- 1.How to cut food costs in restaurants
- Identify high-cost, low-profit items in your menu
- Optimize your supply chain
- Be mindful of customer food waste
- Don’t let older ingredients go to waste
- Streamline your menu
- Consider using a food cost calculator
- Do a daily inventory on the items you use most
- Minimize the number of suppliers you use
- Pre-portion ingredients for menu items
- Hunt seasonal ingredients
- Use the FIFO method
- 2.How to cut labor costs in restaurant
- 3.Cost-cutting strategy for other operational issues
- Optimize energy usage
- Take advantage of free marketing
- Consider buying used appliances and equipment
- Lock up expensive alcohol
- Go easy on the freebies
- Reduce paper use by going digital as much as possible
- 4.How can restaurants cut costs during COVID?
If your tables are full every night and yet it seems like you’re bleeding money, you might be wasting a lot on things that simple cost reduction techniques can avoid. Below, I will teach you how to save money as a restaurant owner without sacrificing quality or customer experience. Check out these simple cost reduction strategies in restaurants.
Cost Reduction Strategies in Restaurants
From food to labor and everything in between, here is where and how to cut costs to maximize restaurant profitability.
How to cut food costs in restaurants
One of the number one money wasters in restaurants is food. But if food costs are too high, what do you check first? Let’s use the food cost formula to calculate the food cost percentage:
Total cost of ingredients / Menu item price
By calculating the food cost percentage, you will find out how much money you’re spending on ingredients compared to how much you charge for each menu item. Ideally, your food cost should be somewhere between 15 and 30%, which would give you a gross revenue per item of 70 to 85%.
By exercising food cost control, you can minimize your costs and maximize your gains. What is food cost control? Simply put, it is identifying the cost of food at your restaurant and learning how to reduce it.
The food cost-saving ideas below will help you pinpoint the causes of high food cost and eliminate them one by one. Without further ado, here’s how to reduce food cost in restaurant management.
1. Identify high-cost, low-profit items in your menu
Most restaurant menus have certain items that, despite costing a lot to make, don’t sell very well. These are what’s bleeding you dry. If people aren’t into them, there’s no point in keeping them around. Wave them goodbye and replace them with items you know (or suspect) your customers would love to try.
2. Optimize your supply chain
Identify gaps in your supply chain that are losing you money, and as much as possible, try to stick to one provider. Paying multiple delivery fees can be detrimental to your business. If you can find a supplier selling most of the ingredients you need, give them a chance, and you might save some money.
3. Be mindful of customer food waste
Do you regularly throw away leftover food on customers’ plates? You might as well throw your money straight into the trash. Reconsider your portion sizes if most customers can’t finish them. They won’t know the difference, and you’ll stop wasting food.
4. Don’t let older ingredients go to waste
As long as they can still be used safely, it makes no sense to throw away perfectly good, if slightly old, ingredients. Even if the bread isn’t fresh enough to be served as such, you can always turn it into croutons. Get creative with older ingredients, and you’ll reduce food waste and costs.
5. Streamline your menu
Your menu doesn’t have to be pages long and try to cater to everyone’s tastes. In fact, the longer the menu, the less decisive and satisfied your customers will be. If your specialty is pizza, there’s no need for you to also serve burgers, pasta, barbecue, salads, and so on. Avoid the paradox of choice by simplifying your menu to focus on a few things you do well.
This will improve efficiency in the kitchen and inventory management. It will also provide customers with more high-quality meals in less time.
You might also like: Why Restaurants with Small Menus Are More Successful [+ Menu Template]
6. Consider using a food cost calculator
If you want someone else to do the hard work for you, use a food cost calculator to track food costs every day. Once this becomes a habit, you’ll start paying much more attention to how much money you spend on food.
7. Do a daily inventory on the items you use most
Daily inventory is a must-do for any restaurateur. Focus on the ten products that you constantly use and that make up most of your food cost. Keep a record of the quantity for each at the beginning of the workday. When the restaurant closes, count again to see how much of each item you’ve used.
If the number doesn’t match up with the one on your POS, it might mean you’re over proportioning, wasting food, or it might be a sign of employee theft.
8. Minimize the number of suppliers you use
Practice one-stop shopping when it comes to your supplies, and you might manage to lower food costs. Consolidating a relationship with a supplier means you can negotiate better prices for large quantities of products or discounts for bulk orders.
9. Pre-portion ingredients for menu items
One of the factors that affect food cost in a restaurant is employees being overly generous with ingredients. This can become a real problem if the ingredients are costly. To avoid that, pre-portion your ingredients, at least for more expensive menu items. This will also speed up service.
10. Hunt seasonal ingredients
Using seasonal ingredients has many benefits for restaurants. First, the ingredients will be fresher and tastier. Second, they’ll be cheaper, which will lower food costs. Even more, you will offer diversity to your customers, which will keep them coming back. Not to mention you will also support local farmers.
11. Use the FIFO method
The “First In, First Out” (FIFO) method is straightforward yet highly effective at lowering food costs. Avoid your food expiring before you get a chance to use it by labeling everything with its expiration date. Then, place the oldest produce in front, so your staff uses it first. That’s it!
How to cut labor costs in restaurant
According to the restaurant labor cost formula, the labor cost percentage is your labor cost divided by the total sum of your sales of the same period. Labor costs are one of the highest expenditures for any restaurant owner. Here’s how to manage labor costs better.
12. Avoid overstaffing
Overstaffing is a common problem for restaurants and one that can lead to massive money waste. Learn when your slow periods are so you don’t have employees standing around doing nothing. That said, make sure you have enough staff during rush hour to avoid the opposite effect.
13. Hire smartly
Learn how to control labor cost in your restaurant by hiring the right people from the start. But what does it mean to be the right person for your restaurant’s staff? You need employees who understand your restaurant culture and will fit in immediately.
Don’t let someone’s lack of experience deter you from hiring them. As long as they seem right for the job and are willing to be trained, it might be worth taking a chance on them. To cut labor costs, hire people who are excited to work with you and want to be there in the long run.
Cost-cutting strategy for other operational issues
Now, let’s look at cost reduction strategies in restaurants that don’t involve food or labor.
14. Optimize energy usage
You can do small things to reduce energy usage that don’t take long and require no extra effort on your part. For example, soak dishes before washing them and only run the dishwasher when it’s full.
When it’s nice outside, open the windows and shut down the AC to save energy. Replace all bulbs with energy-efficient ones and consider buying energy-efficient appliances. Things like these can make a difference.
15. Take advantage of free marketing
Promoting your restaurant doesn’t have to make a hole in your budget. There are a ton of free or almost free marketing ideas for restaurants that you can use. For instance, our blog contains an entire library of articles that can teach you how to market your restaurant without spending a fortune.
16. Consider buying used appliances and equipment
Buying used is one of the best cost reduction strategies in restaurants. Not all appliances have to be new. Save money and become more environmentally friendly by hunting great deals.
You may find some from restaurants and other foodservice businesses that have closed down and are looking to sell their barely-used appliances. You can also buy second-hand furniture like tables and chairs.
17. Lock up expensive alcohol
Employee theft is a reality that you need to be aware of. Most often, what gets stolen is expensive liquor. It’s best if you keep it locked up to avoid this happening. Keep the key yourself or give it to the manager for safekeeping.
18. Go easy on the freebies
Restaurant freebies are great, sure. But some are just useless and wasteful. For example, bulk dispensers are preferable to wrapped straws and individually wrapped salt and pepper packets.
For delivery, don’t just throw in many napkins and extra salt and pepper packets unless the customer specifically requests them. Encourage restaurant clients to be environmentally conscious and take just one napkin. This will also be profitable for you.
19. Reduce paper use by going digital as much as possible
Organizing your kitchen, inventory, and finances digitally will make your job so much easier. Not just that, but it will also reduce costs on file folders, reams of paper, and so on. Keeping digital files of everything and backing them up regularly will reduce costs and increase peace of mind.
How can restaurants cut costs during COVID?
Finally, these cost reduction techniques in the food industry are extremely helpful during the COVID-19 pandemic.
20. Implement a free online ordering system
Food delivery has been many restaurants’ lifeline in these trying times, the only thing keeping them afloat. Investing a lot of money into an online ordering system now is out of the question for most restaurant owners. Luckily, you have a friend in GloriaFood.
21. Optimize your menu for delivery
Not every item on your dine-in menu will be suitable for delivery. Some dishes just don’t travel well. It’s better to create a delivery-only menu with limited items. This will mean fewer ingredients, so less money spent, and also less prep time. You will then be able to fulfill more orders in less time and earn more at the end of the day.
22. Support your staff
This is a tough time for everybody, especially for restaurant industry workers. Keep employee morale up by letting them know they can come to you with any issues and making an effort to celebrate their successes.
If the worst comes to happen and you find yourself without tasks to give to your front-of-house staff, ask them if they’d be willing to deliver for the time being. They will most likely appreciate your effort to keep them instead of letting them go.
23. Try negotiating with your landlord and suppliers
Suppose you have a good relationship with your suppliers. In that case, you can negotiate the price of ingredients based on extraordinary circumstances like the COVID pandemic. You can do the same for rent or even utilities.
Have you tried calling your utility company and negotiating a package deal? You can leverage your long time as a customer if that’s the case and suggest your budget might force you to switch providers.
24. Form waste-reducing habits
Like I mentioned before, habits like placing too many extra freebies in takeaway bags can lose you plenty of money. The trick is to replace these habits with waste-reducing ones that require you to pay more attention when packing a delivery bag, for instance. Don’t just do this yourself but train your staff to do it as well.
25. Consider reducing your hours of operation
At least for now, identify your peak hours and keep your restaurant open only for that period. While not ideal, it can help you save money during the pandemic. You can also reduce dining-in hours and focus on deliveries for the rest of the day.
There you have it: 25 cost reduction strategies in restaurants that will boost your profits without sacrificing the customer experience. With a little bit of organization, creativity, and attention to detail, you can implement all these techniques in your restaurant. Do you have any other tips on how to cut costs in the restaurant business? Let me know!