A Number That Decides Whether Your Restaurant Survives

A Number That Decides Whether Your Restaurant Survives

Posted on By Martin Smith

The One Number That Decides Whether Your Restaurant Survives: Understanding COGS

ST. LOUIS, MO (StLouisRestaurantReview) For many restaurant owners and chefs, Cost of Goods Sold—better known as COGS—is treated as an accounting concept best left to the bookkeeper. That mindset is one of the most common and costly mistakes in the restaurant industry. COGS is not just a back-office metric. It is a daily operational reality that determines menu pricing, portion control, purchasing decisions, profitability, and ultimately whether a restaurant stays in business.

Across St. Louis and beyond, restaurants that close often share a similar story: sales were strong, the dining room was busy, but the money never seemed to be there. In most cases, the problem wasn’t a lack of customers—it was poorly measured or misunderstood COGS, leading to underpriced menus and shrinking margins.

This article explains what COGS really is, what should (and should not) be included, why chefs must care as much as owners, and the critical questions every restaurant should be asking their bookkeeper to stay profitable.

What Is COGS in a Restaurant—Plain and Simple

COGS represents the direct cost of producing the food and beverages you sell. If an item is required to put a dish or drink in front of a guest, it belongs in COGS. If it supports the business but doesn’t directly become part of what’s sold, it does not.

Unlike labor, rent, or utilities, COGS fluctuates with volume. The more you sell, the more COGS you incur. That’s why accurately tracking it is essential to understanding whether higher sales are actually improving profitability—or just increasing losses faster.

What Should Be Included in Restaurant COGS

Food Ingredients

All raw ingredients that go into menu items belong in COGS, including:

  1. Meat, poultry, seafood
  2. Produce and herbs
  3. Dairy products
  4. Dry goods such as rice, pasta, flour, and grains
  5. Oils, fats, spices, and seasonings
  6. Sauces, marinades, and dressings
  7. Baking ingredients

If it ends up on the plate, it belongs in COGS—without exception.

Beverage Ingredients

Restaurants should track beverage COGS separately, but it is still part of the overall COGS:

  1. Beer, wine, and spirits
  2. Mixers, syrups, juices
  3. Coffee, espresso beans, tea
  4. Soda syrup and carbonated beverages

Bar-focused concepts often live or die by beverage COGS discipline.

Disposable Food-Related Packaging

These are commonly misclassified, but they are COGS:

  1. To-go containers and lids
  2. Cups, straws, napkins
  3. Portion cups
  4. Pizza boxes
  5. Foil, parchment paper, wax paper

These items are required to sell the product, especially in today’s takeout-heavy environment.

Direct Production Items

  1. Purchased ice
  2. Garnishes
  3. Complimentary bread, chips, or salsa

“Free” items are not free to the business. They are still COGS.

What Does NOT Belong in COGS (But Often Gets Put There)

Misclassifying expenses hides real problems and destroys pricing accuracy.

Not COGS:

  1. Kitchen labor, prep staff, bartenders, servers, managers
  2. Payroll taxes and benefits
  3. Rent, CAM, utilities, internet
  4. Equipment purchases and repairs
  5. Smallwares like pots, pans, knives, plates, and glassware
  6. Cleaning supplies and janitorial services
  7. POS fees, credit card processing, and third-party delivery commissions
  8. Marketing and advertising

These are operating expenses, not COGS. Mixing them together makes it impossible to understand food profitability.

Why Chefs Must Care About COGS as Much as Owners

Chef’s control:

  1. Portion sizes
  2. Ingredient substitutions
  3. Waste and spoilage
  4. Menu complexity

A menu that looks great on paper can quietly destroy margins if portioning is inconsistent or ingredients are not costed accurately. Even small over-portioning—an extra ounce of protein, a heavier pour of sauce—multiplied across hundreds of covers per week can push COGS several points higher.

In today’s environment, a two-point increase in COGS can be the difference between profit and loss.

The Formula Every Restaurant Should Know

COGS is not what you spend in a month. It is what you use.

**Beginning Inventory

  • Purchases
    – Ending Inventory
    = COGS**

Restaurants that skip inventory counts and rely only on vendor invoices almost always misprice their menus.

Normal COGS Ranges by Restaurant Type

While every concept is different, industry averages provide a reality check.

Cuisine / Concept Type Typical COGS Range
Pizza 22% – 28%
Mexican / Tex-Mex 28% – 33%
Asian (Thai, Chinese, Vietnamese) 30% – 35%
Italian 28% – 34%
American Casual Dining 30% – 35%
Fast Casual 25% – 30%
Bar-Heavy Concepts 20% – 25%
Fine Dining 32% – 38%

NOTE: If your restaurant consistently exceeds these ranges without premium pricing, profitability is being silently eroded.

The #1 Reason Restaurants Misprice Menus

Most failed restaurants did not “lack customers.” They lacked accurate cost data.

Common mistakes include:

  1. Pricing menu items based on competitor prices instead of actual costs
  2. Failing to update pricing after vendor cost increases
  3. Ignoring packaging and garnish costs
  4. Not separating food and beverage COGS
  5. Relying on outdated recipes or portion assumptions

When menu pricing is based on guesswork, volume only accelerates losses.

Questions Every Owner and Chef Should Ask Their Bookkeeper

If your bookkeeper cannot answer these clearly, your operation is at risk.

  1. How often are we calculating true COGS—not just purchases?
  2. Do we separate food COGS, beverage COGS, and paper goods?
  3. Are inventory counts being performed monthly at a minimum?
  4. Are third-party delivery fees excluded from COGS?
  5. Can you show COGS as a percentage of sales by month?
  6. Are we tracking COGS trends as costs increase?
  7. Can we tie menu pricing directly back to ingredient costs?

COGS is not just accounting data—it is operational intelligence.

Why Accurate COGS Tracking Is the Difference Between Survival and Closure

Industry data from restaurant trade associations and accounting studies consistently show that failure to accurately track COGS and price menus accordingly is a leading cause of restaurant closures. Rising food costs, higher interest rates, and tighter consumer spending have eliminated the margin for error.

Restaurants that survive are not always the busiest—they are the most disciplined. They know their numbers, proactively adjust pricing, and relentlessly control waste.

In today’s environment, ignoring COGS is not a minor oversight. It is a business-ending decision.

The Bottom Line for St. Louis Restaurants

COGS is not an accounting exercise. It is the financial heartbeat of a restaurant. Owners must understand it. Chefs must manage it. Bookkeepers must record it accurately.

Restaurants that treat COGS as optional eventually price themselves out of existence. Those who respect it gain clarity, confidence, and a fighting chance in an industry where margins are thin and mistakes are unforgiving.

In 2026, measuring COGS correctly is not optional—it is survival.

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