Restaurant Inventory - A Recipe for Success

Everything You Need to Know About Restaurant Inventory Management, and How a Successful Strategy Can Boost Your Profit Margins

 

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1. Introduction

Most restaurant owners get into this industry inspired to make delicious dishes that leave guests feeling delighted. Yet as much as you work towards creating incredible menus and exquisite recipes, these alone don’t make a profitable restaurant. Your management processes do.

How you manage your restaurant finances - including what your restaurant food costs are, how often you order new products, how you price your menu and the amount of product you waste in your kitchen - are all key factors that impact how profitable your business is.

Do you know what all these have in common? They are all strategically tied to your restaurant inventory management processes. 

While managing your food inventory isn't the most enjoyable task, and certainly isn’t the reason why you got into the restaurant game in the first place, it’s critical to your profitability. The first step in building a successful restaurant inventory management process is to understand exactly what inventory management is.

 That’s why here at Sculpture Hospitality we have created this complete guide to food inventory management. We hope it helps.

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2. What is Restaurant Inventory Management?

Restaurant inventory management is the process of monitoring, controlling, and optimizing the stock of food, beverages, and supplies used in a restaurant.

It ensures that the right quantities of items are available to meet customer demand without overstocking or understocking, which can lead to waste, inefficiencies, and lost revenue.

At its core, inventory management is about maintaining a balance between supply and demand while minimizing costs.

For restaurants, this means keeping track of perishable goods, managing supplier relationships, and ensuring that ingredients are fresh and readily available for menu preparation.

Key Components of Restaurant Inventory Management Include: 

  • Inventory Tracking: Monitoring stock levels to know what’s on hand, what’s running low, and what needs replenishment.

  • Order Management: Placing orders with suppliers based on projected needs and historical usage patterns.

  • Waste Reduction: Identifying areas where waste occurs and implementing strategies to minimize spoilage, over-preparation, or expired stock. 

  • Cost Control: Managing expenses by avoiding over-ordering and keeping track of the cost of goods sold (COGS).

Effective restaurant inventory management directly impacts your bottom line by controlling costs, reducing waste, and optimizing resource utilization.

When inventory levels are accurately tracked and replenished as needed, restaurants can avoid overstocking, which ties up capital in unused goods, and understocking, which risks missed sales opportunities.

By maintaining a balanced inventory, businesses can ensure they’re purchasing only what is necessary, which helps to improve cash flow and reduces the financial strain caused by excess stock or emergency orders at higher costs.

3. Why Restaurant Inventory Management Matters

Restaurant inventory management is time-consuming, takes you away from the creativity that got you into the restaurant industry in the first place and is complex - but that doesn’t mean it’s not an important task.

In fact, food inventory management is one of the most important aspects of ensuring your business is as profitable as it should be.

According to the National Restaurant Association, a staggering 75 percent of US restaurants are struggling to turn a profit specifically because of their inability to manage food costs and keep them at acceptable levels.

That’s because poor food control is actually one of the leading causes of lost money among restaurants. Poor food inventory management processes lead to hidden costs that may be significantly hurting your restaurant’s bottom line. 

Poor food inventory management affects a range of processes within your restaurant from your ordering processes, recipe management, product spoilage and much more. 

A strategic approach to restaurant inventory management will give you clear visibility and control over where those losses are coming from. By simply doing inventory once a week and being meticulous about calculating the cost of sales, restaurant owners can add between 2 percent and 10 percent to their bottom line due to improved sales trend identification and keeping ingredient PAR levels. 

Successful food inventory management will give you insights such as:

The ability to understand and maintain your cash flow.

The ability to update menu prices depending on food cost changes.

Smarter ordering enables your business to optimize exactly how much stock you need at any given time. 

Clear insight into where your restaurant is losing money from inventory processes, perhaps you are suffering from overserving, food shrinkage or even employee theft.

Improved recipe management so your restaurant can create dishes that drive business profitability. 

4. Six Key Inventory Management Terms Your Restaurant Needs to Know

Food inventory management is a vast process that encompasses a wide range of internal operations within your restaurant. Here are a few of the most important terms for food inventory management that you absolutely need to know.

Cost of goods sold (COGS)

This is the total cost of all ingredients used to make menu items, which accounts for around one-third of gross revenue for the typical restaurant. This can be calculated by - COGS = beginning inventory + purchased inventory - final inventory.

Depletion

The amount of inventory (either expressed in dollar value or product amount) that you have used over a specific period of time.

First in, first out (FIFO)

An accounting model in which a restaurant uses the inventory products that arrive first - typically the model used by most restaurants as it helps to reduce spoilage and food waste.

PAR level

Periodic automatic replacement (PAR) is a metric that gives restaurant’s insight into the optimal level of product they should have on-hand at any given time, allowing them to improve their ordering decisions. 

Variance

Also known as shrinkage, variance is the difference between the amount spent on a product, compared to the safe amount cost. This gives restaurant’s insight into what, and where, food products are being lost.

Yield

The percentage of product that is actually being accounted for in sales, compared to the amount a restaurant’s point-of-sale (POS) system says should have been used. If the variance is 5 percent, then the yield is 95 percent.

5. Restaurant Inventory Management Best Practices

Successful restaurant inventory management is all about creating a standardized approach that your employees follow. By following these processes, your restaurant will have the data, insights and accurate counts needed to make strategic decisions that boost your profitability.

Here are just a few best practices that will ensure your restaurant achieves better food inventory management results:

Conduct frequent, and consistent, inventory counts

Successful restaurant inventory management relies on accurate data. That means your restaurant should conduct inventory counts on a frequent, and consistent basis. Whether daily, weekly or monthly, stick to the same frequency of inventory counts so that inventory becomes a habit and data remain accurate.

Make sure you get the right employees to manage your inventory

If you aren’t managing your restaurant’s inventory yourself, then make sure you hire the right person for the job. As we mentioned before, inventory counts must be accurate if you are to gain insights that enable you to make strategic changes that drive profit growth. Make sure the employee you choose is trained to take inventory counts, and consider offering a bonus plan that is inventory-focused.

Use the first in, first out (FIFO) inventory method

This is typically the most logical inventory process for restaurants, as it focuses on using the oldest inventory or ingredients before fresher products are used. By organizing your inventory using the FIFO method, your restaurant will be in a far better place to avoid spoilage, expiration and other forms of food waste.

Don’t forget to measure inventory variance

Counting inventory isn’t enough to make real change to your restaurant’s profitability. Successful food inventory management should focus on measuring the actual amount of product used, compared to the amount of product that your restaurant has sold. This is referred to as variance, and will give you insights into where you may be wasting food products and losing profits. 

Did you know that by improving food inventory management and ordering processes, you can save approximately $7 on food waste for every $1 you invest. 

Use inventory data to improve demand forecasting and ordering processes

Inventory management is an important process that should be used to make more strategic, and smarter, ordering decisions. Use your inventory data to accurately forecast future demand from your customers, and then use this knowledge to figure out your PAR level - the optimal amount of product that you should have within your restaurant at any given time. This ensures that you can meet customer demand, while at the same time avoiding excessive food waste. 

Quick Food Cost Wins to Get You Cooking

Not sure where to start? In our free guide, 5 Commonly Overlooked Areas That Crumble Your Food Cost, learn the most common areas where your food costs might be falling apart.

Download Your Free Copy
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6. Using the FIFO Method to Better Manage Restaurant Inventory

Among the various restaurant inventory management techniques, the first-in-first-out (FIFO) method stands out as a proven approach for managing perishable items and aligning inventory practices with operational goals.

What is FIFO, and Why Does It Matter?

FIFO ensures that the oldest stock is used or sold first, minimizing spoilage and maintaining the quality of food served.

This method is particularly valuable in restaurants, where freshness directly impacts customer satisfaction and the bottom line.

Here’s why FIFO matters for your establishment:

  • Freshness: Guarantees that customers receive dishes made with the freshest ingredients.
  • Waste Reduction: Minimizes spoilage by preventing older inventory from being overlooked.
  • Cost Management: Controls expenses by using older stock first, reducing unnecessary purchases.

Steps to Implement the FIFO Method

To make FIFO work seamlessly in your restaurant, follow these steps:

  1. Organize Your Storage: Group similar items and arrange them to ensure the oldest inventory is at the front. Invest in sturdy shelves and containers to maintain order.
  2. Check Expiration Dates: Regularly inspect inventory and use expiration dates to prioritize stock rotation.
  3. Label Inventory Clearly: Include details like product name, purchase date, and expiration date on all inventory items. Colour-coded labels can simplify the process.
  4. Train Your Staff: Educate your team about FIFO’s importance and ensure consistent application.
  5. Monitor Stock Movement: Conduct regular stock checks to identify and resolve any issues with FIFO compliance.

7. How Can My Business Record and Analyze Restaurant Inventory?

Restaurants can undergo the food inventory management process in one of two ways. They can either use spreadsheets to manually manage their inventory, or they can automate the process with a food inventory management system.

This leads us into the debate of food inventory spreadsheet Vs. food inventory management software. Here’s how both methods work:

Manual spreadsheets

Most restaurants typically use manual spreadsheets to manage and track their inventory processes. This method involved inventory counts being written down on paper, before being transferred to Excel spreadsheets or outdated inventory count systems.

The issue here is that these processes are manual, time-consuming and require a huge amount of manual work from the employees you assign to count the inventory. This typically leads to inaccuracies in your numbers that give you no real insight into how your inventory is impacting the profitability of your business. 

Food inventory system

A food inventory management system acts as a mechanism for your restaurant to manage, automate and strategize all of the processes that are associated with your inventory. Through accurate data and insightful reports, food inventory management software gives you the data you need to reduce food waste, design more profitable menus, improve ordering processes and much more.

Food inventory management systems are typically integrated with your restaurant’s point-of-sale (POS) system, meaning you can track every aspect of your inventory and gain real-time reporting and insights that lead to improved decision making. 

8. What is a Restaurant Inventory Management System?

A food inventory system, or restaurant inventory system, is a centralized platform that enables your restaurant to track your entire food inventory. Seamlessly manage all stock that comes into your restaurant, all products that leave your restaurant and all sitting inventory. 

An upgrade from manual and time-consuming spreadsheets, a food inventory management system will automate the tracking of your restaurant’s stock.

By inputting regular, consistent and accurate inventory counts into the platform, you’ll gain insights that show exactly how your inventory is impacting your profitability.

By automating these processes with technology, you’ll have more time to spend on the things that are important to you - building incredible dishes that leave your customers feeling delighted.

There’s a reason why 95 percent of restaurant operators claim that technology improves the overall efficiency of their operation, and that’s why 78 percent of restaurant operators look at tech metrics on a daily basis. 

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9. What are the Benefits of a Restaurant Inventory System?

The automation of inventory management processes and the insights that you gain from a food inventory management system will ensure your restaurant can realize significant cost savings, maximize profits, reduce food waste and improve operational efficiencies. 

Here are just some of the many benefits that your restaurant will realize from a restaurant inventory management system:

Seamless processes

Time is money, and as a restaurant owner you should be focusing on what you got into the business for - creating world-class recipes. A food inventory management system automates inventory processes and makes your life easier!

Saves your business money

Poor food inventory control is one of the leading costs for restaurants, and it’s typically hidden. Food inventory software gives you complete visibility into those hidden costs, allowing you to make strategic changes that improve the profitability of your business.

Smarter ordering decisions

Through improved insights into how much product you are using, and detailed forecasting of what your customers will order, you can improve ordering processes so that you only ever stock the optimal level of each product - reducing the change of food waste or deadstock. 

Complete visibility into your inventory

It’s easy to lose track of your inventory or report inaccurate counts. A food inventory management system, however, gives you clear insight into where you are making poor inventory management decisions, giving you a clear path to rectifying those issues. You’ll know exactly where you are missing inventory from. 

In addition, a robust restaurant inventory management process can also help you improve profit margins by giving you the data and insights you need to improve your pricing strategy.

There are a few pricing strategies that can help your restaurant increase profits:

  1. Cost plus pricing: add a desired profit margin to the cost of each dish
  2. Bundling: combining multiple products together for a single price, like a burger, fry and drink combo at a fast food restaurant
  3. Specials: offering unique dishes or ingredients for a limited time to create instancy.

Other strategies and tactics you can implement to improve your restaurant pricing include: 

  • Ensuring your customers are invested in the dish before they see the price with delicious descriptions.
  • Using charm pricing to make things looks more cost-effective (for example, $29.99 instead of $30).
  • Using high price items to push customers toward high-profit margin items.
  • Offering different sized portions with lower prices (but higher profit margins).

An effective restaurant inventory management strategy gives your business the insights it needs to grow your profit margins.

10. Why Restaurant Inventory Management Software Must be Combined With Expert Advice

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Food inventory management software is fantastic, but the results realized from it are far more significant when combined with highly-knowledgeable advice from inventory experts.

That’s where the Sculpture Hospitality difference comes in. Unlike other restaurant inventory management system providers, we have a team of locally-based specialists who are on-hand to optimize the system to meet your restaurant’s specific needs.

Our team of inventory experts are available to show your business exactly how you can use, and customize, your food inventory software to suit your restaurant’s specific budgets and requirements. Boosting your profits in the process!

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