4 Inventory Management Tips for Foodservice Success

I live in Texas. In the state where it could be argued convenience retail was born, convenience stores have also taken on a role as the purveyors of local and culturally unique foods.

Along the Interstate-35 corridor in parts of south-central Texas, a few local, independent stores and a smaller set of larger operators are some of the best places to buy kolaches. These traditional, fruit-filled Czech pastries are a special treat for my small herd of kids when we road trip, or when papa wants something that is 40% butter. My kids make short work of the warm, fresh pastry, but I often think about how this is one of the more complicated foodservice products available.

A few weeks ago, I wrote a blog about the importance of planning and production management in a foodservice program. But there’s a step that comes before that. The key to reducing waste and sustaining a profitable foodservice operation really begins with being able to see what’s happening to your foodservice ingredients through the complex and drawn out production process.

Recipe management

One of the main differences between merchandise and foodservice inventory management is the level of complexity. As a convenience retailer, the merchandise you purchase from a vendor is typically the same product the customer purchases. Consequently, the overall inventory management process is easier.

Foodservice, however, is a bit more complicated. In this case, you often purchase multiple ingredients to create and sell a product that is different than its parts. The reason recipe management is critical to the inventory management process is that it helps track the transformation between what you buy, what you use to produce the food, and the final product the cashier rings up at the checkout counter. Essentially, it creates compound items that represent the relationships between other items, which simplifies the entire process and provides better insights into what’s happening at the store.

Cost and margin analysis

Due to the pandemic, the foodservice category has seen its share of challenges this year. As a result, convenience retailers are looking for ways to maximize margins on this high margin category at a time when volumes are down. This is why performing cost and margin analysis regularly is so important. It allows you to accurately compare what you’re spending on inventory and recipes (which should be based on the ingredient portions you’re using) to what you’re making on the finished product. For complex foodservice operations, this was traditionally more difficult because you were continually combining and recombining ingredients, and the costs fluctuated with a greater degree of volatility than traditional merchandise.

Basic cost and margin reporting can also expand to help reduce misuse and waste by comparing how something should be made (i.e., the ingredient portions employees should use) to what is actually being consumed in the store. Essentially, by layering inventory activity with cost and margin analysis, we are asking where we see problems so we can correct them through training, process controls, and loss prevention, and we can focus on areas that are eroding margin.

Ingredient inventory management

Managing foodservice inventory is complicated both by the complexity of relationships inside the preparation process and by the simple challenge that most of it isn’t barcoded. Tools that take both into account help you detangle and simplify the process.

Let’s use a bucket of pancake batter as an example. You don’t buy it. You don’t sell it. It has no barcode like a merchandise item package. But if you fail to count it during an inventory audit, a lot of eggs, flour, sugar, milk, and leavening evaporate like magic. Using the inventory audit process, you must be able to identify every ingredient that was used in the batter. That level of detail enables you to see the association between the prepared items and the raw ingredients used to make them. Ultimately, your goal should be to achieve the ease, simplicity, and visibility of merchandise inventory management in your foodservice program.

POS and kiosk integration

The main objective of any foodservice operation is to sell more food, so it makes sense that integration to the POS or kiosk is an integral piece of the inventory management process. On the surface, feeding menu items to the checkout counter is only about enabling customers to easily and quickly pay for their items and leave. But there’s more to it than that.

Without this integration, you don’t know what you’re selling, which leads to an inaccurate representation of your inventory that results in decisions that could damage your foodservice program. Integrating the POS provides necessary data insights and lays the foundation for the picture you’re building about what is happening inside your foodservice operation at each of your stores.

Of course, to perform the type of inventory management I’ve discussed in this blog, your c-store operation should be set up for item-level inventory for many of your highest cost items. Not only is it more accurate, but it provides the detail and visibility you need to ensure foodservice success in an increasingly competitive environment. Despite a challenging year, it’s still possible to finetune your foodservice program and deliver a great customer experience that produces the margins you need to thrive. The journey begins with better inventory management.

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