Managing costs in a restaurant typically fall into Overhead, Labor, and Cost of Goods Sold (COGS). Focusing on these “big buckets” – and veteran Owner/Operators know there are countless little but vital “little buckets” – are foundational to healthy profitability.

Financial performance best practices in food cost reduction are crucial to profitability. The biggest cost reduction strategies in restaurants include:

Optimize Inventory Management

Managing inventory effectively is essential for reducing waste and controlling costs in a restaurant. Implementing an automated inventory management cloud-based platform, enforcing policies to prevent waste, and conducting regular inventory audits are fundamental.

Implementing a regular inventory management system can be manual or automated using a software platform. Inventory management typically involves conducting regular inventory audits to track the amount of food on hand, setting purchase and reorder thresholds to ensure that ingredients are always in stock, and implementing policies and procedures to prevent waste.

Four steps restaurant managers can take to manage inventory:

1. Conducting Scheduled Inventory Audits. Regular inventory audits can help a restaurant ensure that its inventory levels are accurate and up to date. These audits should involve physically counting the amount of each ingredient on hand and comparing it to the inventory records to identify any discrepancies.
2. Automating Inventory Tracking. A restaurant can control inventory more effectively by avoiding manual inventory tracking – spreadsheets, lists, and folders filled with invoices – and using a software application that once set up automates these manual tasks.
3. Working More Closely with Vendors and Suppliers. A restaurant can effectively control inventory by working more closely with its vendors and suppliers. Optimizing delivery schedules, negotiating bulk purchase discounts, and creating clear lines of communication help ensure that the right ingredients are delivered promptly during these difficult times of supply chain management.
4. Implementing Effective Anti-Waste Policies. Spoilage and waste can be a significant cost, so implementing policies and practices to prevent these losses is paramount. A "first in, first out" (FIFO) system for rotating ingredients, providing training to employees on food handling and storage, and implementing strict guidelines for discarding expired or spoiled food is a must.

Diligently Analyze Margin and Profitability

Regularly evaluating menu pricing helps ensure that the menu is profitable and covers costs – and generates profit. This may involve conducting market research to understand local pricing trends and adjusting prices as necessary.Many factors can influence menu prices. Some common factors include changes in local market conditions, changes in the cost of ingredients, and pivots in business strategy. Restaurants may also adjust their prices in response to competition.On a side note, respected industry best-sellers focused on local market research for Owner/Operators and Entrepreneurs include:

• "The Restaurant Manager's Handbook: How to Set Up, Operate, and Manage a Financially Successful Food Service Operation" by Douglas Robert Brown
• “The New Restaurant Manager: How to Get Ahead, Avoid Rookie Mistakes, and Still Have a Life” by John T Self
• "Restaurant Success by the Numbers: A Money-Guy's Guide to Opening the Next Hot Spot" by Roger Fields
• You can find many more suggestions in our blog post featuring 10 best restaurant management books to read in 2023.

One of the largest expenses for a restaurant is the cost of food ingredients. To control these costs, restaurants should carefully manage portion sizes, minimize waste, and negotiate bulk purchase discounts with suppliers.

Five steps that restaurants can take to control food and beverage costs

1. Minimize Food Waste. Food and beverage waste can be a significant cost for restaurants, so it's important to minimize waste as much as possible. This may involve implementing a regular food waste tracking system, conducting regular inventory audits, and implementing policies and procedures to prevent spoilage and waste.
2. A Seasonal Menu. Implementing a rotating menu that changes based on the availability of ingredients can help restaurants control food and beverage costs. Taking advantage of lower prices for ingredients that are in season while also providing variety and keeping the menu interesting for customers.
3. Portion Size Management and Enforcement. One of the easiest ways to control food and beverage costs is to carefully manage portion sizes. This may involve using standardized portion sizes and measuring cups or scales to ensure that each dish is consistent and that ingredients are not being wasted. Training employees is obviously important here.
4. Negotiating Bulk Purchase Discounts. A best practice in improving margin and profits is negotiating bulk purchase discounts with vendors and suppliers. Often this requires purchasing ingredients in larger quantities or establishing a long-term relationship with a vendor or supplier.
5. Effectively Manage Labor Costs. Labor costs can be a significant expense and the center of profit or loss for restaurants. Optimizing staff management and scheduling ensure that Managers are utilizing employees efficiently. This may involve adopting labor-saving software, scheduling applications to optimize staff assignments, and offering training to help new employees get up to speed efficiently.

Three steps to control labor costs

1. Adopting Labor-Saving Technologies. This one is as old as the hills, but investing in labor-saving technologies typically makes employees and managers more efficient once over the learning curve. Using automated systems for tasks such as processing payments, order taking, POS, or purchasing equipment makes it easier for employees to perform their daily tasks.
2. Carefully Managing Staff Schedules. Restaurants can save money on labor costs by carefully managing staffing levels to ensure that the right number of employees is scheduled for each shift. Using scheduling software so that there are adequate staff to handle the workload without having too many employees on the clock is a current trend.
3. Training and Development Opportunities. Providing employees with development opportunities and adequate training can improve their skills, help them work more efficiently, and ultimately reduce labor costs and increase profits. Promoting from within to fill management positions, regular training sessions, and access to educational and workforce resources are all elements of this.

Restaurant management never ceases to be challenging, and current affairs continue the trend that managing a restaurant is always demanding! With profits and margins the lifeblood of any business, increasing efficiency, and decreasing costs is a simple formula but not always so easy to achieve. We here at MarketMan strive to create a restaurant management platform that bridges that gap to help simplify the path to decreased costs and improved profits. Reach out to us with any questions you might have.