COGS Management: Tracking and Reducing Food Costs

Cost of Goods Sold (COGS) is typically the largest expense for restaurants, often accounting for 28-35% of revenue. Even small improvements in COGS management can have a significant impact on profitability. A 1% reduction in COGS can translate to thousands of dollars in additional profit annually.

Understanding Your COGS

COGS includes all direct costs associated with producing food: ingredients, packaging, and delivery fees. It does not include labor, rent, utilities, or other overhead expenses.

To calculate COGS accurately, you need to track:

The formula is: Beginning Inventory + Purchases - Ending Inventory = COGS

Tracking Inventory Accurately

Accurate inventory tracking is the foundation of COGS management. Many restaurants lose thousands annually to waste, theft, and poor tracking. Implement a system to track inventory regularly, ideally daily for high-value items and weekly for others.

Use a consistent method for valuing inventory. FIFO (First In, First Out) is the most common method for perishable goods, as it reflects actual usage patterns and provides a more accurate picture of current inventory value.

Standardizing Recipes

Standardized recipes ensure consistency and help you understand your actual costs. Each recipe should specify exact quantities of each ingredient, cooking methods, and plating instructions.

By standardizing recipes, you can accurately calculate the food cost for each menu item. You can also identify opportunities for cost reduction without compromising quality. For example, you might discover that a recipe uses twice as much of an ingredient as necessary.

Reducing Waste

Food waste directly impacts your bottom line. Common sources of waste include spoilage, over-production, trim waste, and plate waste.

To reduce spoilage, implement proper storage procedures and rotate inventory using FIFO. Train staff on proper storage temperatures and shelf life. Consider implementing a first-in, first-out system for all ingredients.

To reduce over-production, analyze sales data to forecast demand accurately. Produce to order when possible. Use excess production for specials or staff meals rather than throwing it away.

To reduce trim waste, train your prep staff on proper cutting techniques. Consider using trim for stocks, sauces, or other applications. Some restaurants use vegetable scraps to make vegetable stock, reducing waste while creating a valuable ingredient.

Supplier Negotiation

Building strong relationships with suppliers and negotiating favorable terms can significantly reduce your COGS. Don't assume that the first quote you receive is the best available.

Get quotes from multiple suppliers for your major purchases. Negotiate volume discounts for items you purchase regularly. Ask about seasonal pricing, promotional pricing, and payment terms that might improve your cash flow.

Consider consolidating purchases with fewer suppliers to increase your volume and negotiating power. However, maintain relationships with backup suppliers to ensure you're not overly dependent on any single source.

Menu Optimization

Your menu composition directly affects your overall COGS. Items with high food costs reduce your profitability, while items with low food costs improve it.

Analyze each menu item's food cost percentage. Items with food costs above 35% might be too expensive. Consider whether you can reduce the cost, increase the price, or replace the item with something more profitable.

Use menu engineering to identify your best performers. Focus on items that are both popular and profitable. Consider removing or repositioning items that are unpopular or have high food costs.

Portion Control

Inconsistent portions directly impact your COGS. If some portions are larger than others, your actual food cost will be higher than your calculated cost.

Implement portion control measures such as scales, scoops, and ladles. Train staff on proper portioning. Regularly verify that portions are consistent. Even small variations in portion size compound over time.

Seasonal and Local Sourcing

Seasonal ingredients are typically less expensive than out-of-season items. By building your menu around seasonal ingredients, you can reduce costs while offering fresher, higher-quality products.

Local sourcing can also reduce costs by eliminating transportation expenses and allowing you to buy directly from producers. Many customers also appreciate local sourcing from a values perspective, allowing you to potentially command premium pricing.

Monitoring and Benchmarking

Regularly monitor your COGS percentage and compare it to industry benchmarks. Your target should be based on your restaurant type, but 28-35% is typical for most restaurants.

Track COGS by category (proteins, produce, dairy, etc.) to identify which areas have the highest costs. Focus improvement efforts on the categories with the largest impact on your overall COGS.

Conclusion

COGS management is an ongoing process that requires attention to detail, regular monitoring, and continuous improvement. By tracking inventory accurately, standardizing recipes, reducing waste, negotiating with suppliers, optimizing your menu, and controlling portions, you can significantly reduce your food costs and improve profitability. Start with one or two areas where you see the most opportunity for improvement, measure the results, and build from there.