Food Cost Is King In The Food Industry, So Why Is It So Hard To Figure Out?
Across the food industry, ingredient prices are rising and profit margins are shrinking. From foodservice to restaurants, grocery to prepared food brands, controlling food costs is the most powerful levers a business can use to make an impact on the bottom line.
If you want to control food costs, however, you have to calculate them first—one of the most enduring, frustrating, and bottleneck-ing challenges of our industry.
Let’s explore how leading food brands are using new methods to get the most up to date food costs , rapid and accurate inventory value and automatic ordering.
In this article, we’ll cover:
What to do about your order guides in a bunch of formats
How to avoid countless wasted hours and food on human errors from unit conversions
An inside look at how thriving food companies are costing food in real-time
If you’re looking to scale, you need to make sure your kitchen is in order first. Here’s why that’s so hard to do—and what to do about it.
The Neverending Puzzle of Vendor Data
Messy vendor data has been the industry standard for so long that it’s difficult to imagine it any other way. Spending precious time inputting costs and prices into a spreadsheet is just part of the process, and the bigger you grow, the more complicated (and sluggish) the practice becomes.
The problem is simple. Your produce supplier might send you a weekly excel sheet, or pdf with prices…. The broadliner supplier might have an online portal or electronic data interface (EDI). And the local dairy? They mail you classic paper invoices. What if you have more than those?
When you have several suppliers, the time it takes to standardize pricing in a single spreadsheet—among all the other administrative duties—means you’re calculating past food costs. As a result, costing is always months… or years out-of-date, and using that data to inform recipe changes or menu rollouts is reactive, rather than proactive.
It’s not uncommon for culinary teams to plan recipes and or menus focused on food costs, only to constantly feel like those margins are not accurate, with something always being off, especially with the rapidly changing market.
It’s not your fault—it’s the reality of manual data normalization—but the end result is a traffic jam for data-driven decision-making. We’ve seen the real-world impact this has on business leaders:
P&Ls that are three months behind, because the food costs are not up-to-date yet
Tension between culinary, operations, and finance teams about big decisions
Slow decision making because of slow reporting
The vendor pricing struggle can be big enough to slow down and overwhelm food and beverage leaders who need access to their data quickly. When you add another calculation , one that’s intrinsically linked, you’ve got a major bottleneck in the making.
Also Read: Here’s Why Food Software Integrations Are Liabilities
Unit Conversions Make Algebra a Food Costing Nightmare
Say you have all of your vendor pricing in one place, and you can measure the cost of food by looking at scanned or received invoices. This is only helpful for documenting a high-level food cost percentage —and it’s not something you can use in day-to-day operations to help.
To turn your overall food costs into actionable data, you have to get granular into menus, recipes, and sub recipes, andhere arrives the next challenge: unit conversions.
The food industry, food teams, suppliers, culinaries, use a wide variety of units of measurement to price and produce food: grams, ounces, milliliters, ounces (volume and weight!), gallons, cases, and more.
Also Read: The Food Data Mastery Checklist
Calculating how many pounds of tomatoes is needed to produce a liter of tomato sauce, factoring in trim yields, loss, cooking yields, dividing that by the number of dishes it’s used in, then turning that into a per recipe cost requires multiple mathematical steps that are ripe for human error. In fact, human error and miscalculations are one of the biggest frustrations food businesses report to us. Lots of algebra, in a time where folks are dependent on their phone’s calculator.
Using a hand built spreadsheet with equations, calculations, macros doesn’t fare much better:
Simple unit conversion spreadsheets still require people to input dozens of calculation results into recipe costing documents (high effort)
Complex recipe costing spreadsheets may calculate costs and margins more easily, but adapting them to changing recipes and ingredients, pricing, and more is difficult (low adaptability)
Whether you’re doing a dozen conversions manually, or trying to make changes to a more automated spreadsheet, human error is inevitable. Plus, you have no access controls. Someone might erase, unlink, or break things, and it’ll take time to update, and or fix.
The end result of this layered complexity is predictable: by the time you have all your vendor data in-hand, and you’ve revisited your per-recipe costs with unit conversions, the data is already out of date. It’s history.
We know many food businesses that have their vendor data process nailed down, but struggle to convert units in kitchens without making mistakes. We’ve seen many food businesses with algebra-savvy culinary teams who can calculate conversions in seconds, but who can’t seem to keep their vendor data up-to-date.
Also Read: 6 Things To Look For In Food Costing Software For Your Food Business
Mastering food costing requires complete control over both sides of the coin.
Here’s What Some of the Pros Are Doing
We’ve talked about the problem of food costing with thousands of food businesses, and the brands that have the most precise, updated, and actionable food cost data follow the same few steps with very few exceptions. Here they are:
Automate pricing input. These brands have a straightforward system for forwarding and inputting all vendor pricing to a single data hub (a food and recipe data platform, not a Dropbox folder, or dozens of excels with macros). They do not keep pricing data spread out across online portals, PDFs in emails, and paper invoices.
Normalize the vendor data. The vendor data is then analyzed by software that can read the ingredients, unit and pack sizes, and pricing information. The software normalizes the data—sometimes with a quick confirmation from a team member—and incorporates it into the data model.
Granularize unit conversions across recipes. Once the software has connected “yellow onion” from a vendor to “yellow onion” in a recipe, it can automatically convert the units of measurement and understand the price per recipe (for example, one bag of onions from the vendor at $10 equals 2 hotel pans of sliced onions, and forty sides of caramelized onions at $0.25 each).
The food businesses that have this flow of data down to a science have a completely different experience managing their food costs compared to brands that use more manual and traditional methods.
They can see what a recipe costs today using the latest vendor pricing
They can make changes to their recipes and see the profit margin impact immediately
Cross-department teams work together more effectively (with far less headache)
They can see the past, historicals, and make bulk/demand planning decisions
Negotiating with vendors is easier, with their purchasing power clearer than ever before
You can guess some of the food businesses we’re talking about—they’re quick to innovate, outpace all their competitors, and are leaders in the food space.
Mastery of food data, and costing is the next major pursuit of the food industry, and it’s why we built Galley—the new standard in food data.
Galley uses the Automate, Normalize, Granularize process to give food companies a straightforward path to smarter food costing and recipe planning.
This food costing system isn’t a theoretical model—it’s a proven process that’s already helping the fastest-growing food companies in the country take control of their food costs and data.
Want to build a food data process that gives you control, easily.
