Food cost usually rises for one of seven reasons, and only one of them is the market: the rest are margin creep, expired manufacturer deals, substitutions, pack size changes, fees, and a menu mix that has drifted toward your most expensive plates, all of which you can find in your own invoices before you touch a menu price.
The complaint we hear on first calls sounds the same from a two-unit bistro and a twenty-unit group. "Our food cost was 29% last year and now it is 32%, and nobody can tell me why." The rep points at inflation. The chef points at the rep. The owner raises prices on four entrees and hopes. Three points of food cost on $3 million in sales is $90,000 a year, which is worth an afternoon with the invoices first.
How do I know the problem is purchasing and not the kitchen?
Split the number in two. Food cost percentage moves when either the price you pay per case changes or the amount of product you use per dollar of sales changes. Pull the same 30 items from your distributor's sales detail for this quarter and the same quarter last year, and divide total sales dollars by case quantity to get the price you actually paid per case. If those prices rose faster than your food cost did, the problem is on the buying side. If case prices held and cases per $1,000 of sales went up, look at waste, portioning, comps, and theft. Our food cost formula guide shows how to calculate the percentage the same way every period so the comparison holds.
What are the seven causes, and how do I check each one?
| Cause | What it looks like | Where to check |
|---|---|---|
| Market cost increase | Beef, dairy, oil, or produce up across every distributor | Compare the same item at two suppliers, or against a commodity index |
| Margin creep | Price up on items whose manufacturer cost did not move | Your margin schedule versus the invoiced case price |
| Expired manufacturer deal | One item jumps by several dollars a case overnight | Deal end dates, and whether a renewal was ever loaded |
| Substitution | A different brand or item number on the invoice | Item codes month over month |
| Pack size change | Same case price, fewer pounds or count per case | Pack column on the sales detail |
| Fees and surcharges | Fuel, split case, small drop, or special order charges | Non-product lines on the invoice and your agreement's fee section |
| Menu mix drift | Case prices flat, food cost up anyway | POS product mix versus last year |
Why does margin creep hide so well?
Most broadline agreements are cost-plus. You agreed to a margin on top of the distributor's cost, so when their cost moves, your price moves with it. That makes a margin increase look exactly like a cost increase on the invoice. The only way to separate them is to compare the price you were charged against what your schedule says the price should be at current cost. We covered the mechanics in what to do when your distributor raises prices mid-contract.
We flag any item whose price rose more than 5% month over month and research each one before it goes to the rep. A good share turn out to be legitimate cost changes. The ones that are not are usually a price file that was loaded wrong, and those are worth credits once you can document them.
What happens when a manufacturer deal expires?
Manufacturer deals are negotiated item by item with a start and end date. When one ends and nobody renews it, the item goes back to full price the next week. No one calls you. On a fry, a chicken breast, or a cheese you buy every delivery, that can be several dollars a case on your highest-volume line. When we review a new client's deal book, expired deals with no successor are often the fastest savings on the list, because the manufacturer already agreed to the price once.
Can substitutions and pack sizes really move the number?
They can, and they rarely get caught, because the case price looks familiar. A distributor out of stock on your usual item ships the nearest equivalent, and the substitute stays on your order guide for months. A pack that drops from 6/5 lb to 6/4.5 lb at the same case price is a 10% increase per pound. Check the item code and the pack column, not only the dollars.
Which fees should I look for on the invoice?
Read every line that is not a product. Fuel surcharges, split case charges, delivery fees on small orders, and special order margins all come from the agreement, and they add up quietly. One agreement we reviewed this year carried a 30% split case surcharge, a 30% margin on special orders, and a $35 fee on any order under $500. None of those showed up in the case prices the owner was watching.
What should I do first?
Start with your top 50 items by spend, which usually cover most of your dollars. For each one, compare the case price this month against three months ago, confirm the item code and pack did not change, and check whether a manufacturer deal was attached. Anything unexplained goes on a list for your rep with the item number, both prices, and the dates. How to audit a Sysco invoice walks through the line-by-line version.
This is the work FoodServiceIQ does every month for restaurant groups spending $1 million or more a year on food. Our team of former distribution executives rebuilds the price per case on every item, tracks deal expirations before they hit, audits the agreement's margins and fees, and reports the result with the math attached. There is nothing to pay upfront, and our fee comes out of savings we can prove. Clients have published annual savings of $335,000+ at Oasis Restaurant, $413,000+ at Dish Society, and $521,000+ at Thunderdome Restaurant Group.
Questions operators ask
Is it normal for food cost to rise every year? Some drift is normal when commodity costs rise. A jump of two or three points in a year with no menu change almost always has at least one cause on the list above.
Should I raise menu prices first? Check purchasing first. A menu increase covers the problem for a quarter, and the underlying overcharge keeps growing.
How far back should I look? Twelve months gives you seasonality. Three months is enough to spot margin creep and expired deals.
Do I need to change distributors to fix this? Usually not. Most of these causes can be corrected inside the agreement you already have.
Send us your last three months of invoices and we will show you which of the seven causes is driving your number. The full process is on our how it works page.
