My name is Taku, CEO of KAMEREO. Today, I write about COGS – Ingredient cost which is the most important cost for your restaurant business, as this is the highest cost in your business for most of the case.
COGS means Cost Of Goods Sold which is the ingredient cost for your restaurant business including food materials and drink. As I explained in my previous post, it normally ranges from 20% to 40% in Vietnam. It depends on your business concept.
For example, a cafe can have 20% of COGS but have higher rental cost as they often need to open on a high street with a high rental cost.
On the other hand, some good restaurant has 35% COGS but rental cost % is much lower as they don’t need to open on the high street as the customer comes to the restaurant as the destination.
Below are the calculation about how to calculate COGS:
COGS value = Inventory value at the end of last month + How much you purchase ingredient this month – Inventory value at the end of this month
COGS % this month = COGS value this month / Sales value this month
Some people (even consultant) says COGS should be less than 30% for the restaurant business to make a profit. Is it true…? It’s often correct but not necessarily correct.
COGS is just one of your cost in PL.
Even though you have 40% of COGS, you could make 20% of Operating Profit if you have low labour cost or rental cost. So, please do not just follow what people say or suggest based on average data.
The important thing to consider is how you want to make a profit as a whole P/L, big picture and long term. Higher COGS often means good value for your client.
*Good Quality compare to what they pay.
Even though you have 40% of COGS now, you could expect to decrease at least to 35% if you open more than 5 stores due to higher buying power and better loss management as a company. So, please consider how you want to structure your business and decide what is your COGS target by yourself.
So, how you could decrease your COGS?
There are basically 3 ways for your restaurant to decrease your COGS.
In most of the cases, the top purchasing item by value in your restaurant business would be seafood, meat and some imported product. If you could cost down that high-value product, you could dramatically down your COGS.
1. Negotiate your suppliers to decrease price.
When you have bigger purchasing volume, you might be able to get a better price from your supplier. So, it’s worth trying to negotiate a price if your restaurant gets bigger.
But, you also should consider not discount too much for a long term relationship. Your restaurant cannot do business without good supplier support.
2. Consider different supplier
There are many suppliers in the market. You could consider to find another supplier and compare price and quality. If you join KAMEREO, you could search for a new one from 200+ supplier database.
3. Loss management
There is a certain loss during cooking and after cooking. You could not make it zero but it can be controled. If your kitchen staff throw away more than enough, you could improve it.
Thank you for your reading!
I will write about part (3) other cost & profit in the next post. See you soon!!