Fair cost of goods


I have been going round and round with my kitchen manager over what is a fair cost of goods percent to total gross sales for a steakhouse. Can you shed some light on this?

– Denise Yeilding, Owner, Red Barn Steakhouse, Silver City, NM


Telling a restaurateur what her food cost percentage should be is a bit like telling someone what his blood pressure should be. Yes, there are guidelines, but each case is a little different.

The rule of thumb that most managers and chefs learn in hospitality or culinary school is 30% food cost, 30% labor cost, 30% fixed expenses, and 10% profit. (Let’s set aside beverage cost for now). That formula sounds lovely, is easy to remember, and ten percent profit sure sounds nice, but reality throws many variables at the equation.

Steakhouse food costs tend to be slightly higher than those of other restaurants for a variety of reasons:

  • The main attraction—good steak—is a very high cost item. While the high food cost of meat can be offset by low cost a la carte sides such as baked potatoes, creamed spinach, and onion rings; appetizers, salads, and desserts, there are simply a lot of dollars on the plates.
  • Beef and other meat prices are sensitive to changes in the commodity market. A chef can do the same thing every day and have a fluctuating food cost.
  • Steakhouse items tend to be less labor intensive than menu items at other fine dining restaurants. Consider, for example, the labor costs of grilling a steak compared to the labor costs of house made beef ravioli. The tradeoff for lower labor cost is higher food cost.

Thomas Perone, a New York-based steakhouse manager says, “Some of our plates do go as high as a thirty-five percent food cost but in general we shoot for thirty percent overall and as much as thirty-three for steak items. And we charge what we need to charge to maintain that.”

Remember the big three controllable factors if you feel food cost is out of hand: waste, spoilage and theft. Audit your kitchen practices, storage, security and the trash to see how the food is being used.

Consider, also, that food cost percentage is a percentage of sales. Yes, costs should be controlled. If your kitchen manager is running a tight ship, however, the problem may be that prices for some items are too low, throwing your cost percentages out of whack. Since food prices seem to be constantly rising, keeping a vigilant eye on vendor invoices and your menu prices is a must.