Whether you run a cafe, own a coffee shop, or are in charge of stocking your company’s kitchen with break room snacks, you probably know that one of the biggest costs in any business is food. It is one of the areas where cost variance can be most damaging to your operation and your bottom line.
Food cost variance and food waste can be two major issues in the food service industry, but with the right information, you can easily reduce food waste and food cost control variance to increase revenue and improve operations overall.Fortunately, there are things you can do to get control over it and keep it from making or breaking your restaurant/cafe.
What is food cost variance?
A food cost variance is a way of tracking how much money is spent on food versus how much money you made off of it. If a restaurant serves 100 customers but spends $500 on ingredients, that is a 50% food cost variance (FCV).
A higher percentage is not something to be appreciated—you want less variance in your revenue. Ideally, you want your revenue or revenue per item sold to be higher than your costs. That way, you get more profit from each sale.
It is impossible to sell an item at a profit when its costs are greater than what customers pay for it—hence reducing food cost variances is important for successful operations management.
Why does it happen?
Food costs vary from week to week. This variation can lead to overall profit loss if it is not closely monitored. When your food cost variance exceeds 1%, your restaurant is officially losing money.
If you fall into that category, do not worry—you are not alone. A report from Technomic found that 20% of restaurant operators experience an average 1% variance.
Major causes of food cost variance
Your customers demand a lot of value in return for their hard-earned money. With competition from fast food, grocery stores, and supercenters increasing, it is important to provide a memorable experience with your food service offerings.
You can keep costs down without sacrificing quality by focusing on these major causes of variance:
- Menu changes
- Running out of popular items at different times
- Spoilage and waste
- Food theft/fraud
- Customer complaints
- Product cost increases
- Operating expenses
- Changes in labor costs
How can we control it?
Control food cost variance by establishing processes for ordering, receiving, storing, and rotating stock of perishable goods.
In each process area, there are things that you can do to minimize food waste and improve inventory control. For example, stock management software is a must-have tool for managing your inventory from purchase order through the sale (and possible return).
Calculating food cost variance
As you can imagine, calculating food cost variance can be a time-consuming manual process. But there is an easy way to make it painless—or, at least, much less painful: by using an inventory management software that tracks your inventory levels in real-time.
StockTake Online makes it simple for you to view your food cost variance daily. It is like turning measuring variances into measuring profits.
How does it factor into profit margins?
Food cost variance is a key indicator of your food service company’s profitability, and understanding how it works is important. A food cost percentage variance indicates whether you are currently over or under budget concerning costs associated with items that make up your menu. It helps you determine if you need to change the pricing for certain menu items to maximize profits.
Under-budgets occur when some products are more expensive than planned; over-budgets result from other products being less expensive than projected. If most products are selling at or above projections, there may be little need for price changes on individual menu items.
How can you use variance calculations to manage inventory?
There are two ways that you can use variance calculations in your daily operations:
1) Benchmarking
2) Budgeting
Benchmarking allows you to compare your actual figures with a benchmark rate – which is simply an industry standard of cost per meal, service, or item. You can benchmark anything you want, whether it be a specific food item (i.e., chicken breasts) or an operation in general (i.e., labor cost).
Using benchmarks allows you to quickly see where your expenses are increasing or decreasing – saving time by quickly identifying problem areas before they become major problems. But remember that once something becomes a problem – it becomes much harder and more expensive to fix!
The second way variance calculations can help with inventory management is budgeting. Budgets will always vary depending on the business size, location, and competitive environment; but budgets allow you to take control of how your business grows.
Do not neglect this important task when managing inventory as running out of food items at rush hours can be more problematic than you think. Learn how you can save the day with our inventory management guide.
Or just use StockTake Online to simplify the entire process and to avoid the chance of errors completely!
