What is food cost?
At its most basic, food cost expresses the food and beverage cost of the products sold as a ratio of sales.
In operational management, though, two different views matter:
- theoretical cost,
- actual cost.
How is recipe cost calculated?
The quantities of the ingredients in a product's recipe are multiplied by their cost values to give the total recipe cost.
For example:
150 grams of product A30 grams of product B20 grams of product C
In a recipe like that, the unit cost of every ingredient is taken into account.
Why does purchase price matter?
As ingredient prices change, recipe cost changes with them.
So an assessment made against fixed costs that have not been updated for a long time may not reflect the real position.
What is theoretical food cost?
It is the cost that should have arisen, given the quantity sold and the recipes.
This figure shows the result to expect when the business works to its recipes.
What is actual cost?
It is the cost view that emerges from real stock movements, counts, purchases and consumption data.
Why can theoretical and actual cost differ?
The reasons for the gap can include:
- portion differences,
- waste,
- missing records,
- a recipe error,
- a count difference,
- stock movements recorded incorrectly.
Any of these.
Does waste affect food cost?
It does.
An ingredient consumed or lost without being sold is a cost to the business.
So recording waste separately matters.
Why should cost be tracked per product?
The overall food cost ratio shows the general position of the business, but not which product is causing the problem.
Cost analysis per product can support decisions such as:
- pricing,
- revising recipes,
- portion control,
- menu optimisation.
Decisions like these.
Why should branches be compared?
Two branches using the same recipe can end up with different consumption and cost results.
Seeing that gap is what prompts the operational reasons to be investigated.
In summary
Food cost is not just a financial ratio.
Used properly, it tells you something about purchasing, recipes, stock, waste and the quality of the operation.
Kerzz