Video summary

Food Costs Formula: How to Calculate Restaurant Food Cost Percentage

Main summary

Key takeaways

Business

Why Track Restaurant Food Cost (Plate + Period)

  • Food cost is the baseline for profitability: without knowing what menu items cost and how the food cost percentage trends over time, it’s difficult to identify what changes are needed.
  • Lower food cost ⇒ higher profit (a key operating lever).
  • Enables accurate menu pricing and menu optimization (“menu engineering”)—improving profits by rearranging items, presentation, and verbalization, but only after item costing is known.
  • Clarifies a common misconception: food cost is not simply “how much you spent on food this month.” Using only purchases can create misleading, fluctuating results.

Core Frameworks / Formulas (Playbooks)

Two Types of Food Cost

1) Plate Cost (Item-Level)

  • Formula: [ \text{(Cost to prepare ÷ Selling price) × 100 = food cost % (plate cost)} ]

  • Example: $2 prep ÷ $8 price = 0.25 → 25%

  • Action point: operators should know the cost of every plate/drink/wine/glass in real time (used to price and optimize menus).

2) Period Cost (Time-Based, Category-Level) Using COGS

  • COGS / usage calculation: Beginning inventory + Purchases − Ending inventory = Usage (for the period)

  • Period food cost %: [ \text{(Usage ÷ Sales) × 100 = COGS-based food cost %} ]

  • Applies to categories such as beer, wine, liquor, merchandise, etc.

Operational Segmentation / Data Requirements (How to Measure Correctly)

  • Track in small, specific categories to diagnose issues and wins, for example:
    • Beer: bottled vs. draft (track separately)
    • Wine: bottled vs. by-the-glass (track separately)
    • (Also mentioned: liquor and merchandise tracking)

Two Key “Comparison Rules” (Avoid Common Measurement Errors)

  1. Match category purchases + inventory to matching category sales

    • Example: Beer cost must use beer purchases + beer inventory + beer sales (not total sales).

  2. Match inventory/purchase period to the same sales period

    • Example: March food cost uses March beginning inventory, March purchases, March ending inventory, and March food sales.

Concrete Example (March Period Food Cost)

  • Inputs

    • March beginning inventory: $5,000
    • March purchases: $224,000
    • March ending inventory: $4,000

  • Compute usage

    • $5,000 + $224,000 − $4,000 = $25,000 usage

  • Compute food cost %

    • $25,000 ÷ March food sales = 0.25 → 25% food cost
    • Emphasis: use March food sales, not total sales.

Target Guidance (What “Should My Food Cost Be?”)

  • The presenter states there is no universal industry-average target (e.g., “between X and Y”) because the “right” food cost depends on restaurant-specific factors.
  • A next step is suggested: a free resource on the website to determine the “most important number” for profitability (described as more than just food cost). The exact target range is not provided in the subtitles.

Actionable Recommendations

  • Implement a recurring cadence to track:
    • Plate cost per menu item (cost-to-prepare vs. selling price)
    • Period food cost % per category using COGS (beginning inventory + purchases − ending inventory)
  • Maintain disciplined categorization (e.g., beer draft vs. bottled; wine by-the-glass vs. bottled).
  • Correctly align category and time period when comparing purchases/inventory to sales.

Presenter / Source

Ryan Gromen (author, speaker, Chef; founder of Restaurant Boss and Restaurant Coaching Club)

Original video