Money Matters

Guide to restaurant inventory management and best practices 

Looking for the best practices to master restaurant inventory management? Dive in to discover key strategies for keeping your stock under control, reducing waste, and maximizing your profits.

Effective restaurant inventory management is key for staying on top of stock, reducing waste, and maximizing profits—all while juggling the daily demands of running a restaurant.

Whether you’re managing your kitchen staff, keeping customers happy, or setting menu prices, a solid inventory management system keeps everything running smoothly. 

This guide will help you navigate the ins and outs of restaurant inventory management with simple tips and best practices to make your job easier. It covers everything from essential inventory categories and tracking methods to choosing the right system and measuring success with Key Performance Indicators (KPIs).

Discover how mastering inventory for restaurants can help you run a more efficient, profitable, and stress-free business. 

Here’s what we’ll cover:

What is restaurant inventory management?

Restaurant inventory management involves overseeing all aspects of inventory within a restaurant, including tracking raw ingredients, beverages, prepared items, and supplies.

When managed properly, it makes sure your stock is organized, monitored, and replenished to support kitchen operations, menu pricing, and customer satisfaction. 

By understanding your inventory levels and usage trends, you can optimize food costs, prevent overstocking or shortages, and adjust pricing strategies.

Effective inventory management is organized, consistent, and driven by actionable insights. It keeps the flow of ingredients seamless, ensuring everything needed for your menu is available without over-ordering or wasting. 

Why inventory management is crucial for restaurants

Here are four key reasons why effective inventory management is so important: 

1. Cost control and margin protection

Accurately tracking inventory and managing stock levels helps your restaurant avoid over-ordering, ensuring the right amount of food is on hand without wasting money. Without proper tracking, costs can spiral out of control, leading to unnecessarily high food costs and shrinking profit margins. 

2. Waste and theft prevention

Food waste and theft are significant challenges in the restaurant industry. Effective kitchen management can track spoilage, identify waste patterns, and reduce shrinkage. Whether food is thrown away due to overordering or theft from the kitchen or storage areas, inventory control helps reduce these losses and keep costs in check. 

3. Operational efficiency

A well-organized inventory makes your kitchen more efficient by reducing your team’s time searching for ingredients and streamlining the ordering process. By improving communication with suppliers and only purchasing what’s necessary, you avoid excess stock and ensure smoother operations. 

4. Data-driven decisions

By analyzing your inventory insights, you can adjust portion sizes, optimize the menu based on popular items, and set the right pricing strategies. 

Restaurant inventory categories explained

The first step in effective inventory management is understanding the types of inventories you’re working with. 

Perishables versus non-perishables

Perishable items, such as fruits, vegetables, dairy, and meats, have a short shelf life and must be tracked carefully to avoid spoilage. Non-perishable items, like canned goods, dry grains, and cleaning supplies, are more durable but still need to be managed to ensure they don’t take up unnecessary space. 

Types of inventory

Inventory can be divided into several categories to make management more efficient: 

• Raw ingredients: these are the core items used to prepare and cook menu items, such as vegetables, meats, grains, and spices. 

• Prepared items: these ingredients have been prepped for use in dishes but are not cooked or served to customers. 

• Finished goods: these are meals or drinks ready for customers. 

Additional categories

In addition to food inventory, restaurant managers should consider other essential stock categories: 

• Bar inventory: liquor, wine, beer, and mixers should be tracked separately to ensure proper stock levels and avoid running out during peak hours. 

• Dry storage: this includes non-perishable food items like pasta, rice, canned goods, and spices. 

• Paper goods and cleaning supplies: these items include napkins, straws, dishwashing liquids, and cleaning products. 

Key terms in restaurant inventory management you should know

Here are some terms every restaurant manager should know: 

• Food cost percentage: the cost of food used to produce a dish or menu item, expressed as a percentage of the menu price. 

• Inventory turnover: the rate at which inventory is used and replaced over a specific period. 

• Par levels: the minimum amount of stock that should be on hand to meet demand. 

• Shrinkage and spoilage: inventory loss due to theft, damage, or spoilage. 

• Sitting inventory: the amount of stock in your storage that is not being used or sold. 

• Count sheet: a sheet used to track inventory levels during stock counts. 

• Shelf-to-sheet method: a method for counting inventory by comparing what’s on the shelf to what’s recorded in the inventory sheets. 

• Unit conversion: converting units of measurement (e.g., ounces to pounds) to ensure accurate restaurant inventory tracking. 

• Usage: the amount of inventory used within a specific period. 

• Depletion: the reduction of inventory over time due to sales, waste, or spoilage. Tracking depletion helps you monitor how quickly items are being used. 

• Variance: the difference between actual inventory usage and theoretical usage based on sales data. Large variances may indicate waste, theft, or miscounting.  

• Yield: the usable portion of an ingredient after it’s trimmed, cooked, or prepped. Understanding yield helps with portion control and cost accuracy.  

Restaurant inventory tracking techniques

To make the most out of your inventory, consider using the following techniques which could provide an end-to-end view of your inventory cycle: 

Manual tracking with spreadsheets 

Manual tracking is an affordable option but can be time-consuming and prone to error. Create tables to track quantities, prices, and costs, and update them regularly. This works best for micro businesses with limited inventory but can still cause issues when you grow. 

Barcode scanning and digital tools

Barcode scanning is a faster and more accurate way to track inventory. Digital tools help streamline the process and offer real-time data on stock levels. 

POS and vendor integration

Integrating your inventory system with your POS and vendors provides real-time insights into stock levels and allows for automatic reordering. 

How to manage restaurant inventory: Step-by-step

How do restaurants manage inventory effectively? By breaking the process into simple, manageable steps. Here’s a breakdown to help you stay organized and in control of your stock. 

1. Set up your inventory system

Begin by selecting the right inventory management tools based on your needs. Depending on the complexity of your restaurant’s inventory, you can opt for simple spreadsheets or invest in specialized software. Make sure the system you choose is scalable and adaptable to your restaurant’s size and requirements. 

2. Build inventory sheets or software templates

Whether you’re going manual or digital, create templates that list all your inventory items and include columns for quantities, prices, and categories. Templates will help track your stock consistently. 

3. Organize stock by category or storage area

Organize inventory in a way that’s easy to track. Use labeled shelves or storage areas for each category of items (e.g., perishables, dry goods, bar supplies) and make sure everything is rotated correctly. 

4. Assign roles and train staff

Assign specific team members to be responsible for stock levels and train staff to count, record, and report inventory accurately. 

5. Schedule regular counts

Regular inventory counts are crucial for accurate tracking. Depending on your restaurant’s volume, the schedule counts daily, weekly, or monthly, ensuring they are done during off-peak hours to avoid disrupting operations. 

6. Track usage and reorder based on par levels

Establish par levels for each inventory category and reorder stock when it falls below these levels. This strategy ensures you always have what you need without overstocking.

Best practice tips for restaurant inventory management

Here are some of the best practices to manage your restaurant inventory effectively:

• Count consistently: set a routine to count your inventory at the same time each day, week, or month. Stick to the same method each time to ensure accuracy and consistency. 

• Keep stock lean: minimize excess inventory to reduce waste and prevent over-ordering. The goal is to maintain just enough stock to meet customer demand without excess. 

• Use First in, First Out (FIFO): adopt the FIFO method to ensure older items are used first. This helps reduce spoilage and keeps your stock fresh. 

• Track waste: regularly monitor waste patterns and identify areas for improvement. Track food waste, spoilage, and damaged goods to find opportunities to cut down on losses. 

• Adjust par levels regularly: review and adjust par levels based on changes to your menu or sales patterns. Be sure to account for seasonal items and adjust accordingly. 

• Determine optimal food inventory levels: buy smarter by understanding which ingredients have longer shelf lives and which need to be used quickly. Prioritize stocking items that last longer and plan purchases around usage trends.  

• Monitor sell-through rate: track how much of a specific menu item you sell over a set period. This helps you understand which ingredients move quickly and which don’t, so you can adjust purchasing and menu planning accordingly.  

• Involve your team: engage both your Front of House (FOH) and Back of House (BOH) teams in inventory management. Their input can help spot potential issues like waste or stock shortages early on. 

• Automate where possible: streamline your process by using inventory management software to automate reordering and tracking. Automation helps reduce human error and saves you valuable time. 

• Forecast demand with technology: use technology to forecast demand based on past sales data. This approach allows you to avoid both understocking and overstocking, ensuring you have exactly what you need when you need it. 

Choosing the right restaurant inventory management system

Choosing the right inventory management system is essential so that you have the processes and data in place to help you be agile during any issues, grow during boom periods, and plan for everything else. 

When choosing your inventory management software, keep the following in mind: 

1. Assess your business needs

Consider the size and complexity of your restaurant. Small or micro establishments may benefit from basic software, while larger operations may need more advanced systems with reporting and forecasting tools. 

2. POS and inventory sync

Ensure that your POS system integrates with your inventory system to provide accurate, real-time data. 

3. Must-have features

Look for features such as real-time tracking, mobile access, automated purchasing, and user-friendly interfaces. Scalability is also important as your business grows. 

4. Manual versus digital

Manual systems can work for smaller operations, but digital systems are generally more efficient, offering faster updates and better accuracy. 

5. When to upgrade

If your current system is slow, prone to errors, or lacking necessary features, upgrading to a more robust solution may take time. Make sure the systems you consider have top notch support and customer services to help with the switch. 

KPIs to track for better restaurant inventory control

Tracking the right KPIs is essential for gaining insight into your inventory management and improving your restaurant’s profitability. Here are the most important KPIs to monitor: 

• Cost of Goods Sold (COGS): this key metric tracks the cost of inventory used to produce dishes. Keeping COGS low is crucial for profitability. 

• Food cost percentage: this percentage indicates how much of your revenue goes toward food costs. The lower the percentage, the more profitable your restaurant is. 

• Inventory turnover ratio: this ratio shows how often inventory is used and replenished within a given period. A higher inventory turnover rate indicates efficient stock usage. 

• Prime cost: prime cost includes food costs and labor. It’s a critical metric for managing overall restaurant profitability. 

• Variance: track actual usage versus theoretical usage to identify discrepancies and improve accuracy. 

• Waste percentage: monitor food waste to minimize losses and improve profit margins. 

Common challenges and how to solve them

Managing restaurants can be complicated. Some common challenges include:

• Over-ordering and spoilage: over-ordering can quickly lead to spoilage and wasted money. To avoid this, set tighter par levels based on your past sales data and adjust them regularly to match demand. 

• Theft and loss: theft and inventory loss can eat into your profits. Combat this by implementing strict inventory control measures and conducting regular audits to catch discrepancies early. 

• Team training gaps: inconsistent inventory practices often stem from gaps in team training. Provide regular training sessions to ensure everyone follows the same procedures and understands their responsibilities. 

• Inconsistent processes: when counting, ordering, and tracking inventory vary from person to person, errors are bound to happen. Standardize your procedures with clear guidelines to keep everyone on the same page. 

• Data entry errors: manual data entry increases the risk of mistakes that can throw off your inventory count. Minimize errors by using barcode scanners or integrated inventory software to automate tracking.

Example of good inventory management for restaurants

Imagine you’re the owner of a small bistro that struggles with frequent inventory shortages and food waste. These issues made it hard to keep costs under control and often led to unhappy customers when popular dishes were suddenly unavailable. 

To tackle these challenges, you decided to adopt a digital inventory management system. This move allowed you to: 

• Implement the FIFO method: ensuring older stock is used first helps reduce spoilage and minimize waste. 

• Track inventory in real time: knowing exactly what’s in stock at any moment improved ordering accuracy and prevented both shortages and overstocking. 

• Automate reordering: setting up automatic alerts and purchase orders based on par levels saves time and keeps inventory at optimal levels without constant manual checks. 

As a result, your bistro saw a 20% reduction in food waste, which directly improved your profit margins. More consistent stock levels mean fewer last-minute menu changes, allowing your kitchen to operate smoothly and deliver a better dining experience. 

With efficient inventory management now in place, you can focus more on growing your business and delighting your customers, knowing your stock is under control. 

Final thoughts

Effective restaurant inventory management goes beyond simply tracking ingredients—it’s about using data-driven insights to reduce waste, boost profitability, and streamline your operations.

By applying these best practices, you can optimize your inventory processes and position your restaurant for long-term success.

Start with small, consistent steps and leverage the right tools to make inventory management easier and more efficient. 

Ready to take your restaurant to the next level? Discover how restaurant accounting software can help you keep operations running smoothly while mastering inventory control. 

Restaurant inventory management FAQs

1. How often should inventory for restaurants be taken?

Inventory should be counted regularly—daily or weekly for high-volume restaurants, and at least monthly for smaller operations—to ensure accuracy and prevent shortages or overstocking. 

2. What’s the best system for a small restaurant?

Small restaurants often benefit from simple, user-friendly inventory software or even well-organized spreadsheets that are scalable as the business grows. 

3. What causes high food cost percentage?

High food costs usually result from over-ordering, food waste, theft, inconsistent portion control, or inaccurate menu pricing. 

4. What’s the average food inventory turnover ratio for restaurants?

The average turnover ratio typically ranges from 4 to 6 times per month, meaning inventory is replenished roughly every 5 to 7 days. 

5. Who is responsible for managing restaurant inventory?

Inventory management is usually the responsibility of restaurant managers or kitchen supervisors, but it’s important to involve both front and back of house teams for accuracy and efficiency.