Theoretical vs Actual Food Cost
Published By
Mike Sorrentino
Published On
November 2023
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Let`s start with definitions. Theoretical food cost is what your restaurant food costs should be according to the current cost of all ingredients. Theoretical food costs assume zero waste, that each recipe was followed precisely, and with no shrinkage of ingredients. The actual food cost is the real cost of all the food that a restaurant purchased.. The actual food cost takes in account spoilage, recipe deviations and waste.
Back in the day there was no talk about theoretical cost, there was only actual cost. There is a simple formula. Beginning Inventory + Purchases - Ending Inventory / Food Sales = Food Cost. Although technically its the actual food cost. However, it is not the best way to look at food cost. Solely looking at the actual food cost does not take in account factors like inflation or product mix. If Restaurant A sold a lot of expensive steaks and had little waste but Restaurant B sold a lot of low cost chicken dishes and had high waste which Restaurant would have a higher actual food cost. Restaurant A would have a higher cost even with less waste because Restaurant A’s product mix consisted of higher cost items. Most people find this hard to grasp and do not like having the higher cost but in fact the higher cost comes from higher sales from the expensive products which in turn will lead to higher profits.
Now what is a better way to gain a line of sight on how much money you're losing? Actual vs. theoretical food cost is a great way. No one is ever perfect, so actual food cost should never match the theoretical. The goal is to get as close as possible. If the variance between theoretical and actual is big, there is waste. Having the report broken down by category will help indicate where the issues are. Any variation translates into loss profits.
Don't get caught up with the actual food cost percentage, but pay close attention to the variance of Actual vs. theoretical food cost. This represents the amount of money being inefficiently wasted in food costs and missing from the restaurant’s bottom line.