14 Strategies to Reduce Food Costs: Essential Tips for Success

Profitability is a daily challenge for every restaurant owner and manager. Reducing food costs can boost your bottom line, ensuring that more top-line revenue flows into your bank account. The following are strategies I recommend that will help you track, manage, and reduce your restaurant food costs.

1. Understand How Food Cost Impacts Profitability

Most restaurants earn a 3% to 10% profit margin, so reducing your food costs can be the difference between an overall profit and a loss. Profitability is all about the amount of your top-line revenue that flows through to your bottom line as profit. 

Food cost is a compelling focus for restaurant operators because it is controllable. No ingredients arrive at your restaurant until you order them from a supplier, so your food cost truly rests in your hands, or the hands of whichever one of your chefs or managers places orders.

2. Stay Current on Ingredient Costs

Ingredient costs fluctuate—sometimes wildly—over time. According to US Bureau of Labor Statistics data, baseline consumer food costs in the United States have increased from 5% to 11% every year since 2022. Most restaurant suppliers list the cost of ingredients on their client ordering portals or on weekly or daily price lists. If you miss those prices (which can easily happen when you’re placing phone orders at the end of a long day), you’ll always see the prices listed on your invoices. 

Keep track of prices that are rising. If you have a good relationship with your account rep, they will usually reach out to tell you that a product you order regularly is getting pricier. The level of detail you can achieve with tracking depends entirely on how much time you have. Even if you can only take 30 minutes a week to sit down and review all your weekly invoices, that is helpful. 

When you run into a costlier item, you have three options; remove, replace, or reprice.

• Remove: Take the item off your menu until prices come down. This is a good move if the item is less popular, or a seasonal item. Try to avoid removing a popular item; customers can revolt. 
• Replace: Replace the expensive ingredient with a less expensive one that will work and that fits your food cost targets. This is a good move if the pricier item is not the focus of the dish. 
• Reprice: Adjust your menu price to reflect your new costs. This is the right move if the menu item is popular and you can’t replace the pricey ingredient.

3. Figure Your Baseline Food Cost

Before you can reduce your food costs, you need to know what they are. So, open your favorite spreadsheet or inventory app, and gather your vendor invoices. 

The quick version of figuring your baseline food cost is this; you need to count every food item in your restaurant. Then you’ll need to figure out how much money you spent purchasing each item and compare that to your overall sales to get your baseline food cost. Food cost is generally expressed as a percentage of your overall sales. A food cost of 25% to 30% is considered healthy. 

To get accurate numbers, you’ll need to do two full inventory counts over a set time period (such as two weeks or two months). Your two counts will give you the numbers you need to figure your initial baseline food cost. Your first number is your “opening inventory count,” and your second inventory count is your “closing inventory count.” You’ll also need to add up the total purchases you made in the timeframe between your counts. 

With those figures in hand, calculating food cost requires two formulas. First, you figure the overall cost of goods sold (COGS), then compare your COGS calculation to your sales to get your overall food cost expressed as a percentage of your sales.

The general formula for COGS is:

COGS = (Opening Inventory + Purchases – Closing Inventory)

Then you plug your COGS into the food cost formula, to express your food costs as a percentage of your sales:

Food Cost = (COGS ÷ Food Sales x 100)

Prepare yourself; figuring out your baseline food cost for the first time is a big lift. You’ll need the help of your managers and trusted senior staff to get through the counts quickly and efficiently. Get full step-by-step instructions (and a free template) in our guide How to Calculate Food Cost Percentage [+ Free Calculator].

4. Cost Each Menu Item

Your overall food cost shows you the efficiency and overall health of your total operation. But it is a posthumous number, meaning it can only show you how your operation performed in the past, at times you can no longer influence it. Costing each menu item gives you more control over your costs in real time, so you can make decisions in the moment to control your costs on a daily basis. 

To figure the cost of each menu item (also known as “portion cost”), you’ll need your recipes and your vendor invoices. You need to figure out how much each ingredient costs in the amount that you use in each recipe. For example, if you serve quarter-pound burgers but buy your beef in five-pound packages, you need to figure out exactly how much one burger patty costs. 

Then add that cost to the cost of the bun and any other toppings or ingredients. The math is simple—just basic division and addition—but there are a lot of numbers, especially if your dish has several ingredients. You’ll find a free downloadable template for figuring your portion cost in our guide to menu planning and design. Once you know the cost of each dish as you prepare it, you and your team will be more conscious about portioning and plating. You may also find that you need to adjust your menu price to make your food costs work.

5. Regularly Track Inventory

Once you’ve started tracking food cost, it’s important to perform regular counts. Even if your costs are on target, you need to keep counting to ensure they stay that way. Most restaurants perform full inventory counts monthly. I’ve personally always seen better results from weekly counts. Counting weekly gives you more data to work with, and more opportunities to adjust your operation. 

Inventory software helps speed counts and reduces the time you’ll spend analyzing your data. Many point-of-sale systems (like Toast and Lightspeed) include ingredient-level inventory as an optional built-in module. Third-party solutions like MarketMan and Foodager work as freestanding solutions or integrate with multiple point-of-sale (POS) systems. If additional software isn’t in your budget, create a custom spreadsheet on a cloud-based drive (like a Google Sheet saved in a Google Drive) so multiple staff members can count simultaneously.

6. Develop Positive Vendor Relationships

With practically every supplier, you’ll have a sales representative. Some owners, chefs, and managers hide in the back office when the sales reps arrive. And while hiding is tempting, it’s more useful to build a positive relationship with your sales rep. Over many years of managing many different restaurants, I’ve seen that the operations closest to hitting cost targets had the best relationships with their sales reps. 

A good vendor relationship does not mean you buy everything they sell. It means being honest with your sales reps about what you need and anything you’re struggling with. Many restaurant suppliers have additional tools and services to help you manage food costs or optimize your menu. A sales rep can tell you about upcoming sales, recommend alternative ingredients when costs rise, and ensure you get the first chance to place orders for items in short supply.

7. Negotiate With Vendors

You can and should negotiate with vendors. They expect it and tend to respect it. At least once a year pull out your vendor contracts and price lists. Compare the prices and payment terms of your current vendors and request bids from new vendors who provide the same products. Compare vendor prices to discount clubs and other types of suppliers. Don’t be afraid to tell vendors when you could get the same product for less from Amazon or Costco. 

If you’re thinking “That’s going to take a lot of time,” you’re right. It will probably take a full week of focus. I’ve always found the end of Q1 to be a good time for this, in the lull between Valentine’s Day and Mother’s Day. Tap your managers and bar staff to help review contracts and prices. 

Be transparent and friendly when you approach vendors to renegotiate contracts or prices. There’s no reason for this discussion to get tense. In one way you’re doing them a favor by bringing them free competitive research, showing them how their current pricing and terms stack up against competitors. Be specific with your requests. Can they match this other vendor’s price for ground pork? Or eggs? Can they deliver dairy products twice a week instead of once a week to reduce spoilage?

Sometimes the answer will be no, and you’ll have to accept that or find another vendor. But whatever the outcome of the conversation, you will know that you are doing everything you can to control food costs. And your vendors will know that you actively track these things.

8. Receive Orders Carefully

Checking in your orders as they arrive is a crucial checkpoint. This is the time to ensure that the products you ordered arrived correctly, at the price you expected, and are high-quality. Your job is to make sure you or a well-trained staff member check-in every order while the delivery driver is present. Delivery drivers will take the first signature they can get. 

Make sure your whole team is on the same page so that only approved people can approve deliveries. You also want to ensure that the people signing in deliveries use a critical eye and look for the same things:

• Correct products: Do the products in the delivery match what is on the invoice? Do the products in the delivery and on the invoice match what was ordered? 
• Correct quantity: Do the product quantities on the invoice match what is in the delivery? Do the quantities match what was ordered? 
• Expiration dates: Are any of the packaged products close to their expiration or sell-by date? 
• Risk of spoilage: Check fresh produce for browning, wilting, soft spots, and bruising. Open boxes and check all the way to the bottom. Fruit, especially, is expensive. So make sure you didn’t just pay for a giant box of squishy avocados. 
• Open packages: Check that all packaged items are fully sealed and that cans are not overly dinged.

9. Get Team Buy-in

No matter how involved you are as a chef, manager, or owner, you won’t be able to personally receive every delivery, place every order, or run every inventory count. You need to be able to trust your team to hold the same standards in your place. 

I know a lot of owners whose first reaction is ‘This is impossible, it will never happen’. One of the hardest lessons I learned as a manager was that the cost of training my teams to hold my standards was worth it in the long run. I’m not saying it won’t be frustrating (honestly, it probably will be). But the frustration will absolutely be worth it if it frees up your time to focus on growing your business. 

Beyond training the staff that place and receive orders to watch costs, confirm quality, and ensure that every item on the invoice is present in the delivery, there are some additional ways to get your staff to invest energy in reducing food cost.

• Create a bonus structure: Tie manager bonuses to meeting food cost targets. The bonuses can be monetary (like a traditional cash bonus), or a perk (like additional paid time off). 
• Set and track a team goal: Create a monthly or quarterly team goal so your team can get a win, even if they fall short of hitting your ultimate food cost goal. A team goal might be reducing food costs by 10% from one quarter to the next. Or it might be reducing a specific cost, like the cost of your meat or dairy products. 
• Share wins with the whole team: Keep your team updated on the progress towards your goals in daily staff meetings and in posted signage in the staff areas of the restaurant. 
• Consider open-book management: Open-book management means discussing your restaurant’s key performance metrics with your whole team. I have found that this is an excellent way to answer questions from when will we get more forks to why are we even open on Mondays.

10. Reduce Food Waste

Food waste and food cost are directly related. The less food you waste, the less money you’re wasting. You can reduce food waste by smarter ordering, better sales training, or making better use of offcuts and leftovers. Our guide to reducing food waste contains 17 strategies for reducing food waste. 

Some of the simplest ways to reduce food waste—and thereby your overall food cost—are: 

• Set (and use) order pars: Set a minimum on-hand amount for key ingredients. This creates an easy shorthand for placing orders. If your par for ground beef is 50 pounds, then your staff knows to order enough to keep your supplies at par.
• Organize storage areas: Messy, disorganized walk-ins and dry storage areas make it hard to see what ingredients you have on hand, which can lead to over-ordering. If you already have a bottle of hoisin sauce, make it easy to see, so you avoid ordering multiples of things you don’t need. 
• Enforce FIFO: FIFO stands for “first-in-first-out.” Storing your ingredients so the oldest items (the “first in”) are the easiest to grab first (“first out”), ensures you use ingredients before they spoil.

Whether it is built into your POS or is a freestanding tool, Inventory tracking software makes it much easier to track and reduce food costs. I don’t mention software tools lightly. Any software I mention has to suit a restaurant business, solve a critical problem, and save time or money. 

Inventory software in particular can be pricey (in the range of $200 to $300 per month), but it saves you a ton of time. Yes, $200 to $300 per month is expensive, but ask yourself how much money you’re spending on chef and manager wages to perform these tasks manually. Paying for software could be a cost savings in the long run. 

Check with your POS provider and ask what inventory management capabilities your system already has. If the system doesn’t support built-in inventory tools, find out what third-party tools it integrates with. Schedule a demo with at least one provider to see what tasks the software can help you manage. Think about the potential time you could save by relying on the inventory management system for reports and analysis. Could that time be better spent growing sales in other ways?

12. Forecast

Forecasting your future sales and traffic can help you predict future orders, reducing your food cost by helping you avoid over-ordering. Forecasting can also help you order the right products; like increasing your chicken wings order during football season. Forecasting helps you order smarter, get your orders in earlier, and generally streamline your entire ordering process. 

You’ll save food cost at every step of the way, from reducing labor hours spent placing orders to reducing food waste. You’ll also boost sales by ensuring you have enough ingredients on hand to meet demand for popular food during key times of the year.

13. Learn to Preserve and Ferment

Celebrated restaurants from Noma in Copenhagen to Baroo in Los Angeles have developed a reputation for preserving and fermenting foods. House fermenting and preserving programs are trendy, but they also reduce food costs by extending the shelf life of ingredients that would otherwise go to waste. 

Preserving can be as simple as converting overripe fruit into a jam that you can in a water bath. Or you might create your own house-made signature pickles, kimchi, or kombucha. Before embarking on a preserving and fermenting mission, though, check with your local health department. Some things—like curing meats, for example—may require special licenses and inspections. Contact local preserving experts at your local culinary school or agricultural college to learn to preserve or ferment foods safely. Fermenting foods is a hallmark of zero-waste and sustainable restaurants. If the idea of fermentation has piqued your interest, learn more in our guide to restaurant sustainability.

14. Take the Next Step: Contribution Margin

If you are doing everything you can to manage food costs and not seeing the needle move as much as you’d like, start looking at your contribution margin. Contribution margin is the flipside of food cost. Rather than looking directly at costs, contribution margin looks at how much profit a dish contributes to your bottom line profits. 

If you’ve completed all the previous steps, then this one will be easy. Contribution margin starts with figuring out how much each dish costs to make. Then subtract the cost from your menu price. The difference is the dish’s contribution margin. For example, if a burger costs $4.50 to make and you sell it for $12.00, the contribution margin calculation would look like this:

$12.00 – $4.50 = $7.50

Many restaurant professionals say that contribution margin is more closely linked to profitability than food cost. So if figuring your food cost has made you hungry for more, contribution margin is your next step.

FAQs

We’ve covered a lot of tips for managing food cost, but if you still have questions, expand the sections below for more answers to common questions. 

Last Bite

Reducing food cost is one of the ongoing daily tasks of restaurant management. Reducing your food costs starts with knowing your overall costs and the costs of each dish on your menu. Getting your staff to buy into your food cost-reduction plans helps keep your operation on track. All the work will be worth it; every cent you save on food costs has the potential to flow through to your bottom line, creating real profit for your restaurant.