the decrease in food price overtime for the small amount of prep work needed.

4. Purchase the proper grade- Of course you want to provide your customers with the best quality of food possible but you still need to keep food prices reasonable. Instead of buying the best grade of food possible, look for a healthy balance between food price and value.

5. Shop around- Check various vendor food prices instead of always going through one vendor. If you find lower food prices at another vendor, ask your preferred vendor if they can match those prices.

There is always room for negotiation with your vendor, it never hurts to try and negotiate lower food prices in return for your loyalty and continued business. Always shop around so that you can get the best food prices possible and keep your food costs low.