A beginner's guide to food cost analysis for a food business

As a food business owner, it’s important to have a handle on your costs. Conducting a food cost analysis can help you understand exactly how much you’re spending on ingredients, and where you may be able to make changes to increase efficiency and profitability.

Looking for other steps to mastering the art of menu planning?

Here’s a link: Mastering the art of menu development and pricing for a food business

In this beginner’s guide, we’ll go over the steps for conducting a food cost analysis, provide some examples of how it can be used in action, and discuss some tips and questions to consider when analyzing your food costs.

What is Food Cost Analysis?

Food cost analysis is the process of calculating the cost of each ingredient in a menu item and determining the overall food cost percentage for a business. This percentage represents the amount of money spent on food and beverage items as a percentage of the total sales for those items. By understanding your food cost percentage, you can make informed decisions about menu pricing, ingredient purchases, and overall profitability.

Step-by-Step Process for Conducting Food Cost Analysis

1. Identify all food and beverage items on the menu. This includes any specials or seasonal items that may not be on the menu permanently.
2. Determine the cost of each ingredient for each menu item. This includes both the purchase price of the ingredient and any waste or spoilage.
3. Calculate the portion size for each menu item. This will allow you to determine the total cost of the ingredients for each menu item.
4. Determine the sale price for each menu item. This will be based on your desired profit margin and any additional factors, such as competition and customer demand.
5. Calculate the food cost percentage for each menu item. To do this, divide the total cost of the ingredients for the menu item by the sale price, and multiply by 100 to express it as a percentage.
6. Calculate the overall food cost percentage for the menu. To do this, add up the total cost of all ingredients for all menu items and divide by the total sales for those items.

Examples of Food Cost Analysis in Action

Example 1:

A restaurant determines that the food cost percentage for one of its menu items is too high and decides to adjust the portion size to reduce the cost.

For example, let’s say a restaurant has a menu item that consists of a beef patty, lettuce, tomato, and bun. The cost of the beef patty is $2, the lettuce is $0.50, the tomato is $0.75, and the bun is $1. The total cost of the ingredients for this menu item is $4.25.

The restaurant has determined that it wants a food cost percentage of 30% for this menu item, so it sets the sale price at $14.17 ($4.25 / .3). However, after running the numbers, the restaurant finds that the food cost percentage for this menu item is actually 35%. To bring it down to the desired 30%, the restaurant decides to reduce the portion size of the beef patty from 6 ounces to 5 ounces. This reduces the total cost of the ingredients to $3.50, bringing the food cost percentage down to 25%.

Example 2:

A catering company conducts a food cost analysis and realizes that it can save money by bulk purchasing certain ingredients.

A catering company offers a variety of sandwiches on its menu, including a turkey and cheese sandwich, a roast beef and cheddar sandwich, and a veggie sandwich. After conducting a food cost analysis, the company realizes that it is spending a lot of money on individual packages of lunch meat, cheese, and vegetables.

To save money, the company decides to bulk purchase these ingredients and also implements a better inventory management system to reduce waste and spoilage. By making these changes, the catering company is able to lower its food cost percentage and increase its profits.

Tips for Conducting Effective Food Cost Analysis

• Keep accurate and up-to-date records of food and beverage purchases. This includes the purchase price, delivery fees, and any waste or spoilage.
• Regularly review and update menu prices based on changes in ingredient costs. This will help ensure that your prices accurately reflect your food costs and desired profit margin.
• Use a consistent portion size for all menu items to ensure accurate analysis. This will allow you to accurately compare the food cost percentage of different menu items.
• Consider the potential impact on overall profit when making changes based on food cost analysis. While it may be tempting to lower prices to reduce food costs, this could also result in lower profits if it results in a decrease in overall sales.

Questions to Consider When Conducting Food Cost Analysis

What is the current food cost percentage for each menu item?

This will give you a baseline to work from and allow you to identify any menu items that have a significantly higher or lower food cost percentage.

Are there any menu items with a significantly higher food cost percentage than others?

If so, consider whether changes can be made to reduce the cost of these items, such as adjusting portion sizes or negotiating better prices for ingredients.

Can the portion size for any menu items be adjusted to reduce the food cost percentage?

This can be a simple way to lower costs without affecting the overall sales price of the menu item.

Are there any ingredient costs that can be negotiated or reduced through bulk purchasing?

By negotiating better prices with suppliers or bulk purchasing certain ingredients, you may be able to lower your overall food costs.

How will any changes based on food cost analysis impact the overall profit of the business?

It’s important to consider the potential impact on profits when making changes based on food cost analysis.

In conclusion, food cost analysis is a valuable tool for a food business to optimize profits and make informed decisions about menu pricing and ingredient purchases. By regularly conducting food cost analysis, a business can identify opportunities to reduce costs and increase efficiency. By keeping accurate records, regularly reviewing and updating menu prices, using consistent portion sizes, and considering the potential impact on profits, a business can effectively use food cost analysis to make informed decisions that will improve profitability.

 

Here’s a list of other menu development and pricing guides that you can read:

1. A Beginner’s Guide to Menu planning for a Food Business
2. A Beginner’s Guide to Recipe development for a Food Business
3. A Beginner’s Guide to Food cost analysis for a Food Business
4. A Beginner’s Guide to Pricing strategy for a Food Business
5. A Beginner’s Guide to Customer demographics for a Food Business
6. A Beginner’s Guide to Seasonality for a Food Business