Solving a Bothersome Problem! What’s the Appropriate Food Cost Percentage of Sales Price?
In operating a restaurant business, there are lots of details that the entrepreneur has to think about and plan. However, one thing that the entrepreneur has to pay particular attention to is cost. This is because setting an appropriate cost structure directly affects sales and profits, while also reducing food cost. One important reason why large numbers of SME restaurants suffer losses is incorrectly setting the cost structure from the beginning.
Pick content to read in the article:
- What makes up restaurant food costs?
- What’s the appropriate cost percentage for restaurants?
- Why is food cost high?
What makes up restaurant food costs?
The first thing owners of restaurants of any size have to thoroughly understand is cost. Restaurants have a lot of costs such as the following:
➡️ Rent
➡️ Water fees
➡️ Electricity fees
➡️ Gas fees
➡️ Travel fees
➡️ Labor fees
➡️Business owner labor fees (here most SME entrepreneurs forget to think about, which is a mistake that impacts business).
However, the costs with the most components and greatest impact on this type of business is food costs. If the entrepreneur mismanages this cost, profits will be directly affected. Entrepreneurs already know well that high food costs minimize profits and high sales prices make it difficult to sell. So, one big question is “what is the appropriate food cost percentage of the sales price?”
First, let’s understand what the term food cost primarily means. Food costs mean the following:
➡️ Ingredient cost
➡️ Packaging cost
➡️ General beverage cost
➡️ Alcoholic beverage cost
These are the main parts of food cost that entrepreneurs have to allocate in appropriate ratios.
Accordingly, an entrepreneur might have learned that the food cost percentage often should not exceed 35%. This is true, but not in all cases. Try to imagine a situation where you were to sell à la carte food at the side of the road, and the fried-eggs-on-rice menu item has the following cost:
➡️ 2 eggs
➡️ 50 grams of ground pork
➡️ 150 grams of rice
➡️ A small amount of vegetable oil and seasonings
The total cost is 20 baht.
If you calculate it by the idea that cost should not exceed 35%, this plate of fried eggs on top of rice would have to be sold at 57 baht. So, here’s the question: Based on the location and target customers for fried eggs on top of rice, can this dish be sold at this price?
What’s the appropriate cost percentage for restaurants?
In truth, food costs have to depend on the type of restaurant being operated such as the following:
▶️ The food cost for street food restaurants is 40-50%.
▶️ The food cost for restaurants inside department stores is 30-40%.
▶️ The food cost for buffet restaurants is 40-50%.
▶️ The food costs of cafes is 25-30%.
▶️ The food cost of restaurants that emphasize their atmospheres is 25-35%.
These are the reasons why different types of restaurants have different food costs:
▶️ Expectations in the restaurant by customers who use the restaurant’s services.
▶️ Different cost structures, particularly for rent.
▶️ Service usage duration.
Accordingly, food cost is connected to setting food prices. You can learn about the techniques on how to set food prices from a professional at this free online course!
Why are food costs high?
Here’s another important thing: managing costs from being too high or trying to cut restaurant food costs. Oftentimes, there are two main reasons why cost might be high as follows:
- Unusually high level of ingredient wastage – Entrepreneurs have to watch out for these:
> Poor ingredient storage that might impact quality and prevent usage.
> Ordering excessive quantities of ingredients that expire and cannot be used on time.
> Work errors such as taking wrong food orders and the chef preparing wrong food orders.
These occurrences can waste ingredients without creating sales, so food costs would naturally be higher. If you would like to learn how to cut food cost, you can learn about how to store ingredients and fresh ingredient storage techniques with recommendations offered by a professional chef like Willment Leong in the course “Professional Ingredient Storage Techniques” for free!
- Not using ingredients according to recipes or there are no recipes
This is what happens in a lot of SME restaurants, as people often go heavy in ingredients when cooking, or they just estimate the amount they use. In addition to failing to maintain a consistent flavor standard for every dish, food costs will also be affected. Take, for example, a case involving over-use of ingredients. Let’s say that a salmon sashimi is to be served at 22 grams per slice, but your employee regularly serves 25 grams per slice. If there are 100 slices per day, that’s 300 grams of salmon that’s gone missing. Of course, that would make costs higher.
So, in preparing each menu item, you should have set recipes and use tools to weigh and measure ingredients to cut food costs.
Here’s some food for thought: the entrepreneur’s ability to appropriately manage cost or lower cost without affecting quality and services can instantly increase business profits. You can learn more about ingredient cost management and control at this free online course!
