When I bought my Cafe, it was a struggling business heading to bankruptcy. The first thing we did when we began to overhaul the menu was costing. Lucky for us we started here, because we found several items with over a 50% food cost which will run any restaurant into the ground.
Some might think the cost of food is the most important determination for menu costing, but I would argue that portion control is even more important. Food prices will fluctuate but your portions shouldn’t. By weighing, pre-portioning, and using measure scoops a restaurant can control exactly how much of each product goes into each dish. This will control your costs and keep your customers happier – nobody likes coming in a second time and getting half as much avocado on their sandwich because your line cook wasn’t paying attention.
Food cost is the cost of the food used to prepare a particular dish divided by the its menu price. It should be calculated on each item based on your strict portion-controlled servings. I would suggest an excel spreadsheet in which you input the current buying prices of each raw food item you use. You also must determine for each ingredient what proportion of the units purchased are required for the portion of each ingredient you use in a dish. Continuing the avocado example, you might find that you have enough slices from one avocado to use as the portions in three sandwiches. If you are buying avocados by the box and there are 30 pieces in a box, then each portion is 1/90th of a box. By combining this and the cost of a box, you’ll end up with an exact cost for a portion of avocado in the sandwich (and the raw ingredient prices can easily be updated in the future when they change.) Don’t forget to include the cost of disposables.
Food cost generally hovers in the 25-35% range. Quick serve restaurants usually sit on the lower end of this range while fine dining is on the higher end. If you have a couple of popular items that fall a little on the high end that can be okay. We had a couple of loss leaders on our menu that priced “correctly” would have seemed out of place but we knew drew in business and we balanced them out with a couple of lower cost items.
Diversify your Offerings
As the Avocado Cafe we had very little insulation when Avocado prices spiked last summer, and we ended up seeing a significant amount of our profits disappear. Buffalo Wild Wings could also tell you how challenging it has been as wing prices have surged in recent years. Not over relying on one menu item (or naming your restaurant after one item, oops) will help insulate you against some of the dangers of rising food costs.
Understanding your target consumers, local competitors, and location will help you price your menu successfully. If the restaurant next door has a NY Strip Steak for $30, you might be hard pressed to sell many for $40 unless your dish is markedly different. In affluent areas you might be able to get away with overpricing the competition if your food is better, but if you are targeting lower income customers you will want to be price competitive.
Less is More
For restaurant menus this is often true. Looking at the success of many quick-serve restaurants you’ll notice the success these restaurants are going with fewer choices. Gone are the days of booklets for menus (unless you happen to be The Cheesecake Factory). Chili’s cut over 40% of their menu to focus on their core offerings, and I expect other of the casual dining options that have been struggling of late will follow suit.
After costing our menu we were able to remove losing items and correct the prices on others. By keeping strict control of our food costs we put ourselves in a position to turn the tide and make money. Once you get a firm grasp on your base menu food costs, you can start having fun and consider supply chain management, food waste, and limited time offerings.