This document discusses the 3 major costs incurred in restaurants - labor costs, overhead costs, and food costs. It focuses on strategies for reducing food costs, which is one of the most challenging areas. Some tips mentioned include purchasing seasonal ingredients when prices are lower, controlling portion sizes to avoid waste, monitoring employees to prevent theft, being aware of how ingredients change during cooking to maximize yield, and buying ingredients in the most cost-effective form. The document stresses the importance of all kitchen staff being cost-conscious to help keep food costs, which should be 30-45% of selling prices, under control.

1. 3 MAJOR COSTS
& HOW TO
REDUCE THEM
L E S S O N M O D U L E O N E :
T H E I M P O R TA N C E O F C O U N T I N G C O S T S

2. 3 MAJOR COSTS
INCURRED IN A
RESTAURANT:

3. LABOR COSTS
• Labor costs comprise salary, allowances and fringe
benefits for employees.
• Fringe benefits include health insurance, education
reimbursement, childcare and assistance
reimbursement, cafeteria plans, employee discounts,
personal use of company owned vehicles and other
similar benefits

4. OVERHEAD COSTS
• Overhead costs, on the other hand, refer to costs that
are not classified under labor and food cost.
• This includes rent, utilities, taxes, marketing and
advertising, office supplies, equipment, training, etc.

5. FOOD COSTS
• Food cost is the cost of all edible ingredients served
or sold to customers.
• This comprises the costs for fruit, vegetables, meat
and all ingredients used in food preparation.
• Food cost is also known as your direct cost and refers
to the cost of an actual product being sold.
• Because the quantity of dishes which are sold may
vary and the cost of buying ingredients may fluctuate
in comparison to a forecast, your direct cost will also
change from time to time.

6. MAKING THE MOST OF FOOD COST
• Because food tends to lose weight as it goes
through the cooking process and also because food
perishes with time, we have to make the most out of
food cost. It is also important to consider the portion
of food that will be discarded through preparation,
peeling or de-boning.

7. THE CHALLENGES
OF MINIMIZING
FOOD COSTS:

8. 1. Food is highly perishable
Imagine ordering enough fresh seafood to prepare 100 servings
but only having 50 diners in the following two days. The other 50
portions will be wasted. It’s therefore important to be conscious of
the quantity of food you purchase and produce to avoid
unnecessary food costs.
2. Food is seasonal
The price and quality of ingredients will vary throughout the year.
Purchase ingredients that are in season to take advantage of
fresh produce and better prices because of the increased supply.
3. Food is subject to pilferage
Theft occasionally happens in some kitchens and therefore adds
to food cost. Control this by monitoring your staff and consider
your current employee benefits to discourage stealing.

9. 4. Food changes form through preparation
Just as dry pasta absorbs water and increases weight when
it’s boiled, all ingredients change form during processing and
cooking. By monitoring these changes and finding the best
way of handling and processing the food, you can maximize
yield.
5. Food may be purchased in different forms
A chef often has many options as to what form of food to buy.
These decisions have to be made carefully to make the
smartest choice. An example would be buying a whole fish as
compared to just a fillet. While the latter would cost more
because it has been prepared, less time would have to be
spent preparing the dish for use in the kitchen. A whole fish
would however be cheaper.

10. ACHIEVING QUALITY AND LOW COST
Set targets for the food you produce, considering both the
quality and the preparation cost.
– Quality refers to the characteristics of the food served such as
flavour, consistency, texture, etc.
– Cost relates to the monetary value of the food you prepare.
– Create a target cost. This is usually at 30 – 45% of food selling
price.
– If cost targets are not met and the selling prices are high,
customers may not come to your restaurant.
– It is important for every kitchen staff member to be cost-
conscious and know the basics of food costing.

11. TIPS ON REDUCING COSTS
We’ve discussed how a chef can improve cost efficiency in a
restaurant. Now, here’s a look at some other ways to reduce
costs that didn’t fit into previously discussed topics.
– Use ingredients that are in season
– Learn from your suppliers about market conditions, supplies and
cost-effective suggestions
– Make the most of regional dishes as locally sourced ingredients
are usually cheaper
– Be a smart buyer and consider the quality and amount of
ingredients you buy
– Explore the use of common ingredients across several dishes as
an ingredient used only in one dish can be a loss maker