Restaurant Inventory Management: Pro tips to keep it profitable

Inventory. Inventory. Inventory! It all starts and ends with it, doesn't it? Apparently, restaurant inventory is connected to the bottom line, which is why it's important to do it right from the very beginning.

Ask any restaurant owner and they won't shy away from confessing that managing inventory is one of the most painstaking jobs of running a restaurant business and yet, sometimes, we tend to ignore it and shift our focus on other matters of the business. Result? Our bottom line takes a big hit!

When it comes to restaurant inventory management, there are numerous aspects to take into consideration. It’s a challenging job for sure, but not an impossible one if you follow some tried and tested methods.

Here are 10 simple ideas to help you out.

Organize your inventory

It goes without saying that the first and foremost thing to do when controlling food costs and increasing profitability is to organize the inventory and conduct inventory regularly.

Managing inventory basically includes keeping a tab on your restaurant supplies. You must know where the food is stored, where it is going, when it was utilized and if there’s a need to restock.

When you have all the numbers on your fingertips, it would be easy to control the wastage and spoilage, hence making a significant reduction in the operation cost. You can also use this information to decide menu item costs and get clarity on your bottom line.

Take technology’s aid

Restaurant tech is evolving at a rapid pace. New tools and apps are being launched to help restaurateurs manage different aspects of restaurant operations effectively. But if you are still using pad and a paper or even spreadsheets to take inventory, you can kiss them goodbye and switch to efficient software. These are more evolved than spreadsheets and designed to provide accurate and detailed data. Stay on top of the latest technology trends by following our blog on Restaurant Technologies.

Automating your manual processes can save time and money as well as eliminate losses due to errors. An efficient POS system also provides advantages like data forecasting, order planning reports, and automated inventory tracking based on customer orders to help you keep better track of your inventory and manage your food cost percentage.

Do not buy in bulk

While it is a common practice to buy stock in large quantities, our experts recommend against it!

While a large purchase could look attractive at first because of the savings, but if the stock is not utilized well in time, it can quickly turn into wastage. Over purchasing is one of the most expensive things you can do in this business. It can hurt your bottom line in a big way!

The Boston Consulting Group has predicted that by 2030 annual food waste will hit 2.1 billion tonnes globally, accounting for approximately $1.5 trillion in lost revenue.

There are a number of factors that you must take into account when deciding inventory, such as, seasonal changes, current demand through both online and offline orders, availability of cheaper alternatives and so on. For instance, there’s no reason to stock up on the mix of frozen drinks in winters. The best way to combat wastage and spoilage is to carry out weekly audits and maintain a daily waste chart.  

Recycle everything that can be recycled

Do you know how much money you throw away in your trash every day? How many old bread loads you throw away every day just because it’s old! Why not make croutons!

Restaurant waste that occurs during food preparation like raw foods such as roots from leafy vegetables, leftover fluids, old loaves of bread, bones, etc. can be reused to create innovative small plates.

Encourage your chefs to reuse discarded ingredients as much as possible. Such practice helps you reduce food wastage and hence save on expenses. The younger generation is more drawn towards ethical brands and repurposing ingredients could also turn out to be an important selling point. Let them know that you are doing your best to reduce your carbon footprint.

Focus more on small plates/portions

Your customers are already embarking on the small plate movement, Why not take advantage of this shift and reduce portions of food? Read our blog on the benefits of introducing small plates to the menu.

The recommendation is a 10-inch plate.

Appropriate portions can sustain consistency in quality and help influence customers' expectations. Moreover, proper portioning also helps keep inventory costs in check.

Monitor how much food prepared and served is being thrown away on a daily basis. If your customers are not able to finish a dish consistently, the portion is too big. Observe the pattern for a period of 30 days and recognize the dishes that need portion control. This practice will help you serve the proper amount of food to your customers.

Remember that portion does not simply mean the amount of food you serve on a plate but it is also measured by the number of ingredients needed in a dish.

Make them order more with reasonable pricing

Accurate pricing of menu items is an art in itself and is never easy as it seems. Pricing your items properly will ensure that your customers order from you over and over again so you are able to sell more and use the ingredients before the expiration date.

According to experts, an ideal food cost per dish should be between 15-30%. If you are spending anything more than 30%, maybe it’s time to reassess your menu prices or find a new vendor to source less-expensive ingredients.

There are several details to consider before arriving at the perfect pricing of a dish. Some of these are:

• Overhead costs: such as decor, electricity bill, salaries, website maintenance, marketing, etc.
• Direct costs include what you pay to procure and prepare food itself. It involves the purchasing of raw material, portion sizes, wastage, and spoiling.
• Indirect costs involve the perceived value of the food. This allows you to add your margins to the final price
• Volatile food costs involve fluctuation in the price of raw material due to natural calamities, economic conditions, and seasonal changes.
• It is also important that you research the pricing strategy of your competitors

Reward your staff for inventory savings

Train your employees to care by keeping them involved in the process. Make them understand that if they are able to bring down the wastage and bad orders, they’ll be able to see the numbers reflected in their own paychecks.

Designate not more than three people to take your inventory. Even if they are experienced, show them how you’d prefer to handle things for your business. Creating SOPs will help you identify inconsistencies and ensure accuracy.

Key Terms and Metrics in Restaurant Inventory Management

Understanding the language of inventory management is essential for implementing effective systems. Here are the key terms and metrics every restaurant operator should know:

Essential Terminology

FIFO (First In, First Out): An inventory rotation method where older stock is used before newer stock to minimize spoilage and ensure freshness.

Par Level: The minimum amount of each inventory item you need to have on hand to operate efficiently between deliveries.

Sitting Inventory: The total value of all food and beverage items currently in your restaurant.

Variance: The difference between your theoretical (calculated) usage and your actual usage, often indicating waste, theft, or portion inconsistencies.

Yield: The usable portion of a product after preparation (for example, the edible meat after trimming fat).

Critical Metrics to Track

Food Cost Percentage: Your total food costs divided by your food sales, typically targeted between 28-32% in most restaurants.

Inventory Turnover Rate: How many times you completely replace your inventory within a specific period, calculated as Cost of Goods Sold ÷ Average Inventory Value.

Days of Inventory on Hand: How long your current inventory will last based on your usage rate (365 days ÷ Inventory Turnover Rate).

Common Restaurant Inventory Management Challenges (and Solutions)

Even the most organized restaurants face inventory challenges. Here are the most common issues and practical solutions to overcome them:

Inconsistent Counting Processes

Challenge: Different staff members count differently, leading to inaccurate data and poor ordering decisions.

Solution: Create standardized counting sheets with clear units of measure, implement training for all staff involved in inventory, and limit the number of people responsible for counting to ensure consistency.

Theft and Shrinkage

Challenge: Inventory disappearing without explanation, affecting your bottom line.

Solution: Implement a two-person counting system for high-value items, install cameras in storage areas, conduct surprise spot-checks, and create a culture of accountability through regular team meetings about inventory performance.

Spoilage and Waste

Challenge: Perishable items expiring before use, creating unnecessary costs.

Solution: Strictly enforce FIFO rotation, create a dedicated waste log to identify patterns, adjust par levels seasonally, and develop creative specials to use ingredients approaching expiration.

Time-Consuming Manual Processes

Challenge: Inventory takes too long, leading to inconsistent execution or skipped counts.

Solution: Invest in inventory management software that integrates with your POS, use barcode scanners for faster counting, and schedule inventory during slower business periods with adequate staffing.

Poor Communication Between Kitchen and Purchasing

Challenge: Disconnect between what's ordered and what's actually needed.

Solution: Hold weekly menu planning meetings with chef and purchaser, create a standardized ordering form that requires chef approval, and implement a digital requisition system accessible to all key staff.

Benefits of Effective Restaurant Inventory Management

Implementing a robust inventory management system delivers multiple advantages that directly impact your restaurant's success:

Financial Benefits

• Reduced Food Costs: Proper inventory management can lower food costs by 2-5% through reduced waste and better purchasing.
• Improved Cash Flow: Keeping optimal inventory levels frees up capital that would otherwise be tied up in excess stock.
• Increased Profit Margins: With better control over COGS (Cost of Goods Sold), your profit margins naturally improve.
• Theft Prevention: Regular inventory counts and variance tracking help identify and address theft quickly.

Operational Benefits

• Streamlined Ordering: Knowing exactly what you need prevents both stockouts and overordering.
• Reduced Food Waste: Proper rotation and usage tracking minimize spoilage and expired products.
• Better Menu Planning: Inventory insights help identify which items sell well and which ingredients are underutilized.
• Improved Staff Efficiency: Less time spent on emergency orders and inventory-related crises.

Customer Experience Benefits

• Consistent Food Quality: Fresh ingredients from proper inventory rotation lead to better-tasting dishes.
• Menu Availability: Fewer "we're out of that" conversations with disappointed customers.
• Faster Service: Well-stocked stations mean kitchen staff can prepare orders without delays.

‍Ready to Master Your Restaurant Inventory Management?

Effective inventory management is no longer optional for restaurants looking to thrive in today's challenging market. With food costs continuing to rise and margins under pressure, the restaurants that implement systematic, technology-supported inventory processes will gain a significant competitive advantage.

Remember that perfect inventory management doesn't happen overnight. Start by implementing one key improvement—whether that's establishing a consistent counting schedule, training your team more effectively, or investing in inventory software that integrates with your POS system. Build from there, measuring your progress through reduced food costs, less waste, and improved profitability.

At Restolabs, we understand the challenges of restaurant operations and offer solutions designed to streamline your processes. Ready to see how our platform can help your restaurant thrive? Book a free demo today .