reduce operating cost

7 Best Ways To Reduce F&B Operating Cost

Did you know that labour and inventory cost can take up 50-70% of your total restaurant sales?

Even if your sales are high, your profits may not be due to these high costs. So it is very important that you keep these costs under control! 

By now, you probably already know that some costs are fixed (for example, rent). Fixed costs are those which you cannot control, whereas operating costs are those you can control on a month-to-month basis. Operating costs are directly related to an increase or decrease in sales. Some examples include food cost, beverage cost, straws and napkins, labour cost etc. 

So how do you keep these costs low and maximise your profits? Here are some of our top strategies that you can start using! 

1. Get lean and watch your waste

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One of the key strategies that restaurant owners forget to consider when cutting costs is food waste. This is often overlooked as we don’t realise that throwing away food is equivalent to throwing money away. The amount of food being thrown away in Malaysia amounts to 16,688 tonnes daily. That is enough food to feed 12 million people at least three times a day!

Here are some tips on reducing food waste:

  • Portion sizing – If customers are always not finishing their food, the portion size may be too big. Use portion control tools to serve reasonably sized portions to avoid leftovers 
  • Kitchen prep list – Have the cook make a daily kitchen prep list which tells them how much of each ingredient is needed to be prepared. Without this, cooks tend to over prepare and this results in unnecessary food waste 
  • Reuse the ugly Turn unusable food products into something else. For example, instead of throwing away stale bread, turn it into croutons, breadcrumbs or bread pudding! 

However, some by-product and food waste are unavoidable during the cooking process. But there are still creative and innovative ways chefs can still include these into their dishes:

  • Use vegetable scraps to make homemade vegetable stock 
  • Shred up leftover meat and use it in a soup or stew the next day
  • Use overripe fruits to make jam or jelly
  • Turn any good but unpresentable green vegetables into a pesto dip 
  • Dehydrate orange or lemon peels and grind them to create fresh zests to top off any dish 
  • Leftover herb stems can be infused into flavourful oils 

Reducing food waste and making the most of your ingredients can make a huge difference in your restaurant’s profits!

2. Happy staff, happy life

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In the F&B industry, high turnover rates are a serious pain. Staff leaving your restaurant means you will have to bear the extra cost of hiring and training new people. It is more cost-efficient if you can keep your current employees and increase their productivity. 

To reduce turnover, you should make sure that staff are kept motivated and happy. You could do this by rewarding high performing staff through an “employee of the month” programme and giving them gift cards as a sign of appreciation. Also, treating staff like family can result in them being happier and more loyal. Customers will feel more welcomed if they sense friendlier service. 

Asides from keeping employees from leaving, you should also increase staff productivity. 

But why? 

Let’s say 80% of your sales are during the peak hours in your restaurant, the amount of customers you serve during that period without reducing the quality of food and service is critical. Your staff should be productive during these times so you can get the most of what they are being paid for. Here are some tips on improving staff productivity

  • Cross-train staff – so they can perform multiple roles and help out wherever needed
  • Have better scheduling – minimise the number of staff during slow periods or close off parts of the restaurant if it is not in use 
  • Job descriptions – everyone should be given job descriptions and expectations with clear and measurable performance indicators so everyone knows what is expected of them to perform better

3. Lower your food cost

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Reducing food costs can be as simple as planning ahead and using the food cost formula on each menu item. Although it may be time-consuming to begin with, it is essential for cutting restaurant costs. 

Use this formula:

Food cost percentage = total cost of ingredients/menu item price 

The food cost percentage will tell you how much you’re spending on ingredients compared to the price of each item on the menu. Ideally, you should aim for the percentage to be between 15-30% because this means your gross revenue per item will be 70-85%. 

If your food cost percentage is over 30%, this means you are spending too much. In this case, to cut costs you should either look for less expensive ingredients or increase your menu prices. 

You can also reduce food costs by developing relationships with your suppliers and negotiate for better deals. When possible, make use of buying items in bulk as it gets you better prices.

4. Camera eats first

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When looking at your spending, review and cut ineffective marketing from your budget if possible and make use of free publicity on social media. 

There is a trend circling these days where people love taking photos of their meals and sharing it online. By making your food look good in photos (‘Instagrammable’), it encourages customers to share photos on their social media profiles. You can also engage with customers on social media by holding small contests to share a photo of the food/restaurant in order to win a free side dish or drink as a prize.

5. First In, First Out

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The first in, first out method means using the first ingredients that you put into your fridge or pantry first. 

Most food that’s thrown away and wasted is due to it being past its expiration date. By putting the older ingredients in front, this forces you to use them first.

Ultimately, it will ensure that your fridge and pantry is always stocked with fresh ingredients and will help save money by preventing food expiring without being used.

6. Review your menu

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Could your high costs be due to having too many things on your menu? Perhaps it’s time to review the menu and reduce the items sold to include only the best-selling and most profitable ones. 

You should also take advantage of seasonal produce as they can be bought at lower prices. Highlight seasonal items on the menu and mark up the price slightly by emphasising on the freshness and the limited availability due to season.

7. Manage your stock

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Proper stock management is a crucial factor in cost control. You need to have a clear idea of what you’re spending on and how much you’re paying for them. 

The best way to get all this information is from your Point of Sale (POS) system. All F&B businesses need a good POS system that allows them to input orders and manage inventory. With a good system, you can track inventory from the final menu items to raw ingredients. 

The right POS system will provide you with accurate reports and analytics that will give you lots of insights into your business. Without a POS, finding this information will be difficult as you’ll need to collect data manually from invoices or receipts and inputting that into Excel spreadsheets. At the end of it, you’ll probably only be able to get a rough estimate. 

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Brenda Lye

Brenda is a Digital Marketing Intern at StoreHub. You can find her at your local cafe, day dreaming about her future golden retriever.