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Thursday, July 19, 2007

Food Inventory Levels

One of the quickest ways to lower your food cost is to reduce the amount of food stored in the freezers and coolers. Since a lower food cost percentage is associated with a higher ending inventory value, it may not seem logical. However, a high inventory only helps out for one period. In the long run, you want as low an inventory level as possible.

With less food on the shelves, you'll reduce your spoilage cost. I'm often asked for benchmark information. With regard to inventory turns, I prefer at least 24 turns per year. I've seen operators with limited storage turn inventory 3 times a month. If you have over 3 weeks of cost of goods sold on the shelf, you have a problem.

If you run a restaurant with $3,000,000 in annual sales volume and a 33% food cost target, purchases would run $1,000,000. You should avoid ending inventories of $50,000 or higher. If you reduce the value to $40,000, you'll be in the zone. On the other hand, dropping to $25,000 may stress the ordering and receiving teams too much. Adjust the level over time and observe the impact on both food cost percentage and in stock outs.

Holding large quantities of perishable foods will tie up cash and increase the probability of "blowout specials" at dinner. I have had many disappointing meals during my travels which were highly recommended by the wait person. These employees were told to push items which were in danger of spoilage. I never return to restaurants after a disappointing experience with a highly promoted special.

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