How Multi-Unit Restaurants Keep Food Cost Variance Close to Zero—Ultimate Guide to Restaurant Inventory Management

You can’t eliminate food costs, but effective restaurant inventory management can keep them from spiraling out of control.

In a survey by POS provider Touchbistro, 58% of operators said that rising inventory costs was their number one source of financial strain. You’re here because you want to get those expenses under control. Let me back up the importance of your goal with a clear stat: research shows that effective inventory management can add 2-10% to a restaurant’s bottom line.

That’s the kind of improvement we’re aiming for in this article.

After reading this guide you’ll have the tools you need to set up bulletproof protocols, keep track of procurement, and monitor stock levels and outlet performance.

That means:

• No more guesswork in the procurement department.
• No more time wasted searching through spreadsheets.
• No more cost-increasing inventory errors.

In this article, we cover:

• What is restaurant inventory management?
• Important restaurant inventory terminology
• Why inventory management is essential in food service
• 14 cost-cutting restaurant inventory management best practices
• Restaurant inventory management case study
• 5 Food inventory issues only data analysis will uncover
• How to take restaurant inventory management to the next level
• 10 reasons multi-unit restaurants use Apicbase

Let’s make inventory management efficient, scalable and reliable, starting at the beginning:

What is Restaurant Inventory Management?

Restaurant inventory management refers to the process of ordering, storing, tracking, and managing the food and beverage products and supplies that a restaurant uses. It involves keeping track of the quantity and cost of ingredients, minimising waste, spoilage, and theft.

Good inventory processes ensure that the restaurant always has the necessary items on hand to meet customer demand without overstocks or shortages. They provide valuable data, such as actual food costs, to support menu pricing, purchasing and vendor management.

Effective inventory practices allow restaurants to control costs, improve operational efficiency and margins, and maintain high levels of customer satisfaction.

The core elements of restaurant inventory management include:

• Tracking of Inventory Levels: This means monitoring the products in stock, their expiration dates, and their reorder points to ensure that the inventory levels are maintained accurately and efficiently.
• Setting Par Levels and Reorder Points: The minimum and maximum inventory levels are the boundaries of your stocks Setting them helps maintain sufficient inventory to meet demand without overstocking. This could lead to increased waste and costs. For instance, overstocking perishable items like vegetables is likely to result in spoilage and financial loss.
• Demand Forecasting: This involves analysing historical sales data to accurately predict future demand, which helps optimise inventory levels and prevent overstocking or understocking. Larger food service companies use demand forecasting software for this purpose.
• Regular Stock Counts: Conducting routine physical inventory counts helps maintain accurate stock levels and identify discrepancies early. These discrepancies can then be addressed promptly to prevent issues like stockouts or overordering.
• Supplier Management: Building solid relationships with suppliers is essential for ensuring timely and accurate deliveries, which supports effective inventory management.
• Use of Technology: Implementing inventory management software is like having a reliable assistant that automates tracking and reduces errors. It enhances efficiency and accuracy in managing inventory, freeing up time so your restaurant and kitchen managers can focus on other aspects of the restaurant.
• Training Staff: Educating all staff members on inventory management practices ensures that everyone is aligned and contributes to accurate inventory tracking and management.

Important Restaurant Inventory Terminology

Effective inventory management comes down to how well the teams at every restaurant location adhere to the set protocols. That’s why it’s so important to invest in staff training. It begins with understanding the key terms.

Every chef, restaurant manager, kitchen staff member, and F&B manager should know these key terms to ensure operations run smoothly:

• COGS (Cost of Goods Sold): restaurant COGS represent the total cost of all the ingredients used to produce the items sold in a restaurant. It is calculated as the beginning inventory plus purchased inventory minus ending inventory.
• Food Cost Percentage: This metric is a food cost calculation that indicates the percentage of revenue that goes towards the cost of goods sold. It is ideally kept between 28% and 35% to ensure profitability.
• Sitting Inventory: Refers to the total amount of inventory currently available or in stock at the restaurant.
• Depletion is the amount of inventory used over a specific period, often tracked daily, weekly, or monthly.
• Variance is the difference between the theoretical inventory usage and the actual inventory usage. It helps identify discrepancies due to errors or theft.
• FIFO (First In, First Out): FIFO is an inventory rotation method that ensures older stock is used before newer stock, reducing the risk of spoilage.
• PAR Level (Periodic Automatic Replacement): PAR level is a system that determines the minimum inventory level that restaurant managers should maintain to meet customer demand without overstocking.
• Recipe Costing: recipe costing is the process of calculating the total cost of ingredients used in a recipe, which helps in pricing menu items accurately.
• Inventory Turnover Ratio (ITR): ITR measures how often inventory is sold and replaced over a period, indicating the efficiency of inventory management.
• Waste and Spoilage: Refers to unusable inventory due to being expired, damaged, or spoiled, which represents a loss to the restaurant. Reducing food waste is a key challenge in the restaurant industry, with the goal of aligning food service operations with ESG principles.

Why inventory management is essential in food service

Why are maps and compasses vital for mountaineers?

Without them, getting from point A to point B would mean dealing with hazardous overhangs, steep canyon walls, and treacherous paths. In the same way, restaurant operators face challenges like overstocking, understocking, waste, and pilferage. For them, inventory management is the key to tackling these issues.

Incidentally, restaurant inventory management isn’t merely about keeping track of stock. It’s a data goldmine. Peter Schimpl, VP of Digital & IT at L’Osteria, in an interview on The Food Service Growth Show: “Inventory management isn’t just about handling F&B. Inventory management gives us data points we can measure. It gives us certainty in the numbers.”

The key metric here is actual food cost, and only effective inventory management can deliver it. It allows restaurant owners and managers to calculate the difference between actual and theoretical food costs, giving them a KPI called food cost variance. Ideally, the food cost variance is zero. In this situation, the expected costs match the effective costs 100%, which means there are no losses within the system. But there is no such thing as perfection. There are always minor variances, so anything under 2% is considered perfect. If the gap is more significant, that means somewhere in operations, profit is leaking away unnoticed.

Food cost variance surfaces these leaks, making it a mighty KPI for cost control and profitability. That is why inventory management is essential for restaurant and food service companies.

By narrowing the gap between actual and theoretical costs, restaurants strengthen their financial controls and elevate their overall business performance. For example, in a recent case study, a food service company operating multiple dark kitchens slashed its food costs this way by 8%.

When your restaurants’ inventory management processes work well, they do three things:

• Monitor food costs;
• Track movements of food, drink and other supplies in stock;
• Keep food waste under control.

Restaurants that have solid operations tap into benefits:

Deeper understanding of the company’s overall health

Food cost variance is a key metric for assessing whether a company is thriving, stable or struggling. As previously discussed, this metric measures the difference between the theoretical food cost and the actual food cost over a specific period. To calculate actual food costs, diligent inventory processes must be in place.

The variance indicates how well restaurant managers are tracking inventory and adhering to budgets. Large variances could point to issues like avoidable waste, theft, over-portioning, or poor purchasing decisions, all of which mean higher food costs and lost profits.

If the variation in food costs deviates too much from what is desirable, it is a good idea to scrutinise internal processes, staff training and supplier delivery notes.

Reducing cost of good sold

The relationship between Cost of Goods Sold (COGS) and inventory is crucial for understanding a restaurant’s financial performance. COGS mainly covers the cost of ingredients a restaurant uses to make the dishes it sells. This cost significantly affects the restaurant’s gross profit and overall financial health.

Inventory consists of all the food and supplies a restaurant has available. It is an important part of the restaurant’s assets. Effective inventory management is essential because it helps to accurately calculate COGS by keeping track of how much inventory is used in a given period. In other words, COGS gives a monetary value to the inventory used to make dishes sold during that period.

By efficiently managing inventory restaurants can massively reduce their cost of goods sold.

Preventing overstocking and shortages

Restaurants deal with perishable goods, where the freshness of the product significantly enhances customer satisfaction. Given these conditions, it’s crucial for a restaurant’s success to maintain just the right amount of inventory to meet demand. Too much stock can lead to food waste and severely harm profit margins, while too little can result in unavailable menu items and disappointing customers.

Inventory management is vital in achieving this balance. Regularly monitoring what is used and what remains ensures that restaurants can timely reorder supplies before they run out and avoid purchasing excess that could spoil.

This careful control of inventory levels allows restaurants to meet customer demand, minimising waste and avoiding shortages efficiently.

Minimising food waste

Food waste is a major issue for restaurants, affecting profits and the environment. Since food and drink spoil quickly and sales can be unpredictable, restaurants often end up with unused supplies.

Good inventory management helps tackle this problem by giving restaurants a clear picture of their stock levels and inventory rotation. This information allows them order just the right amount of food so they use all their ingredients before they go bad.

Inventory management also includes tools like variance reports, which show the difference between how much food is bought and how much is actually used. These insights help restaurants cut down on excess and improve things like portion sizes.

Demand forecasting is another helpful feature of inventory management. It predicts how much food will be needed in the future, helping restaurants prepare just enough to meet demand without leftovers.

Moreover, keeping track of inventory across locations lets restaurants move supplies where they’re needed most before buying more. This way, they make the most of what they already have.

Strategic Decision Making

Proper inventory management eliminates guesswork in restaurant operations. With accurate data, restaurants make better decisions that lead to reliable outcomes.

For example, understanding which ingredients are used most and tracking price changes allows restaurants to fine-tune their menus and increase profits. This knowledge also strengthens the procurement department’s hand in supplier negotiations, helping secure better prices and more favorable terms.

Moreover, restaurant and general managers can adjust purchasing patterns based on sales data, reducing orders for underperforming items. Similarly, development executive chefs use cost and usage information to adjust menu prices accurately, ensuring dishes are not underpriced and profits are protected.

Improving profit margins

Inventory management is key to controlling costs and increasing restaurant profit margins because it provides clear insight into the most important assets of a food service operation: the food, allowing operators to optimise purchases, minimise waste, improve efficiency, and plan effectively.

While the front-of-house activities contribute to revenue, inventory management is essential for enhancing a restaurant’s bottom line—the ultimate measure of success.

14 Cost-Cutting Restaurant Inventory Management Best Practices

Now that we’ve covered the big picture advantages of effective inventory management, let’s get into the nuts and bolts.

Restaurant operations get messy. There are many variables—people, pricing, demand, product availability—and quite a few of them are hard to control. That’s why it’s essential to tackle inventory issues head-on before they escalate.

Keep an eye out for common problems like:

• Theft
• Waste and spoilage
• Supplier fraud or mistakes (f.e. deliveries don’t match purchase orders or invoices)
• Data entry errors or mismanagement inventory recirds
• Portioning errors
• Misplacement or mislabeling
• Inefficiencies and misunderstandings in admin and communication among staff.
• Damage during handling
• Technical failures (f.e. POS connection stopped working)

Of course, that’s easier said than done.

These issues are subtle and often not even recognized as problems. They can quietly undermine your operations for a long time before they surface.

But difficult doesn’t mean impossible.

Over the years, we’ve talked to numerous supply chain managers, F&B managers, inventory managers and operations managers.

Based on their insights, here are the best practices for inventory management in restaurants to support your bottom line, and make things more efficient:

1. Use integrated inventory management software: Start with robust software, like Apicbase, that ties everything together—your POS system, inventory, procurement and supplier databases. This helps you track stock levels and usage patterns in real time, automate reordering, and get detailed analytics for better decision-making.
   
   This approach cuts down on data entry mistakes, streamlines communication with the departments, helps you spot discrepancies quickly, and reduces mismanagement of inventory reports.
2. Implement periodic and perpetual inventory systems: Use both periodic (regular physical counts) and perpetual (continuous tracking through software) inventory systems.
   
   This dual approach helps keep your records accurate and catches any issues early, maintaining data entry errors and theft in check through regular verification. 
3. Standardise processes across units: Ensure all your locations follow the same procedures, like First In, First Out (FIFO) for stock rotation, as well as how items are received, stored, counted, and reported. This minimises waste, ensures older stock gets used first, and maintains consistent inventory handling and data reliability across multiple locations.
   
   This makes inventory practices comparable across units and allows for effective benchmarking within the company.
4. Standardise recipes and portions: Create standard recipes and portion sizes across the board.
   
   This controls costs and ensures consistency, making inventory forecasting and purchasing more accurate. Standardising recipes and portions also cuts down on portioning errors.
   
   For example, the recipe database in Apicbase standardises your recipes and automates food cost calculations, nutritional value calculations, and allergen reporting for all units.
5. Reduce menu complexity and cross-use ingredients: Simplify your menu and use ingredients across multiple dishes. With fewer ingredients, inventory management becomes easier, minimising waste and simplifying staff training.
   
   Additionally, using ingredients across multiple recipes reduces the chances of stockouts and increases the likelihood of triggering bulk discounts with each purchase order.
   
   This results in decreased waste and streamlined inventory management.
6. Train staff regularly: Regular training is key. Teach your staff best practices for inventory and how to use the software, from accurate data entry to proper stock handling and loss prevention techniques. Explain not just how but also why adequate inventory management is essential.
   
   Well-trained staff reduce data entry mistakes, mismanagement, and handling damage.
7. Audit regularly: Conduct regular audits to catch discrepancies. Audits can pinpoint areas of loss, such as waste, theft, or administrative errors. They can be scheduled or random but should always involve cross-checking physical stock against inventory records. Software like Apicbase automatically cross-checks actual and theoretical inventory levels and values per stock item.
   
   These practices decrease theft, prevent supplier fraud, and keep inventory records accurate.
8. Optimise minimum and par levels: Set optimal minimum and par levels for each item based on usage patterns and lead times. Leverage historical data to drill down into the numbers for more precise restocking insights.
   
   This helps maintain the right amount of stock without overordering, preventing overstocking and waste and ensuring all units always have critical items in stock. Apicbase provides comprehensive dashboards, allowing ou to drill down into the usage of individual ingredients on specific dates.
9. Optimise order frequency: Find the right balance for how often you order. Frequent ordering reduces storage costs but may increase ordering costs. Conversely, fewer orders might trigger bulk discounts due to higher volumes purchased.
   
   Optimisation is about finding what works best for your operation or a specific location, keeping inventory levels optimal, reducing waste, and avoiding overstocking.
10. Forecast demand using data: Use historical sales data, seasonal trends, and market analysis to forecast demand accurately. This helps plan purchases and avoid overstocking or running out of stock.
    
    Effective demand forecasting ensures all units have the right amount of stock at any given moment, reducing food waste. Apicbase offers demand forecasting as part of its procurement automation module.
11. Integrate with suppliers: Where possible, integrate your inventory system directly with suppliers.
    
    This streamlines the work for procurement managers, ensuring order accuracy, speeding up restocking, and reducing supplier mistakes. Advanced software like Apicbase considers real-time pricing, product availability, and supplier lead times with order suggestions.
12. Evaluate supplier performance: Trust is good, checks are better. Regularly review suppliers based on delivery times, order accuracy, product quality, market information, and employee feedback.
    
    Strong supplier relationships and reliable performance are crucial, reducing fraud and mistakes and ensuring consistent quality and delivery. Don’t hesitate to negotiate better terms or find new suppliers if necessary.
13. Focus on scalability: Choose systems and processes that can grow with your business. As you expand, you’ll need solutions that maintain consistent inventory management without requiring a complete overhaul.
    
    Look for systems that can accommodate new locations, more staff, complex menus, increased transaction volumes, and more complex user permissions without compromising performance. Scalability ensures efficiency and consistency as your business grows.
14. Never stop: Keep analysing your inventory reports and key performance indicators (KPIs). Regularly update your practices based on market changes and data-driven insights to optimise operations. Encourage feedback from staff, as they use the systems daily and can offer practical insights into what works and what doesn’t.
    
    This approach mitigates technical failures, improves inventory accuracy, and enhances overall efficiency.

Restaurant Inventory Management Case Study

The Avocado Show faced severe inventory management issues. “We were growing rapidly. We opened new stores and franchised locations in Netherlands, UK, Spain, Belgium, and Germany”, operations manager Jay Greenslade remembers.

“We were experiencing issues with our stock control and inventory management. It led to inefficiencies and chaos in our restaurants. Chaos is about the last thing you need when you’re expanding. You want to grow a success formula, not replicate mistakes.

“Exactly. We often struggled to have the right stock at the right time, resulting in either overstocking or understocking, which was detrimental to our operations. Also, food waste levels were much higher than we wanted, which affected our bottom line considerably. And mismanaged stock disrupted the flow of service, which could have impacted customer satisfaction.”

Jay knew what he needed to do. “The gap between theoretical and actual food costs was widening. If we wanted to continue expansion, which we did, we had to address the issue. We had to improve inventory management across all sites and rein in some of the rising operational chaos because of it.”

The Avocado Show started with the implementation of inventory management software. “We explored various options but ended up choosing Apicbase because it’s the most comprehensive and robust software for back-of-house management. The detail they bring to cost management, purchasing, and inventory is unmatched, and the Lightspeed POS connection is solid as a rock.”

Implementing dedicated restaurant inventory management software brought significant improvements. “Indeed, Apicbase has been essential for our expansion and daily operations.

For example, we can now identify and minimise discrepancies between theoretical and actual stock values, which has been crucial for enhancing our profitability.”

“Also, what I love about Apicbase is that it has eliminated almost all paper and Excel from the system. Our data is centralised in one place, giving me a clear overview of how each outlet is doing. This helps us address issues like overstocks or overportioning proactively. We can even drill down into data to pinpoint the exact ingredient that causes the variance.”

“And last but not least, as a franchise model, maintaining consistency is vital. Apicbase ensures that all our outlets, whether in Europe or beyond, follow the same inventory management standards.”

5 Food Inventory Issues Only Data Analysis Will Uncover

If you are a restaurant data analyst, you’ll love this next section. While everbody is talking about ‘data’, you know what matters is insights.

Data in itself are just rows of numbers. That’s not very helpful when you have an actual restaurant to run. But combined in the right way the numbers tell a story. They surface why your inventory management process isn’t working.

We have talked about food cost variance, inventory turnover rate and days’ sales in inventory. Here what these metrics uncover:

1. High food cost variance (with low ITR and high DSI)—an open-and-shut case of overstocking. A lot of what is purchased is simply sitting on the shelves and wasting away, and your team keeps using the same order lists week in and week out. To fix this, go through your stock, identify surplus items, and stop ordering them until the quantities fall under par levels.
2. Considerable food cost variance (ITR and DSI within industry averages)—you are not overstocking, but significant waste is occurring somewhere in the pipeline. The most likely culprits are excessive trimming, over-plating, or theft. To fix this, run a week-long food waste audit to pinpoint where wasting is happening, and train (or retrain) your staff on the correct food prep methods and plating.
3. Food cost variance spikes during specific shifts (average ITR and DSI)—this situation is a red flag, and it’s usually (but not exclusively) a sign that theft’s occurring at the location. It’s not that unusual for staff to skim a bit off the top — it’s estimated that employee theft accounts for 4% of annual revenue loss in the restaurant industry. You can curb theft by implementing stricter inventory control. In extreme cases, installing surveillance in your storerooms might be needed.
4. There is some food cost variance (high ITR and low DSI). In this case, the team is most likely understocking, sacrificing customer satisfaction and your bottom line. The variance (although not high) is still occurring because you’re not doing a great job minimising food waste. To fix this, use sales forecasts to order the correct quantities of stock you generally run out of (add a safety buffer on top of it) and audit your waste control to drive food costs down.
5. Variance is seemingly under control (but ingredient levels are constantly low)—don’t pat yourself on the back just yet because this is a classic case of understocking. You’re doing a good job managing food waste, but your teams are constantly apologising to customers for running out of menu items (damaging your sales and reputation). Revise your ingredient par levels to bring them up, and add a small safety margin before reassessing things during the following few weeks.

These (and similar insights) will allow you to make consistent improvements that help with keeping costs down and customers happy.

By taking the time to calculate and uncover them (or using restaurant inventory management software to look them up in seconds), you’ll be able to improve your procurement, get the data you need for profit-boosting menu engineering, and managing your restaurant’s food waste.

How to Take Your Restaurant Inventory Management to the Next Level?

On-point, robust inventory management procedures help you keep track of your supply, no matter how many outlets you run. They also provide an audit trail so you can track down errors and additional data from which to gather insights.

For a small operation, a few well-organized Excel spreadsheets, solid relationships with suppliers, and a team effort to manage stock and purchasing can work just fine.

But as you add more locations, employees, and orders, things change.

Tracking all those stock movements manually becomes impractical. That’s when automation steps in. You need systems that not only handle the inventory but also generate data to help you monitor and manage it efficiently.

Without automation, you risk errors creeping in, costs rising, and profitability dropping, which ultimately makes your business less resilient.

Using dedicated restaurant inventory management software comes with several key benefits:

• Auto-generated insights and actionable suggestions: Instead of just giving you raw data, the restaurant analytics software analyses your inventory and provides insights, charts and actionable tips. This will help you keep the right amount of stock, reduce waste, and boost profitability.
• Automatic inventory action registration and count adjustment: The software automatically logs all inventory actions, like deliveries and usage, and adjusts counts accordingly. This keeps your records accurate without manual input.
• Safeguards against miscounts and staff errors: Built-in features help prevent common errors, ensuring more accurate inventory tracking and fewer headaches.
• Single source of truth: With all your inventory data in one place, you have a reliable source of information for making decisions. This improves consistency and reduces discrepancies across your operations.
• Easy access to data for those who need it: Teams across procurement, finance, and management can easily access the data they need. This makes communication and coordination a breeze.

With centralised tech, staff at HQ and employees on the floor work with the same continuously updated numbers, eliminating discussions and improving efficiency.

Streamlined Restaurant Inventory Management with Apicbase

At Apicbase, we specialise in making restaurant inventory management straightforward and efficient.

With our system, you can expect:

• Real-time data-driven insights and recommendations.
• Minimal variance, making your operations stand out.
• Reduced food waste, aligning operations with ESG principles
• Happier staff due to more efficiency.
• A consistent, organisation-wide source of inventory information.

Ready to upgrade your inventory management system?

Frequently Asked Questions

What is the best inventory method for restaurants?

Most professionals consider FIFO the best inventory method for restaurants is. The First In, First Out approach ensures that the oldest stock (first in) is used before newer stock (first out), which is crucial for managing perishables and minimising waste. This method can be used in both perpetual and periodic inventory systems and is particularly useful in maintaining the quality of food served.

How much inventory should a restaurant carry?

There isn’t a universal amount or percentage for optimal inventory levels. The ideal balance lies between having enough stock to meet customer demands and not so much that it leads to increased waste and costs. This balance varies for each restaurant, even within the same chain. Regular reviews and adjustments based on sales data, seasonal trends, and operational efficiency are key to maintaining optimal inventory levels.

Who is responsible for inventory in a restaurant?

In a restaurant, inventory management responsibilities typically fall to several key roles:

1. Managers and chefs: They primarily oversee inventory, including ordering and tracking stock to balance supply and demand efficiently.
2. Line cooks and kitchen staff: These team members may handle specific inventory tasks like managing stock at their stations and verifying new deliveries.
3. Shift managers: In quick-service restaurants, they often monitor and report on stock levels during their shifts to ensure ingredient availability.
4. Dedicated inventory staff: Larger or high-volume restaurants might employ specialised personnel focused solely on inventory management.
5. Collaborative efforts: Effective inventory management often involves various staff members who help maintain accurate inventory records.

What should I look for in a restaurant inventory system?

When selecting a restaurant inventory system, consider these key features to ensure it meets your operational needs:

• Integration capabilities: The system should integrate seamlessly with your existing POS and other software systems.
• Real-time inventory tracking: Choose a system that provides up-to-date stock levels to allow immediate decision-making.
• Ease of use: The interface should be user-friendly, allowing staff of all technical levels to operate it efficiently.
• Reporting and analytics: Look for reporting features that provide insights into inventory trends, cost tracking, and future needs.
• Ordering and procurement management: The system should support easy ordering processes and be able to integrate with suppliers.
• Cost tracking and control: It should offer tools for detailed cost analysis, including recipe costing and waste tracking, to help manage profitability.
• Scalability: Ensure the system can accommodate growth, handling increased volume and adapting to changes in your business model.
• Support and training: Opt for a provider that offers comprehensive support and training to facilitate smooth implementation and ongoing use.
• Mobile accessibility: A system or app that is accessible on tablet or phone is helps with stockcounts and in managing inventory remotely, especially useful for larger or multi-location operations.