How to Calculate (and Control) Restaurant Food Cost Variance

It’s second nature to glance at a supplier invoice and check that each item is in the delivery. But how often do you take a step back and look at the prices of each of those items? 

If you’re like a lot of restaurateurs, not often enough. This can lead to a lack of restaurant cost control — causing you to miss huge food cost fluctuations from order to order, week over week, month over month, etc. 

Tracking and managing food cost variance is essential for restaurants of any size. If you don’t know how much you’re spending on ingredients, you can’t:

• Gauge the health of your procurement efforts.

• Accurately calculate your food cost percentage to price menu items.

• Create accurate budgets and sales forecasts.

Likewise, because food costs are 25 to 35 percent of every dollar of food sales, being attuned to price variance can mean the difference between being in the black, the red, or closing the doors completely.

Continue reading to learn more about food cost variance and how to consistently monitor it. See how to use invoice processing tools to automatically push product price updates through to recipes costs, COGS, and more.

What is food cost variance?

A restaurant’s food cost variance is a measure of how efficient it is at projecting and managing food costs. 

Food cost here refers to the cost of goods sold for your restaurant — so if it costs your restaurant $30 to make food for $100 of sales, your food cost would be 30%. A lower variance means the restaurant is more efficient at projecting and controlling costs.

Food cost variance is describing the difference between what it actually costs to produce your menu items over a given period and what the expected costs were over that same time — with expected food costs based on projections from historical data.

This variance is also known as the difference between your actual vs theoretical food costs.

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Why does food cost variance matter?

Food cost variance highlights how efficient your restaurant is at maximizing the return on your spend and sales — and managing food cost variance mitigates price fluctuations and helps maximize the return on your COGS.

For example, if Will’s restaurant has an actual food cost of 35% this month with a theoretical food cost of 34%, the food cost variance is 1%. If Alex’s restaurant has an actual food cost of 31% and a theoretical food cost of 28% this month, Alex’s food cost variance is 3%.

While the actual food costs is 4% higher (35% vs 31%), Will’s restaurant is better able to monetize those costs because they are more inline with expectations than Alex’s restaurant (1% vs 3%). 

That’s what food cost variance is telling us.

You can use food cost variance to compare changes over longer spans of time (multiple months & years) or to spot sudden variations from one week or month to the next.

And with proper recipe management software in place, you can zoom in to monitor food cost variance for individual recipes and menu items.

Common causes of food cost variance

If you have a consistently high food cost variance or even one-off fluctuations, it could be due to the following issues:

• Supplier price: Supplier raise product prices for any number of reasons, including to meet demand or due to seasonality.

• Waste: If you find that the cost variance of steak is too high, it could be due to waste and poor yields from inefficient butchering.

• Staff: Your high steak variance could also be due to staff occasionally enjoying some prime cuts at family meal.

• Comps: …or high steak costs could indicate servers and bartenders are comping more meals than they should be and not processing them through the system.

• Inventory errors: If your cost variance looks out of whack, look at your inventory process. If that includes a lot of manual data entry from invoices, it could be input mistakes.

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Strategies to bring down your food cost variance

Talk to suppliers: This isn’t practiced enough. If you’re struggling to afford a certain ingredient. And you have a longtime relationship with a supplier, why not ask them if the price can be negotiated?

Lock in prices: Part of that negotiation may mean asking if the price is negotiable if you lock in a contract to purchase for a long period of time. For example, Starbucks locks in prices of green arabica coffee 12 to 18 months in advance, which its CEO says gives them a significant advantage, price-wise, over competitors.

Shop around: If asking doesn’t work, check around the market. You may find a better deal, and if you do, you can either take it or go back to your current supplier with leverage.

Internal controls: Is something going on that keeps causing your asparagus to be wasted or ruined? Check who is running inventory, see who is cooking that salad, to find out. And find out which menu items feature asparagus, because it might just be that your guests aren't loving that item lately.

Portion and recipe control: If you see that your butter has a very high cost variance, it may be time to start cooking omelettes with oil and serving a smaller portion of butter with your bread basket.

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How can restaurants consistently track food cost variance?

Diligent invoice processing and data management are essential for efficiently tracking food cost variance.

Everything begins with the product prices on your invoices. Each new vendor order has the potential to raise or lower product prices, which in turn reflects on your costs and variance.

Manual invoice processing is inefficient, impractical, and prone to inaccuracies due to repetitive manual data entry — not to mention, you have to keep track of your invoices until you’re ready to type them in. You’re also left managing filing cabinets worth of paper invoices if you don’t have a system to digitize it.

That's why invoice processing automation is critical for consistently tracking your food cost variance.

xtraCHEF by Toast’s invoice processing automation enables you and anyone on your team to simply scan or snap a photo of an invoice, upload it to the system, and then voila — product pricing data updates across your COGS, recipe costs, inventory, and more.

With such consistently clean data, you can track food cost variance at a high-level as well as incredibly zoomed in on individual recipes, helping you accurately set menu prices and projecting profitability.

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