The restaurant business is a notoriously difficult one to do well in. It takes a lot of work and the margins are slim. You have to be a certain type of person to want to be a restauranteur. However, if you work hard, have a great concept, and implement efficient systems your bound for success.
The above graphic is a general breakdown of costs for the food industry. Obviously these percentages vary depending on your concept and particular situation, but these numbers are a good starting point to consider when organizing your restaurant.
According to the National Restaurant Association, independent restaurants have a profit margin of around 4-5%. In contrast, chain restaurants profit margins range between 10-12%. There is an average difference of 8.5% when comparing the food and beverage costs of these two styles of restaurant. This can largely be attributed to the fact that chain restaurants have more resources and therefore better inventory and food systems in place. Therefore, food costing is perhaps one of the most important factors to consider when trying to increase your profits.
When addressing food costing, it’s important to realize the difference between “ideal” and “actual" costs. Ideal costs are what the cost should be, if executed perfectly. Actual costs are what the cost actually turned out to be.
The formula for “actual” food cost is as follows:
Often times the difference (cost variance) between “ideal” costs and “actual” costs is about 9-10%. It is possible to decrease this difference by addressing the following:
If you address each of these issues, you will be on your way to increasing your margins and running a more efficient operation. The results that chain restaurants achieve are available to everyone if you put the work in to managing your costs through the implementation of systems. Although systems require diligence to implement, once they are working your life will be much easier. The goal is to create systems that work, so you don’t have too!
Sky's experience in the restaurant industry started when he was a kid growing up in his families restaurant. His journey took him to Bali, Indonesia where he now owns a restaurant and consults for others.