Comparing your own performance to benchmarking data isn’t always apples to apples. For example, assessing your mac n’ cheese skills by comparing them to your mom’s recipe might be a bit more realistic than measuring the junior basketball team you coach against LeBron James’ stats.
But for restaurant operators trying to get a better handle on how good (or bad) their food costs are, comparing against benchmarks is an essential skill. On top of that, why is benchmarking important when it comes to lowering food costs? How do restaurant operators use benchmarking data effectively? And how can we get that youth basketball team to LeBron’s level? (Ok, this blog might not answer that question, but you should still keep reading.)
It’s no secret that food costs are rising, but it’s important to understand the specifics. Which items are rising, and which aren’t? And what role does your location play in that? Before we get into the nitty-gritty, let’s take a look at a few reasons it’s important to be checking benchmarking data:
Now that we’ve looked at a few different reasons why knowing how you compare to industry benchmarks is important, let’s take a look at a few ways for your restaurant to put this into practice.
Before you can compare your food costs against benchmarks, you’ll need to know where your numbers sit (makes sense, right?). Most restaurants keep their food costs around 28-35%. Make a habit of calculating your COGS regularly, whether that’s weekly or monthly. The key is staying consistent.
Once you get into this habit, start comparing your numbers to the previous period last month and last year. Take note of any holidays or special occasions that may create data skews so you’re always comparing against trends, not one-time events.
Having a handle on your numbers not only allows you to see where waste or unnecessary spending may be happening, but also gives you the data you’ll need to know if you’re effectively performing against industry and your own benchmarks.
When comparing your restaurant’s food costs against industry benchmarks, it’s important to make sure you’re basing them on the right targets for your restaurant.
For example, a Fast Casual pizzeria has different targets than a Full Service, fine-dining seafood restaurant. Also, consider your location, and make sure the food cost trends you’re comparing yourself to are relevant to your area.
Aim to match on concept type, service model, average check size, menu mix, ingredient cost profile and local market conditions. A $12-per-head Fast Casual spot stacked against a $90-per-head steakhouse tells you almost nothing, but two taco shops in the same city with comparable menus and check sizes give you numbers you can actually act on.
One of the most critical steps for comparing your restaurant’s food cost is keeping up with industry trends. Keeping a regular eye on sources that report on food costs, like the National Restaurant Association and the Bureau of Labor Statistics, gives you the information you’ll need to understand your performance.
Make sure you’re also following localized food cost trends and news. Look for news outlets, local restaurant associations or online creators that comment on food costs in your particular region.
Keeping up with trends also helps you make more informed decisions. When beef prices jump nationwide, you'll know your climbing costs are a market reality, not a leak in your own kitchen, and can start to engineer your menu to combat this rising cost.
On the flip side, if pricing trends aren’t rising for a particular item, but you’re still seeing an uptick in your food costs, you can start troubleshooting where waste or other hiccups may be happening.
P.S✨ Want even monthly updates on food cost trends? Take a look at our latest edition of The Board.
Prime Costs with your COGS is a recipe for success. But what are Prime Costs? To put it simply, it’s the total cost of sales, or your cost of goods sold (COGS), plus labor cost. Calculating this total weekly keeps your data accurate and sets your business up for success. These two line items make or break your profitability more than anything else on the books.
Most restaurants aim to keep Prime Cost between 50- 60% of total sales, so checking your numbers against that range regularly will tell you whether your margins are in good shape or starting to slip. And when your Prime Cost creeps above that mark, it's usually a signal that something specific needs attention, whether it’s waste, bad plate costs or scheduling issues.
Because Prime Cost combines food and labor costs, the goal isn’t necessarily to keep both as low as possible. It’s to keep the two working together in a healthy, complementary way. For example, if your restaurant depends on premium ingredients and your food costs run higher, you may be able to offset that with tighter labor management.
The reverse can be true, too. If your service model requires more staff, you may need stronger control over plate costs and purchasing. Pinpoint the culprit early, and you can course-correct before it eats into your profit.
Comparing your restaurant's food costs against industry benchmarking data doesn’t have to feel like a shot in the dark. By calculating your food cost, getting specific when it comes to which benchmarks you should be comparing yourself to, staying up-to-date with industry trends and making sure your Prime Costs are balanced, you’ve got a recipe for using benchmarking data to improve your profitability that stands the test of time (and inflation).
Remember to get creative with how you handle rising food costs, and get as specific as you can when it comes to measuring up your restaurant against benchmarks. With these steps, your restaurant will be better equipped to handle rising food costs and better prepared to tackle them.