Food cost percentage is the single most watched number in a kitchen, yet it is often calculated in a way that makes it meaningless. Here is the correct formula, a worked example in AED, and how to read the result.
The correct formula
Food cost percentage shows how much of every dirham of food sales was spent on the ingredients used to produce it.
Food cost = Opening stock + Purchases − Closing stock
Food cost % = Food cost ÷ Net food sales × 100
Three details make the difference between a reliable figure and a misleading one:
- Use stock movement, not just purchases. Purchases alone only tell you what you bought. If you stocked up at month end, purchases-based food cost will look terrible; if you ran stock down, it will look too good.
- Use net sales, excluding VAT. In the UAE, menu prices usually include 5% VAT. That VAT belongs to the FTA, so remove it before dividing.
- Use purchases excluding recoverable VAT. If you are VAT-registered, the input VAT on supplier invoices is normally recovered, so it is not a food cost.
Worked example in AED
A Dubai restaurant closes the month with these figures (all purchases excluding VAT):
| Item | AED |
|---|
| Opening stock (1st of month) | 18,000 |
| Purchases during the month | +62,000 |
| Closing stock (physical count) | -20,000 |
| Food cost | 60,000 |
| POS food sales including VAT | 189,000 |
| Net food sales (189,000 ÷ 1.05) | 180,000 |
| Food cost % | 33.3% |
If the owner had wrongly divided purchases (62,000) by VAT-inclusive sales (189,000), the result would be 32.8%. That looks like a small difference, but the method is wrong, and in another month, depending on stock levels, the error could be much larger.
What is a good food cost percentage?
There is no single correct target. A commonly quoted rule of thumb for many full-service restaurants is somewhere around 28% to 35%, but your right number depends on your concept:
- Cafeterias and karak or tea outlets selling high-volume, low-ingredient items can run lower.
- Steak, seafood and premium concepts using imported ingredients often run higher, and rely on higher average bills.
- Cloud kitchens should include packaging in food cost, which pushes the percentage up.
The most useful benchmark is your own costed menu. If your recipes say food should cost 30% of sales and you are running at 36%, that six-point gap is money leaving the business.
How to interpret your result
Food cost is higher than expected
Look for supplier price increases, over-portioning, wastage, unrecorded staff meals, theft, or menu prices that have not kept up with costs. Also check that closing stock was counted fully.
Food cost is suspiciously low
This usually means a supplier invoice is missing from purchases, or closing stock was overstated. A month that looks unusually good often comes before a month that looks unusually bad.
Food cost swings month to month
Large swings normally point to inconsistent stock counts or invoices posted in the wrong month. Fix the process before drawing conclusions.
Key takeaways
- Food cost = opening stock + purchases − closing stock.
- Divide by net sales excluding the 5% VAT.
- Purchases-only calculations are unreliable.
- Compare actual food cost with the cost your recipes predict.
- Count stock physically at every month end.
Frequently asked questions
Should food cost percentage use sales with or without VAT?
Without VAT. Divide food cost by net sales, after removing the 5% VAT, and use purchase values excluding recoverable input VAT. Mixing VAT-inclusive and VAT-exclusive figures distorts the result.
How often should a restaurant calculate food cost percentage?
At least monthly, based on a physical closing stock count. Many operators also count high-value items such as meat, seafood and cheese weekly to catch problems earlier.
What is the difference between actual and theoretical food cost?
Theoretical food cost is what your recipes say the food should have cost for what you sold. Actual food cost comes from stock and purchases. The gap between them points to waste, over-portioning, theft or price changes.
Is your food cost where it should be?
Send us one month of figures and we will calculate your real food cost and show where it is leaking.
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This article is general guidance for UAE F&B businesses, not tax or legal advice. Speak to a qualified adviser about your own situation.