Tightening up food costs is a major priority for all multi-unit operators. One of the most useful reports your back office system can generate is the Actual vs. Theoretical food cost report.
The Actual vs. Theoretical (AvT) food cost report is many seasoned restaurant professionals’ best friend in the back office. Why’s that? This handy report reveals what your actual food cost is versus what it should be for a given period. When used often and consistently, it can help you rapidly troubleshoot and fix restaurant food cost problems across an entire restaurant enterprise.
Here's what a basic AvT report can reveal.
The theoretical food cost calculation:
Here’s a simple chicken taco recipe:
- 1 scoop of ground beef at 33 cents
- 1 hard shell at 12 cents
- 1 scoop of pico de gallo at 05 cents
Total cost is ($0.33 + $0.12 + $0.05), or 50 cents per taco sold. If the store sells 100 tacos at the end of the week, its theoretical food cost is $50.
The actual food cost calculation:
Beginning of week inventory values + additional inventory purchases – end of week inventory values = your actual food cost
Chicken taco recipe example:
- Beginning of week taco recipe inventory values = $125
- Recipe purchases during week = $70
- End of week recipe inventory values = $135
Therefore, the actual food cost for the chicken tacos is ($125 + $70 – 135) = $60.
The food cost variance:
When we determine the food cost variance, this is where we can truly understand what’s going on with profitability.
Actual Food Cost – Theoretical Food Cost = Variance
In our chicken taco example: ($60 Actual – $50 Theoretical = $10 Variance)
After comparing Actual to Theoretical costs in our example, this store actually spent $10 more on its chicken taco recipe than it should have. This is the food cost variance.
Time to fix the problem:
Now that we know there’s a problem, the next step is to fix it. Here’s where you will use your back office reporting tools to find and eliminate the source(s) of the bad costs. Was it the ground beef, the hard shell or the pico de gallo that contributed to the lost profits? Was it perhaps a combination of all the tasty ingredients? The point is to find the root cause for the loss and then fix it.
Keep Measuring and Keep Learning
Getting a handle on food costs is one of the most important things you can do to ensure your business continues to grow and scale profitably. The AvT report informs the entire enterprise of where the problems are and provides direction as to how to fix them, often decreasing food costs by 2-5% or more.
If you want to dig deeper into this important back office operational topic, we recommend visiting us here.
This post is sponsored by CrunchTime! Information Systems