Running a restaurant can be a complicated affair. One issue that restaurant managers must deal with is that of inventory. Inventory management is an important part of determining whether a restaurant is profitable. One construct, called food inventory turnover, allows restaurants to calculate some important aspects about inventory and thereby can help restaurants make important inventory decisions.
Restaurant food inventory turnover is mathematically defined as a restaurant’s food cost for a given period divided by the average inventory value for that period. The food cost for a certain period is not to be confused with the revenue; the food cost is how much the restaurant spent on food that was later consumed by customers. For example, assume your small restaurant keeps an average of $1,000 worth of food in its inventory and customers consumed $5,000 worth of food last month. Then your food inventory turnover is 5000/1000, or five turns.
The idea of a restaurant food inventory turnover is to easily understand how often inventory is replaced in a given time period. Without such a calculation, it would be very difficult to determine this, as restaurants usually serve a variety of food. Not all of the food in a restaurant’s inventory comes from the same place, making it difficult to know how often the inventory is replaced. In the previous example, we found that the food inventory turnover was five turns. This means that every month, the restaurant is replacing its inventory five times overall.
A restaurant’s food inventory turnover is important for many reasons. First, it allows a restaurant to keep track of how fast it is selling the food in its inventory. A food inventory turnover allows the restaurant managers to make decisions regarding how much inventory should be kept on hand in the restaurant. Second, a food inventory turnover can explain how fresh the food in a restaurant is. A higher inventory turnover implies less chance of spoiled food that the restaurant must dispose of. Lastly, food inventory turnovers that seem odd can help a restaurant know when to investigate and reanalyze its food storage methods. For example, food inventory turnovers that are abnormally high may indicate that employees are stealing or eating some of the inventory.
A restaurant can also use its food inventory turnover for a given period to understand its performance. If the management of a restaurant knows the restaurant’s employees are not poaching food and that food is not going to waste, the food inventory turnover is a good indicator of restaurant performance. In addition, if food inventory turnover is analyzed for each item sold in the restaurant, the restaurant can know which dishes are the best sellers.