What Does SKU Mean? A Complete Guide to Stock Keeping Units in Food Service

Stock Keeping Unit, commonly known as SKU, is a fundamental concept in restaurant and food service inventory management that helps businesses track and manage their products effectively. This alphanumeric code system serves as the backbone of modern food service operations, enabling restaurants, bars, and food retailers to maintain accurate inventory records, track usage patterns, and make informed decisions about their menu items and stock levels. According to a 2024 New York University analysis, the average profit margin for restaurants is 10.66%, highlighting the critical need for efficient management practices like SKU tracking to maximize profitability. By utilizing SKUs, food service businesses can streamline ordering, manage supplier relationships more efficiently, and control costs, ultimately improving operational efficiency.

In this guide, we’ll explore the ins and outs of SKUs, covering everything from how they work to their key role in optimizing food service operations.

What is a SKU?

A Stock Keeping Unit (SKU) is a unique alphanumeric code assigned to products by food service businesses to identify and track inventory. Unlike Universal Product Codes (UPCs), SKUs are internal identifiers created by each establishment to match their specific inventory management needs. These codes are designed to be easily readable and meaningful to the kitchen and bar staff who use them, often incorporating product attributes such as category, size, storage location, or supplier information.

Each SKU serves as a distinct identifier that helps food service operations track their inventory with precision, ensuring that stock levels are accurate, and minimizing the risk of overstocking or running out of essential items. The beauty of SKUs lies in their flexibility — restaurants can design them to include any relevant information that helps with their specific inventory management needs. These codes become particularly valuable in establishments with extensive wine lists, craft cocktail programs, or large menu offerings, where precise tracking is critical to smooth operations.

SKU vs. UPC: understanding the difference

Defining SKUs and UPCs

The distinction between SKUs and UPCs represents a fundamental aspect of modern food service operations. While both serve identification purposes, they function quite differently in practice. SKUs are created by individual restaurants for internal use, making them unique to each business. In contrast, UPCs are standardized barcodes assigned to products by manufacturers to enable easy identification across various retailers.

Examples of SKUs and UPCs in action

Each restaurant may assign a specific SKU based on its menu, portion sizes, or even inventory practices. For example, a bottle of Maker's Mark bourbon might have different SKU codes at different establishments, but its UPC remains constant. SKUs might look like:

• Bottle of Maker’s Mark: One restaurant may assign the SKU "MM-750" for a 750ml bottle, while another might use "MM-1L" for the 1-liter version. 

• Cocktail with Maker’s Mark: A restaurant may assign separate SKUs for their drinks, like "MM-OLD" for their Old Fashioned and "MM-MULE" for a Maker's Mark Kentucky Mule.

This allows each business to track its inventory more precisely and manage product usage according to its unique needs.

Flexibility in restaurant-specific uses

Consider a steakhouse that receives the same cut of prime rib from its meat supplier. While the UPC on the case remains consistent, the restaurant might assign different SKUs based on how they use the product. For example:

• Uncooked prime rib: PR-RAW

• Standard portions: PR-8OZ

• Meat for sandwiches: PR-SAND

This flexibility allows restaurants to customize their inventory management and streamline operations by tailoring SKUs to their specific needs.

The importance of SKUs in the restaurant business

Inventory management and kitchen operations

SKUs play a pivotal role in modern food service operations, serving as the foundation for effective inventory management and menu engineering. This growing focus on inventory management highlights how SKUs help restaurants track ingredient levels, monitor usage patterns, and ensure stock levels are optimal, all while reducing waste and improving overall profitability. 

As Toby Malbec, managing director of ConStrata Technology Consulting, noted, "In the past, many restaurants paid much less attention to things like inventory in favor of revenue generation. It was all about loyalty programs and suggested sells. Coming out of Covid, operators began to experience massive supply chain issues and the worst inflation in decades. Inventory got sexy again." 

Optimizing beverage programs

From a beverage program perspective, SKUs provide invaluable data about product performance. Bar managers can use SKU data to identify seasonal drink trends, evaluate the success of specialty cocktail promotions, and make informed decisions about wine list updates. This level of insight helps establishments optimize their beverage mix and pricing strategies to maximize profitability. For instance, if a specific cocktail, such as a bourbon-based drink, sees an increase in orders, the bar manager might use SKU data to forecast demand and adjust stock levels to avoid running out during peak periods.

Menu engineering and pricing strategies

SKUs also play a crucial role in menu engineering, where they help restaurant owners analyze which menu items are most profitable and which are underperforming. By linking SKUs to each dish or beverage, restaurants can track ingredient costs, analyze portion sizes, and determine the profitability of each item on the menu. This insight helps adjust pricing, optimize portion control, and tailor the menu to customer preferences, ultimately maximizing revenue. For example, if a dish with a high ingredient cost isn’t selling well, the restaurant might decide to adjust its recipe, offer a smaller portion, or reprice it.

How to create an effective SKU system

Creating a well-structured SKU system requires careful planning and consideration of your restaurant's specific needs. The most effective SKU systems balance simplicity with informativeness, providing enough detail to be useful without becoming overly complex. Here’s a potential structure for different areas in your restaurant:

Bar

This structure ensures the code is meaningful and easy to understand for staff:

Wine SKU: WIN-RED-CAB-750-CA19

• WIN: Wine

• RED: Red wine

• CAB: Cabernet Sauvignon

• 750: 750ml bottle

• CA19: California 2019 vintage

Kitchen

This format clearly identifies the product for easy inventory tracking:

Ingredient SKU: PRO-VEG-CAR-5LB

• PRO: Produce

• VEG: Vegetable category

• CAR: Carrots

• 5LB: 5-pound bag

By adopting a clear and logical structure like these examples, you can ensure that your SKU system is both efficient and practical.

Best practices for SKU management

Develop clear guidelines

Successful SKU management in food service relies on consistent application and clear documentation of naming conventions. To ensure efficiency, restaurants should develop comprehensive guidelines that cover the following:

• Standard abbreviations for common ingredients: Define abbreviations for frequently used ingredients to maintain consistency across all SKUs (e.g., VEG for vegetables, MEAT for meat).

• Seasonal menu items: Create a system for seasonal items that clearly distinguishes them from regular menu offerings such as "SPR" for spring or "HOL" for holiday specials.

• Procedures for creating new SKUs: Define clear steps for creating new SKUs as the menu evolves. For seasonal items, specify how to structure the SKU to reflect its category, season, and product type, ensuring consistency with the existing system.

Train for effective SKU management

Training plays a crucial role in effective SKU management. To ensure the system works smoothly, staff at all levels need thorough training on both the technical aspects and the underlying logic of the system.

• Comprehensive training: Ensure all kitchen staff, bartenders, and servers understand how to use the SKU system and its underlying logic for accurate inventory tracking and efficient operations.

• Ongoing refresher training: Schedule regular training sessions to reinforce SKU knowledge and keep staff updated on any changes or new procedures.

Ongoing audits and system updates

In addition to training, regular audits and updates are essential for maintaining an effective SKU system.

• Updating the SKU system: As the menu evolves, update the SKU system to reflect new products, seasonal offerings, or changes in inventory management practices.

• Regular audits: Conduct audits to ensure SKUs are used correctly, identify areas for improvement, and keep the system aligned with the restaurant’s operational needs.

SKUs in modern restaurant operations

Seamless integration with point of sale (POS) systems

Modern restaurant management systems heavily rely on SKU integration for seamless operations. Point of sale systems use SKUs to track sales and automatically update inventory levels, ensuring real-time accuracy of stock and minimizing human error. This automatic synchronization between sales and inventory is vital for efficient restaurant operations.

Efficient kitchen and bar operations

Kitchen display systems reference SKUs to route orders to the appropriate preparation stations, streamlining kitchen workflows and preventing confusion. Similarly, bar management systems use SKUs to track pour costs, maintain optimal stock levels, and help control waste, ensuring that inventory is always available and costs are kept in check.

Enhancing digital ordering platforms

Digital ordering platforms benefit greatly from proper SKU implementation. Online ordering systems use SKU data to automatically update menu availability, ensuring that out-of-stock items are removed from online menus. Additionally, inventory management systems can trigger reorder alerts based on predetermined par levels, preventing stockouts and ensuring consistent service.

Comprehensive integration across service channels

This integration across multiple service channels enables restaurants to maintain accurate stock levels across both in-house and online services, providing a seamless experience for both customers and staff.

A fast-casual restaurant chain, such as Chipotle, uses SKUs to track ingredients like chicken, rice, and beans. By assigning unique SKUs to each ingredient, they can maintain consistency across all locations, ensuring that each restaurant uses the same portion sizes and quality of ingredients. 

Advanced SKU applications

Predictive analytics for menu management

Modern restaurants are leveraging SKU data for predictive analytics and advanced supply chain management. SKU-level analysis helps predict busy periods for specific menu items, optimize prep lists, and reduce waste. 

For example, a busy gastropub might analyze SKU data to forecast how many pounds of wings will be needed for an upcoming sports event, based on historical ordering patterns. This proactive approach ensures that restaurants are prepared for peak demand without overstocking or underpreparing.

Optimizing bar programs

Bar programs particularly benefit from advanced SKU applications. Craft cocktail bars can use SKU-based systems to track individual spirit usage, monitor mixer inventory, and even calculate the precise cost of specialty cocktails based on portion-controlled recipes. By using SKU data, bars can optimize inventory, reduce waste, and maintain consistent drink quality while ensuring accurate pricing.

Comprehensive supply chain efficiency

Beyond day-to-day operations, advanced SKU applications also improve overall supply chain efficiency. By analyzing SKU data across various locations or vendors, restaurants can streamline purchasing decisions, reduce stockouts, and ensure that inventory levels are aligned with demand. This holistic approach helps restaurants maintain smooth operations and reduce operational costs.

For example, a restaurant that serves a variety of cheeses uses SKUs to track different types, such as CHEESE-BRIE-FRANCE for a French brie. By assigning unique SKUs to each product, the restaurant can easily coordinate with suppliers to reorder specific items when they’re running low, ensuring consistent quality and availability.

Future of food service SKU management

Smart technology integration

The future of restaurant SKU management is being shaped by emerging technologies and evolving service models. Smart kitchen equipment, such as FreshLoc smart fridges, integrates seamlessly with SKU systems to track ingredient usage and wastage. These fridges utilize a variety of technologies, including:

• Sensors to monitor temperature, humidity, and expiration dates.

• Cameras to capture images of the fridge's interior and identify what’s inside.

• Barcode scanners to scan items and track usage in real-time.

• RFID tags to track products taken out of the fridge.

• Machine learning powered by AI to recognize and track items as they are removed.

This integration ensures precise inventory tracking, reduces waste, and helps maintain optimal stock levels automatically.

Similarly, connected bar systems such as PourLink can measure real-time pour volumes and update inventory accordingly. These innovations help restaurants maintain tighter control over costs, improve efficiency, and maintain quality.

AI, machine learning, and predictive analytics

AI and machine learning are expected to revolutionize SKU management by predicting demand more accurately and automating stock replenishment. By analyzing historical data and patterns, these technologies can optimize inventory levels, minimize food waste, and ensure that popular items are always in stock, while slow-moving products are reordered less frequently.

Cloud-based systems for seamless operations

Cloud-based platforms are becoming essential for modern SKU management. These systems allow for real-time tracking, remote access, and the ability to manage inventory across multiple locations. For multi-location restaurant groups, cloud-based systems provide a unified solution for SKU management, making it easier to share data and maintain consistency across all operations. 

Blue Apron, a meal kit service, uses cloud-based SKU management to track ingredient usage and shipments. By using a centralized system, Blue Apron can ensure real-time updates to inventory, adjust portion sizes based on customer demand, and optimize delivery logistics.

Sustainability and waste reduction

As sustainability becomes more important in the food service industry, future SKU systems will increasingly focus on waste reduction and sustainability metrics. By tracking inventory levels more accurately, restaurants will be able to minimize food waste, optimize portion sizes, and reduce the environmental impact of their operations.

Conclusion

Stock Keeping Units represent far more than simple product codes in food service — they form the backbone of modern restaurant operations. A well-designed SKU system streamlines kitchen and bar operations, improves efficiency, and provides valuable insights for menu engineering and inventory control. As technology continues to evolve, the role of SKUs in restaurant operations will likely become even more sophisticated, particularly with the integration of smart kitchen equipment and automated inventory systems. In the long run, effective SKU management will not only optimize costs and reduce waste but also enhance the overall customer experience by ensuring that restaurants are well-stocked and prepared for peak demand.