Ultimate Guide to Restaurant Inventory Management—How Multi-Unit Restaurants Minimise Food Waste and Costs

Imagine cutting your food costs by 10% while ensuring every dish you serve is fresh and high-quality—effective restaurant inventory management can make this a reality.

According to a survey by POS provider TouchBistro, 58% of restaurant operators cite rising inventory costs as their primary financial strain. If you’re looking to control these expenses, you’re not alone. The good news? Effective inventory management can add 2-10% to your restaurant’s bottom line. This is a significant improvement that can transform your company’s financial health.

This guide will equip you with the essential tools to set up robust protocols, streamline procurement, and accurately monitor stock levels and outlet performance.

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.

What is Restaurant Inventory Management?

Restaurant inventory management involves ordering, storing, tracking, and managing the food and beverage products and supplies a restaurant uses. This process includes monitoring the quantity and cost of ingredients while minimizing waste, spoilage, and theft.

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

Good inventory management allows restaurants to control costs, improve operational efficiency and margins, and maintain high levels of customer satisfaction.

Smaller food service operations often use spreadsheets for these tasks, while larger and more complex operations rely on advanced restaurant inventory management software to handle their needs.

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, which could lead to increased waste and costs. For instance, overstocking perishable items like vegetables will likely result in spoilage and financial loss.
• Demand Forecasting involves analysing historical sales data to predict future demand accurately. This 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.

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 navigating hazardous overhangs, steep canyon walls, and treacherous paths. Similarly, restaurant operators face challenges like overstocking, understocking, waste, and pilferage. Inventory management is their map and compass. It helps them tackle these issues effectively.

Beyond just tracking stock, inventory management provides valuable data—It’s a data goldmine. As Peter Schimpl, VP of Digital & IT at L’Osteria, stated 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.”

One of the most important metrics is actual food cost, which effective inventory management can accurately provide. This metric is crucial for calculating food cost variance—the difference between your theoretical and actual food costs. Ideally, this variance would be zero, meaning your expected costs perfectly match your actual costs, with no losses.

While zero variance is unrealistic, a variance over 2% is a red flag. It indicates profit is leaking away due to issues like overstocking, overportioning, theft, or other inefficiencies. Further investigation is advised. The greater the variance, the more money is wasted.

By narrowing the gap between actual and theoretical costs, restaurants strengthen their financial controls and overall performance. For instance, a recent case study showed that Bright Kitchen, a company operating multiple dark kitchens, slashed its food costs by 8% through effective inventory management. The bottom line boost has ensured the company’s success and future.

Let’s crunch some numbers to see how better inventory control boosts profits. This simple example shows how reducing food costs affects your overall profit.

Initial situation:

• Revenue: 3.000.000
• Initial food Cost: 990.000 (33% of Revenue)
• Staff cost: 1.250.000
• Fixed costs: 360.000

Initial profit calculation:

• Initial Profit: Revenue – (Food Cost + Staff Cost + Fixed Costs)
• Initial Profit: 3.000.000 – (990.000 + 1.250.000 + 360.000) = 400.000

After improved inventory control:

• Reduction in Food Cost: 8% of the initial Food Cost
• Reduction Amount: 990.000 * 0,08 = 79.200
• New Food Cost: 990.000 – 79.200 = 910.800

New profit calculation:

• New Profit: Revenue – (New Food Cost + Staff Cost + Fixed Costs)
• New Profit: 3.000.000 – (910.800 + 1.250.000 + 360.000) = 479.200

Impact on profit:

• Increase in Profit: New Profit – Initial Profit
• Increase in Profit: 479.200 – 400.000 = 79.200
• Percentage Increase in Profit: (Increase in Profit / Initial Profit)*100
• Percentage Increase in Profit: (79.200 / 400.000)*100 = 19,8%

Proper inventory management and analytics directly translate into significant cost savings. In the example, an 8% reduction in food costs resulted in a 79.200 euro saving, increasing the restaurant unit’s profit by 19,8%. This is a substantial increase in profitability. If these cost savings are maintained consistently, they would amount to 950.400 euros per year, going straight to the bottom line.

Benefits of Restaurant Inventory Management

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

• Reduce excess inventory.
• Monitor usage rates to predict future needs.
• Order new stock in a timely manner to avoid shortages.
• Track inventory levels to ensure sufficient stock is available.
• Calculate actual food costs to support financial management.
• Track movements of food, drink and other supplies between outlets.

This, in turn, enables you to:

1. Gain a deeper understanding of your 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 and actual food costs over a specific period. To calculate actual food costs, diligent inventory processes must be in place.

The variance indicates how well restaurant managers track inventory and adhere 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.

2. Reduce the cost of goods sold

Inventory management and the Cost of Goods Sold (COGS) are closely intertwined in the restaurant industry. COGS includes the direct costs of producing the items sold, such as ingredients, beverages, and other supplies. The formula to calculate COGS is:

COGS = Beginning Inventory + Purchased Inventory − Ending Inventory

As you can see, accurate inventory tracking at the start and end of each period is critical.

Effective inventory management reduces unnecessary spending, i.e., on ingredients that don’t generate revenue. It also ensures optimal use of ingredients, reducing costly emergency purchases and avoiding stockouts. As a result, COGS go down while gross profit margin goes up. This means a higher percentage of sales revenue is retained as profit, which improves the restaurant’s financial health and resilience.

3. Prevent overstocking and shortages

Too much stock leads to waste and ties up valuable capital, while too little means running out of popular items and disappointing customers.

Effective inventory management helps you get this balance right. By regularly checking what you use and what you have, you can reorder just in time and avoid excess that might spoil. This way, you keep your customers happy, minimise waste, and ensure your money isn’t locked up in unused inventory.

4. Minimise food waste

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

Good inventory management helps solve this problem by providing a clear picture of stock levels and inventory rotation. This allows restaurants to order just the right amount of food, ensuring they use all ingredients before they go bad. Tools like variance reports show the difference between how much food is bought and how much is actually used. It helps to cut down on excess and improve portion sizes. In this context, demand forecasting is also helpful. This calculation predicts how much food will be needed in the future so restaurants can prepare just enough to meet demand.

Additionally, tracking inventory across locations lets restaurants move supplies where they’re needed most, making the most of what they already have.

5. Enable strategic decision-making

Good inventory management eliminates the guesswork in restaurant operations. With accurate data, restaurants can make better decisions and achieve reliable outcomes.

For example, knowing which ingredients are used most and tracking price changes helps restaurants fine-tune their menus. This knowledge also strengthens the procurement team in supplier negotiations. When the menu is optimised for specific ingredients, higher volumes are guaranteed, which helps to secure better prices and favourable terms.

Additionally, general managers can adjust purchasing patterns based on sales data, reducing orders for items that are not selling well. Executive chefs can use cost and usage information to adjust menu prices accurately, ensuring dishes are priced right, and profits are protected.

6. Improve profit margins

Inventory management is key to controlling costs and increasing restaurant profit margins because it provides clear insight into a food service operation’s most important asset: the food. It allows 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 tackling inventory issues head-on before they escalate is essential.

Keep an eye out for common problems like:

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

Of course, that’s easier said than done. Where do you start to look?

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

But difficult is not the same as impossible.

Over the years, we’ve talked to numerous supply chain managers, F&B managers, inventory managers and operations managers. Their insights allowed us to compile a watertight list of best practices for inventory management in restaurants.

Here it is:

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.
   
   Standardised processes make inventory practices comparable across units and allow for effective benchmarking within the company.
4. Standardise recipes and portions: Create standard recipes and portion sizes across the board. This will control costs and ensure consistency, making inventory forecasting and purchasing more accurate. Standardising recipes and portions will also reduce 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. Simpler menus result in decreased waste and streamlined inventory management.
6. Train staff regularly: Regular training is essential. Teach your staff the best practices for inventory management and how to use inventory and purchasing software effectively. Show them how to enter data accurately, handle stock properly, and implement loss prevention techniques. It’s important to explain not just how to manage inventory but also why it’s crucial.
   
   Well-trained employees help reduce data entry mistakes, record mismanagement, and damage to goods. By investing in regular training, you ensure your team is equipped to maintain efficient and accurate inventory management practices.
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 you 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 means 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, but checks are better. Regularly review suppliers based on delivery times, order accuracy, product quality, market trends, and employee feedback. Tools like Apicbase offer dashboards that compare what was ordered with what was delivered, highlighting discrepancies.
    
    Strong supplier relationships and reliable performance are crucial for reducing fraud and mistakes and ensuring consistent quality and timely deliveries. Don’t hesitate to negotiate better terms or seek new suppliers if necessary.
13. Why Multi-Site Restaurants Need a Central Production KitchenFocus 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, central kitchens, more staff, complex menus, increased transaction volumes, and detailed 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

The Avocado Show faced significant inventory management challenges during rapid expansion across the Netherlands, UK, Spain, Belgium, and Germany. “We were growing rapidly, and with new stores and franchised locations, stock control and inventory management issues led to inefficiencies and chaos,” recalls operations manager Jay Greenslade.

“We often struggled to have the right stock at the right time, resulting in overstocking or understocking, which was detrimental to our operations. High levels of food waste and mismanaged stock disrupted the flow of service and impacted our bottom line considerably.”

Jay knew they needed to address the widening gap between theoretical and actual food costs. “If we wanted to continue expanding, we had to improve inventory management across all sites and rein in the operational chaos.”

The Avocado Show implemented Apicbase, a comprehensive inventory management software to tackle these issues. “We chose Apicbase because it’s the most robust software for back-of-house management, with unmatched detail in cost management, purchasing, and inventory. The Lightspeed POS connection is also solid as a rock.”

Implementing Apicbase brought significant improvements. “Apicbase has been essential for our expansion and daily operations. We can now identify and minimise discrepancies between theoretical and actual stock values, enhancing our profitability.”

Jay highlights the software’s impact: “Apicbase has eliminated almost all paper and Excel from our system. Our data is centralised, giving me a clear overview of each outlet. This helps us proactively address issues like overstocks or over-portioning. We can even drill down into data to pinpoint the exact ingredient causing the variance.”

“Maintaining consistency is vital for our franchise model. 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 everybody is talking about ‘data’, you know what matters is insights.

Data are just rows of numbers, which is 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 discussed food cost variance, inventory turnover rate and days’ sales in inventory. Here is what these metrics uncover:

• 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.

• 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.

• 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.

• 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 food waste isn’t managed properly. 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.

• Variance is seemingly under control (but ingredient levels are constantly low)—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 can improve your procurement, get the data you need for profit-boosting menu engineering, and manage 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 things change as you add more locations, employees, and orders.

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, ultimately making 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.

Transform Your 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.
• Enhanced profitability through precise cost management.
• Reduced food waste, aligning operations with ESG principles
• Happier staff due to increased 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. 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 increases 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 inventory usage 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:

• Managers and chefs: They primarily oversee inventory, including ordering and tracking stock to efficiently balance supply and demand.
• Line cooks and kitchen staff: These team members may handle specific inventory tasks like managing stock at their stations and verifying new deliveries.
• Shift managers: In quick-service restaurants, they often monitor and report on stock levels during their shifts to ensure ingredient availability.
• Dedicated inventory staff: Larger or high-volume restaurants might employ specialised personnel focused solely on inventory management.
• 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, handle increased volume, and adapt 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 a tablet or phone helps with stock counts and inventory management remotely, especially useful for larger operations.