Managing restaurant labor costs has always been a challenge, but the industry is anything but normal in 2021 – and beyond.

COVID-19 impacted the restaurant industry more than any other, and a lot of the cost management during the pandemic is here to stay. While owners often start their restaurant out of love for providing delicious food to their customers, successful business habits are necessary to keep the doors open.

Rising restaurant expenses and labor costs are here to stay, at least in the short-term.


There are a few ways to start controlling foodservice costs so that you can stave off another rise in cases, go through slow periods with better cash flow and offer your customers the best service possible.

controlling foodservice costs

The Basics of Managing Labor Costs in a Restaurant

Restaurant operating expenses include a wide range of variables, but labor remains the highest costs. A few ways to keep labor costs low while also maintaining staff levels at a time when restaurants are struggling to fill positions are:

  • Conservatively schedule workers to limit unnecessary costs
  • Owners and managers should be ready to help if staff is low
  • Invest in staff training to keep your operations efficient
  • Implement time-tracking to limit overtime risks

If you follow the tips above, you'll maintain staff levels, improve customer service and reduce excess costs in the process.

Envision a New, Leaner Menu

A significant portion of your restaurant expenses list will include menu ingredients that are wasted or not used often. If your restaurant has a small menu already, it may be challenging to develop a new one.

But if you have an extensive menu, it's time to cut the "fat."

  • Go through your receipts and understand best-sellers
  • Write down all of the worst sellers
  • Determine which foods have unique ingredients that are only used for one dish
  • Write down the cost of all ingredients for each dish and profit margins of the dish

Your best-selling items are often the main reason for patrons sitting down at your restaurant and eating. So eliminating these top-selling items is a big no-no and shouldn't be where you cut items from the menu.

Instead, you want to look through the worst-selling items first.

Are these items inflating your costs because they require ingredients not used in other dishes? If this is the case, it may be time to remove them from the menu. Unique ingredients that can't be used in other dishes are often wasted money if items don't sell well.

You'll also want to look through your restaurant costs to figure out the profit margins of each dish.

If your restaurant food costs can't allow for small profit margins, cut these items off of your list. Some menu items may have been profitable in the past, but with food costs rising, eliminating items from your menu or even changing prices may be necessary.

When one dish has unique ingredients but sells well, it may be time to create new dishes that can use the ingredients, too. The idea is that if multiple dishes use the same ingredients, you'll experience less waste and may be able to negotiate bulk discounts, too.

restaurant food costs

Add-in Optimization of Inventory

Food waste is a waste of money. Restaurant inventory costs can be lowered by determining which ingredients go to waste most often. Once you discover these items, it's time to think of how you can use them before they go bad.

A good option is to create:

  • Specials for soups
  • Specials for cocktails

Create a menu that uses these ingredients before they go bad. Since consumers love specials, offering discounts for some of these new menu items can help you recuperate the cost of the ingredients.

Look for Opportunities to Automate

Automation is a touchy subject for restaurant owners because there are significant investment costs involved. However, if you want to reduce costs tomorrow, it might take today's investments to reach your goal.

You can find automated solutions for:

  • Cleaning
  • Inventory management

Over the long-term, automation can integrate into your restaurant's business model and offer you the opportunity to save money over time. Labor costs can be reduced, too.

Maximize Your Seasonality

Food costs are a major concern for restaurants and even regular consumers. It's no secret that the cost of ingredients is rising. A major issue is that ingredients often are shipped from across the world.

If your ingredients come from across the country or other countries, rising oil and gas prices will lead to higher ingredient costs.

Connecting with local farmers and suppliers is a great way to save money on your ingredient costs.

Seasonal items are:

  • Fresher
  • Reduce shipping costs
  • Increase supplier options

Often, these seasonal items don't have to be shipped far or use freezer trucks to keep the goods cold. The result? Your ingredients cost less, they're fresh and your food tastes better.

restaurant inventory costs

Consider Adding or Changing Vendors

Vendors and suppliers work for you. It's difficult for restaurant owners to consider changing vendors because they often build a deep relationship with these individuals or businesses. But there comes a time when you need to do what's best for your business.

Changing or adding vendors may be the key to reducing your restaurant's operating costs.

You should:

  • Create a list of vendors, especially local vendors that can supply or source ingredients for you
  • Call vendors to learn about their prices, contracts and discounts based on volume
  • Discuss options with current vendors to see if discounts may be available for large orders

Suppliers should also have a significant delivery network in place that can ensure that even if there is an outbreak or issue with one shipper, your ingredients will still arrive on time.

Final Thoughts

There's little that you can do to control restaurant utility costs or rent costs, but you have greater control over the areas listed above. When you begin watching your bottom line and consider expenses at every opportunity possible, you'll be able to withstand revenue declines or internal issues.

What steps are you taking to keep your restaurant's costs low during COVID and beyond?