Your Restaurant’s Food Cost Looks Fine. So Why Is So Much Inventory Disappearing?
By ProfitWise - a Visa Business Plans company.
A restaurant owner notices something strange while reviewing the month’s expenses. Sales are relatively consistent, the menu hasn’t changed, and supplier prices haven’t increased significantly. Yet the restaurant seems to be purchasing more ingredients than usual.
The kitchen manager insists that everything is running normally. The staff isn’t reporting unusual waste, and customers aren’t complaining about portion sizes.
So where is all that food going?
It’s a question restaurant owners sometimes struggle to answer, particularly when their financial records don’t provide a clear picture of how inventory is being used.
Buying More Food Doesn’t Necessarily Mean Selling More Food
Consider a restaurant generating approximately $80,000 in monthly food sales.
Historically, its food costs have averaged 30% of sales, or approximately $24,000 per month.
Recently, however, the restaurant has been spending closer to $28,000 on food purchases, even though sales remain unchanged.
The owner might immediately conclude that food costs have increased to 35%. But there’s an important distinction between purchasing inventory and actually using it.
If the restaurant purchased additional ingredients that remain in storage at month-end, those purchases shouldn’t all be treated as food consumed during that period.
Conversely, if the restaurant is using ingredients purchased in previous months, its current purchases may understate the actual cost of food sold.
That’s why understanding inventory requires looking beyond supplier invoices.
What Is Your Restaurant’s Actual Food Cost?
A restaurant’s food cost is generally calculated using three figures:
Beginning Inventory + Purchases − Ending Inventory = Cost of Food
For example, suppose a restaurant begins the month with $8,000 in food inventory, purchases another $25,000, and ends the month with $9,000 in inventory.
Its food cost for the month would be $24,000.
If food sales were $80,000, the food cost percentage would be 30%.
Now imagine that the ending inventory count was incorrect and the restaurant actually had only $6,000 in ingredients remaining.
Its food cost would increase to $27,000, representing 33.75% of sales.
That’s a significant difference, especially for a business operating on relatively narrow margins.
It also illustrates why accurate inventory counts matter. Even when supplier invoices and sales figures are correct, unreliable inventory information can distort the restaurant’s reported profitability.
What If the Numbers Still Don’t Make Sense?
Once inventory is recorded accurately, owners can start investigating unusual changes in food costs.
For example, a restaurant might discover that its chicken purchases have increased by 20%, while sales of chicken dishes have remained relatively stable.
There are several possible explanations.
Perhaps employees are serving larger portions than the recipes specify. Maybe ingredients are spoiling because the restaurant is ordering more than it needs. There could also be preparation waste, undocumented employee meals, or errors in how inventory is counted.
In some cases, the problem may be related to purchasing practices. A restaurant might be ordering ingredients from multiple suppliers without consistently comparing prices or quantities.
The important point is that the financial discrepancy provides a reason to investigate, but it doesn’t necessarily identify the cause.
That requires cooperation between the person reviewing the financial records and the people managing the restaurant’s daily operations.
Why Food Cost Percentages Can Be Misleading
Restaurant owners frequently use food cost percentages to evaluate performance, and for good reason. They’re useful indicators of how efficiently a restaurant converts ingredients into sales.
However, a percentage can appear reasonable while concealing problems.
Imagine a restaurant with a food cost percentage of 30%, which the owner considers acceptable.
If the restaurant’s menu prices have increased substantially, that percentage might remain stable even though ingredient waste has increased.
Similarly, a restaurant might report a favorable food cost percentage because its ending inventory was overstated.
This is why we believe it’s important to examine trends rather than rely exclusively on a single percentage.
Are purchases increasing faster than sales? Are inventory balances changing unexpectedly? Are certain expense categories showing unusual fluctuations?
These questions can reveal issues that deserve attention, even when the overall food cost percentage appears acceptable.
How We Approach This at ProfitWise
When working with restaurant owners, our goal is to help them understand what their financial records are telling them.
That includes reviewing food purchases, examining changes in costs, comparing financial results across periods, and identifying inconsistencies that may require further investigation.
We also recognize that accurate inventory information depends on the restaurant’s internal procedures.
A bookkeeper cannot determine how much food is physically sitting in a walk-in refrigerator without reliable inventory counts from the business. Likewise, financial records alone cannot establish whether excessive ingredient usage results from waste, portion control, or another operational issue.
What we can do is help owners recognize when the numbers don’t add up and understand which questions they should be asking.
During our monthly one-on-one financial reviews, we discuss these findings with clients in plain English so they can make informed decisions about their businesses.
Sometimes the discussion leads to reviewing purchasing practices. Other times, it highlights the need for more consistent inventory counts or better communication between the kitchen and management.
The objective is to identify potential problems early, before they significantly affect profitability.
Your Inventory Is Telling You Something. Are You Listening?
Restaurant owners have enough responsibilities without having to personally investigate every ingredient purchase or inventory discrepancy.
However, overlooking recurring differences between purchases, inventory and sales can become expensive.
Accurate bookkeeping, supported by reliable inventory information and regular financial reviews, helps owners understand whether changes in food costs reflect normal business activity or something that deserves closer attention.
And when the numbers don’t make sense, asking the right questions is often the first step toward finding out why.
