Food and beverage (F&B) costs are one of the largest operating expenses for restaurants. Effectively managing F&B costs, including food, liquor, beer, wine, and non-alcoholic beverages, is essential to protect slim profit margins. Let’s explore the biggest culprits behind these costs and how you can gain the insight you need to take control.
Common Causes of Higher F&B Costs
Inflation and Market Fluctuations: The cost of raw ingredients, from vegetables to meats, seafood, and even liquor, fluctuates. As a restaurant operator, you need to keep your finger on the pulse of your purchases and know what you're buying, from who, at what cost, and in what quantity.
Waste and Spoilage: Improper storage, such as letting perishables like dairy or produce sit too long or over-ordering ingredients that go unused, can lead to significant losses. Whether it’s lettuce wilting from improper refrigeration or a bottle of wine that oxidized, you need a clear view of what you're wasting and why.
Portioning Issues: Over- or under-portioning has a direct impact on your food and beverage costs. For example, serving oversized portions of expensive proteins like steak or seafood can eat into your profits. Likewise, inconsistent drink pours, whether it’s an extra splash of wine, liquor, or a cocktail ingredient, can add up over time.
Menu Inefficiencies: Recipes and ingredient costs continually change. The best way to optimize your pricing is through recipe management. Additionally, certain menu items may be more or less popular than others. The best way to evaluate your menu items is to use a combination of profitability and popularity.
Theft: According to the National Restaurant Association, the average restaurant loses around 4% of sales per year due to theft, with the majority of this coming from employees. One of the best ways to identify theft is to know the quantity of inventory you should have used based on sales and recipes.
The Role of Restaurant Inventory and Recipe Management
Understanding your F&B cost components – like how much is due to inflation, waste, or inefficiencies – is critical. That's where inventory, recipe, and cost management systems come into play. Best-in-class solutions like COGS-Well go beyond tracking inventory levels to provide deeper insight into your operations. They help you:
Track Your Purchases
Calculate Your Cost of Goods Sold
Monitor Actual vs. Theoretical Inventory Usage (what was used versus what should have been used)
Improve Menu Efficiency
Control Waste
Save Time
“We strongly believe that tracking theoretical costs is essential. Especially when you are using seasonal, largely organic ingredients where fluctuating prices are the norm. The added insight into food cost in real-time is critical.” – Noah Kopito, Director of Kitchen Operations, All Parts Considered (Mamahuhu)
The Importance of Actionable Data
Having data is one thing, but knowing how to use it effectively is what drives profits. A growing trend in the restaurant industry is to adopt back-of-the-house software that empowers operators to make data-driven decisions. These tools provide clarity on cost drivers and allow you to take control of your operations with minimal manual effort.
For restaurants and bars with limited bandwidth, leveraging technology designed for the quick service, fast casual, pizza, full service, and fine dining segments can level the playing field. With inventory and recipe management solutions, you can reduce waste, improve accuracy, and increase profitability.
“As food and beverage costs are one of the largest components of the cost structure, it is imperative to have accurate, real-time analytics to monitor how things are going. The data tells a story – using a system that can help me interpret that story is invaluable.” – Joan Gillcrist, Owner, 68 Degrees Kitchen
Final Thoughts
Food and beverage costs will always be a challenge, but they don’t have to derail your business. By understanding what causes these expenses to spike and leveraging the right system and processes to control them, you can protect your margins and drive long-term success. Prioritize efficiency, minimize waste, count your inventory, and use data to your advantage – because every dollar saved is a dollar earned.
“With COGS-Well, we've seen our entire kitchen operation become more organized and our food cost has dropped 3 points over the last year.” – Jennifer Johnson, General Manager, the Padre Hotel