How much does your merchandise really cost?

When you buy the food needed to set the menu of you restaurant every week, do you get shocked with the value of the account? Indeed, the economic downturn and the rise in inflation are boosting the value of food products.

The outlook for the coming months, unfortunately, is not encouraging. According the IPEA (Institute of Applied Economic Research), this year, inflation in Brazil rose 3.25% in April. In the food market, it reached 5.79%, almost double. And in this case, the prices are the great villains of inflation over the past five years. One example is that of 19 items of food group that makes up the index, 17 were higher than the overall variation captured, ie., 55.5%, a cumulative percentage from January 2010 to May 2016. To get an idea, the highest increases were in the subgroups of cereals, vegetables and oilseeds (116%); tubers, roots and legumes (112.5%); and herbs and greenery (116.2%).

In this scenario, it is difficult for those responsible for the fast food chains to calculate with assertiveness the cost of goods sold, or COGS.

But after all, what is actually the COGS?

COGS is the relationship between the Purchase Value and the Price you sell a product. In other words, it is an indicator on the product that you sell on your menu. This cost of goods sold (COGS) is born on the moment the restaurant creates a sheet of a plate – an extremely important list to stipulate precisely the value of the revenue.

Imagine this: to make a pizza, for example, it is necessary to use flour, tomatoes, eggs, salt, cheese, spices, etc. How much costs each item of this production?

For a restaurant to survive in the market, it requires its COGS calculating to have a range of 30 to 35%.

The reasoning that should be adopted to calculate the COGS is first to set the selling price and then the relation with the cost. In this way, we will get to the amount in question. The math is pretty simple: If a dish on the menu is sold for R$ 25 and you spend up R$10 to produce this dish, then the COGS of this product is 40%.

Taking into account the size of the property is another important item to calculate the index. Large networks have key players for the negotiations with suppliers, and in small trades, the owner accumulates the functions.

Let’s balance this account?

Some networks have invested in reducing COGS, like Patroni pizzeria franchise network. The company has revamped the menu and included a more intuitive mix for customers. Thus, they gain in consumer choice of time and in service efficiency. It was a great thing. They shrank the menu, designing low-cost food, but with high consumption. Thus, the network now has a more assertive calculation of COGS, which brought more profitability.

If you also want to review your COGS, here are some tips on how to calculate it correctly and reduce costs:

#1. At the time of purchase

Know exactly the value of each product. Always compare and negotiate with suppliers. By planning better, you buy better.

In times of crisis, negotiate with suppliers to not pass the costs rise to the consumer. Habib’s, for example, solved this problem by eliminating what they call middlemen– producers of raw materials. In the case of the brand, the owner of the network has his own farms and produces his own raw material for the products that he sells. In addition, he owns the company that makes advertisements and actions of the brand, as well as the customer service. 

#2. Productivity versus waste

As stated above, when calculating the COGS, it is necessary to include all items that make up the ingredients of the product data sheet – to be defined as soon as the establishment open the doors. But we must also account for the loss of raw material. Food waste is a major problem faced by brands. The restaurant Australia Steakhouse, in Salvador (BA), saw its profits virtually double by eliminating the daily food losses, from about 10 kg, it fell to an average of 1kg to 3kg.

# 4. Technology to control management

Having a precise control of inventory, purchases and requests for your restaurant is an essential measure to reduce costs on the calculation of your goods sold. And technological solutions can help a lot in this stage.

Linx has a specialized software to increase service agility and control of production of food. The tool helps in waste management and purchasing forecasting, reducing costs and improving sales margin. Thus, the matrix or franchisor can monitor the entire network indicators at the time they want.

Are you interested in improving the management of your business and in increasing profitability? See how Linx can help you.