Improving Restaurant Inventory Management to Beat Rising Food Prices

Restaurant inventory management plays a key role in overcoming rising food prices.

Logistics challenges and labor shortages have fueled rising food prices at the wholesale level. Data from the Bureau of Labor Statistics showed the November Producer Price Index, a measure of wholesale prices, up 9.6% from a year ago.

Rising food prices have had an impact on the food sector for some time, with ingredient values above levels for the same time last year.  For example, these common restaurant ingredients rose significantly in mid-December 2021 over the same period in 2020:

  • Refined sugar – 31%
  • Butter – 43%
  • Dried egg yolk – 51%
  • Food-grade oak flakes – 61%
  • Semolina (pasta flour) – 140%

Many analysts see the rising inflation trend lasting minimally through the first half of the year, with rates not expected to moderate or improve until the second half of 2022. As the rising food cost trend continues, it’s time to tighten your inventory control.

Automate manual restaurant inventory processes to help overcome rising food prices

If you’re still using Excel spreadsheets for inventory management, you are taking unnecessary manual steps and adding opportunity for error to the process, which can contribute to your rising food prices. Accuracy is key to controlling your inventory optimizing your food costs, so you want to make inventory management as efficient as possible.

Consequently, using a restaurant inventory management system to automate most parts of the inventory process can save time and increase accuracy. Your team must still take manual inventory by hand to account for spoilage, improper portioning, and waste. But by using automated tools that include mobile- or tablet-friendly entry systems, you can streamline the process and decrease manual entry errors. And, with inventory system technology, you’ll get data that can be crucial in making informed operational decisions.

Integrate restaurant inventory management with your POS system

It’s not enough to use a restaurant inventory management system. To ensure efficiency, a restaurant inventory management system that is fully integrated with your point of sale (POS) system can streamline and automate as much of the inventory process as possible.

Fully integrating the two systems means you’re using the same data. POS integration can automate steps like uploading invoices, auto-updating ingredient prices, and tracking recipes. With integration, your inventory system can also automatically pull sales information to track theoretical inventory. (More about this later.)

Create a regular schedule for manual counts

The more frequently you count inventory, the better it can inform your ordering and other food-related decisions to help counter rising food prices. Counting your inventory on the same day at the same time on a consistent basis can generate useful, comparable numbers.

Establish a consistent schedule for tracking your inventory. Consider creating different inventory count schedules for your perishable and popular ingredients, counting these items more often than your non-perishable or bulk inventory.

If your store-level managers don’t have time to oversee an inventory count as often necessary, you can strategically use “micro” inventory counts more regularly. Many restaurants find that roughly 20% of inventory items make up 80% of cost of goods sold (CoGS). The exact numbers may vary, but the underlying concept is the same: a small portion of your items will make up a disproportionate amount of your food cost. This may be your more expensive proteins, or certain fresh items that can spoil if not used quickly.

Especially during a labor shortage, your restaurant business can still implement weekly inventory tracking for special items. For example, counting the more expensive items once or twice a week and doing a full inventory count on a bi-weekly or monthly basis. By strategically designing an inventory count schedule, you can still have a measurable impact on your food costs.

Make CoGS review part of your daily restaurant inventory routine

CoGS data can unlock trends in inventory usage and your overall food spending. Your inventory data can reveal your inventory consumption, expensive or popular ingredient usage, and food cost trends over time.

Reviewing CoGS frequently — daily, if possible – is a good way to stay in front of trends, potential problems, or issues. Smart operational decisions are fueled by up-to-date information. Reviewing your CoGS frequently allows you to take advantage of the large amount of data being generated by your restaurant inventory management software every day.

Extend your restaurant inventory’s shelf life

Much of your restaurant inventory comes with a short shelf life, adding to your rising food prices. Ingredients may all have different periods of peak freshness. To minimize the risk of ingredients spoiling or getting too old, your store-level managers must take limited shelf into consideration in inventory management. By using current inventory information to order at appropriate levels (explored below), your managers can minimize the amount of excess ingredients kept on hand at your restaurant locations.  Here are two methods to extend shelf life and minimize waste:

Organize, Sort, and Implement “First In, First Out” (FIFO)

Store-level managers must focus on training staff on foundational concepts like “first in, first out” (commonly referred to as FIFO in the restaurant industry). FIFO ensures older inventory is used before new inventory, and ingredients are kept fresh. Most store managers are familiar with the concept of FIFO, but it requires consistent effort and buy-in from staff to implement. Setting up a strategic organizational system can help proactively manage ingredient shelf life.

Make organizing and categorizing your inventory storage part of your team’s regular responsibilities. Tallying an organized inventory will have the added benefit of helping your staff to be faster, more efficient, and get a more accurate count.

Build Flexibility into Your Menu for Daily Specials and New Dishes

As a restaurant operator, you are trying to avoid wasted inventory at all costs. To allow your team room to adjust as necessary, consider building flexibility into your menu. Add a daily special that uses surplus ingredients to minimize your food waste and incorporate ingredients into existing dishes before they spoil. While this may require more effort to update menus or communicate with staff, using what is already on your shelves helps lower your food cost.

With input from your chef, determine ways to use scraps to create new dishes for your menu. For example, you can use odds and ends such as chicken bones, carrot tops and onion bits to make an appetizing broth or stock for a new soup. Adding leftover orange peels can add a creative flair to your broth. Reducing waste like this can be a great way to cut costs and might even create a popular and profitable menu item.

Leverage sales forecasting to improve purchasing accuracy

Forecasting your demand—making informed projections about sales based on historical sales data—is a powerful tool for purchasing inventory at appropriate levels. An accurate forecast can help you make optimal ordering decisions, covering your baseline demand while minimizing food left on your shelf.

Accurate restaurant sales forecasting driven by POS data on historical sales with some input from general economic trends and broad market analysis helps you predict future sales with a certain degree of accuracy in comparable time periods. For example, tracking the sales of the last eight Fridays and Saturdays, assuming that there were no holidays as outliers, can give you a good idea of your sales on the upcoming Friday and Saturday.

An accurate sales estimate results in more accurate ordering. A streamlined inventory minimizes food waste, as well as prevents under ordering that leads to a poor customer experience. While not an exact science, your restaurant sales forecast can give you an informed starting estimate for your inventory ordering.

Employ recipe costing and menu engineering tools

Your restaurant inventory tracking system and integrated POS system provide the fuel for two powerful tools: recipe costing and menu engineering.

Recipe Costing: Tracking Usage and Yield on Each Menu Item

Improving inventory control relies on an understanding of the exact cost of your food. Recipe costing breaks down the exact cost of individual ingredients in a menu item. When your recipes are mapped to your POS system, combined with food cost information from your invoices and current inventory, you can automate the cost calculations of menu items. Tracking each menu item’s recipe cost can help you optimize food usage and reduce food waste over time.

You can also track usage and yield on food items by location, enabling you to determine if you need to increase staff training or address incorrect portions or employee theft.

While manual menu item costing is possible, it is very timing consuming, error prone and unreliable.

Menu Engineering: Giving Your Menu a Profit Margin Boost

Menu engineering compares data about menu item profitability and popularity, based on recipe costing and sales mix polling from your POS. Armed with this information, you can make better, data-driven decisions about how to best use your inventory, such as whether items are priced appropriately, what menu items to eliminate because they are unpopular and costly to prepare or what items you’ll want to upsell because they are both profitable and popular.

Track and troubleshoot actual vs. theoretical food cost, then set variance goals  

The theoretical food cost is what your restaurant food costs should be for a given period given the current cost of all ingredients. The actual food cost is the real cost of all the food that your restaurant locations actually spent for the same period. The actual food cost accounts for situations such as accidental waste, improper invoicing, imperfect portions, or employee theft.

The difference between the two is your actual vs. theoretical (AvT) food cost variance. The variance represents inefficiencies in your inventory management and food operations. Tracking the actual vs. theoretical food cost variance shows you critical information about leaks in your profit margin and can help you spot anomalies and adjust before variances become issues that affect your bottom line. Starting with items that have the largest variances, you have the necessary information to make the biggest difference and quickly start to add efficiencies in your food operations.

Confirm accuracy in vendor contract price

You most likely work with multiple vendors and know you must keep an eye on all vendor invoices to catch any mistakes. Using restaurant operations reporting software that implements auto-reviews of vendor contract price helps keep tabs on vendor pricing. Automated receiving reports check vendor pricing, flagging items outside of a contracted price or large jumps in cost. In addition, other tools can compare vendor contract pricing by region or across locations, helping you compare item prices side-by-side.

These tools can not only help you ensure accuracy with invoicing but can cultivate transparency in vendor relationships. Data can help you keep vendors accountable, as well as furnish you with data about trends for long-term decisions.

Another way to keep your inventory costs in check is to view the average price paid for each item in a date range per store and then see the aggregated averages from lows to highs across all stores. This information shows you the variance between the store that is paying the highest cost vs. the location that is paying the lowest cost, on average. This report allows you to review the total purchases by category or item, viewing location numbers side by side. When you are equipped with this data, you can use the totals and averages to discuss price breaks and negotiate volume discounts with vendors.

Dissect your restaurant inventory reports

Your restaurant inventory reports contain tons of valuable, actionable data. After you implement many of the above tips, build in regular review of your inventory reports into your workflow.

Restaurant inventory reports provide you with a snapshot of what is going on in your restaurant group. You can use these reports to identify glitches in your food cost before they become costly long-term trends. Inventory control helps you tackle big-picture changes in your operations that can improve your bottom line.

Conclusion

Running tight inventory can lead to lower food costs ultimately means more profit. Inventory may involve a lot of moving pieces, but with these tips in mind, you can improve every area of your restaurant inventory management.

If you would like to have better control over your inventory, consider an all-in-one restaurant system that includes inventory management software and operational reporting, as well as restaurant accounting, financial reportingpayroll + HR, and scheduling into a cloud-based platform that’s fully integrated with your POS system, as well as to your food and beverage vendors, and bank. Schedule a free demo of Restaurant365 today.

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