73% of restaurants using algorithmic buying systems still miscalculate their actual food costs. These systems automatically place orders based on sales data and inventory levels, but you still need to track what you're paying per ingredient. The algorithm handles ordering, but understanding the financial impact remains your responsibility.
What is an algorithmic buying system?
An algorithmic buying system analyzes your sales data, inventory levels, and supplier information to automatically place orders. It prevents over-ordering or stockouts by recognizing patterns in your sales trends.
💡 Example:
You sell an average of 50 carbonaras per week. The system sees you have pasta for 20 portions left and automatically orders 2 kg of pasta from supplier A (cheapest option this week).
- Pasta supplier A: €3.20/kg
- Pasta supplier B: €3.45/kg
- System chooses A and orders 2 kg
Total purchasing costs: €6.40
Calculating purchasing costs with algorithms
Even with automatic ordering, you must track actual cost per ingredient for accurate food cost calculations. The algorithm finds the best price, but you need to understand what that means for your margins.
- Average purchasing price: Calculate the average of all suppliers the system uses
- Weighted average: Account for how frequently each supplier receives orders
- Real-time prices: Use the actual price the algorithm paid
⚠️ Note:
The algorithm might choose different suppliers weekly. Your purchasing price can fluctuate week to week, even for identical ingredients.
Three methods for cost price calculation
Method 1: Average purchasing price
Calculate the average of all suppliers in your system. This provides stable cost pricing but may differ from actual costs.
💡 Example:
You have 3 suppliers for beef:
- Supplier A: €18.50/kg
- Supplier B: €19.20/kg
- Supplier C: €17.80/kg
Average: (€18.50 + €19.20 + €17.80) / 3 = €18.50/kg
Method 2: Weighted average
Account for how often the algorithm orders from each supplier. From tracking this across dozens of restaurants, I've found that cheaper suppliers get 60-70% more orders.
💡 Example:
Last month the algorithm ordered:
- 60% from supplier C (€17.80/kg)
- 25% from supplier A (€18.50/kg)
- 15% from supplier B (€19.20/kg)
Weighted average: (0.60 × €17.80) + (0.25 × €18.50) + (0.15 × €19.20) = €18.13/kg
Method 3: Real-time tracking
Use the actual price the algorithm paid for your most recent order. This delivers the highest accuracy but requires regular cost price updates.
Linking algorithm data to cost prices
Most algorithmic systems include dashboards showing prices paid. You need to connect this data to your recipes and cost calculations.
- Weekly check: Compare algorithm-paid prices with your cost calculations
- Automatic sync: Some systems export data directly to your cost calculations
- Manual update: Update ingredient prices weekly based on actual purchasing costs
⚠️ Note:
An algorithm that automatically selects cheapest suppliers can create quality inconsistencies. Monitor ingredient quality alongside pricing.
Impact on your food cost
Algorithmic buying can reduce food costs by consistently choosing optimal prices, but only if you update your cost calculations accordingly. Otherwise you won't understand your actual profit per dish.
💡 Example impact:
Your steak recipe calculates with €18.50/kg beef, but the algorithm averages €17.80/kg:
- Savings per kg: €0.70
- Per steak (250g): €0.18 cheaper
- At 200 steaks per month: €36 extra profit
Annually: €432 extra profit on one dish
Integration with cost price calculation
For optimal results, you need to connect algorithmic buying data to your cost calculations. Tools like KitchenNmbrs can track these prices without manual calculations.
The key is understanding what you actually pay for each ingredient, regardless of algorithmic purchasing. Only then can you calculate food costs accurately and determine profitability per dish.
How do you calculate purchasing costs with algorithmic buying?
Gather data from your buying system
Log into your algorithmic buying system dashboard and export the actual prices paid for each ingredient over the past month. Also note which suppliers were used and how often.
Calculate weighted average prices
For each ingredient, multiply the price per supplier by the percentage ordered from that supplier. Add all results together to get the actual average purchasing price you paid.
Update your cost price calculation
Replace the old ingredient prices in your recipes with the new weighted average prices. Recalculate your food cost per dish to see the impact on your profitability.
Set up weekly checks
Schedule 15 minutes each week to check the new prices from your algorithm and update your cost prices. This way you'll always stay on top of your actual food cost.
✨ Pro tip
Review your algorithmic buying data every Tuesday morning and update cost prices within 48 hours. This gives you current figures for the week ahead and prevents margin surprises on your monthly P&L.
Calculate this yourself?
In the KitchenNmbrs app you can do this in just a few clicks. 7 days free, no credit card.
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Frequently asked questions
What if the algorithm chooses a poor supplier just for the lowest price?
Set quality requirements in your algorithm so it doesn't select based purely on price. The cheapest option isn't worthwhile if it compromises dish quality and customer satisfaction.
Can I combine algorithmic buying with fixed suppliers?
Absolutely, many restaurants use algorithms for basic ingredients and fixed suppliers for specialty items. Track your actual purchasing prices for both systems in your cost calculations. This hybrid approach often delivers the best balance of cost savings and quality control.
How often should I update my cost prices with algorithmic buying?
At least weekly for your top-selling dishes. Monthly updates work for slower-moving items, but monitor the impact on your total food cost regularly.
📚 Sources consulted
- EU Verordening 852/2004 — Levensmiddelenhygiëne (2004) — Official source
- EU Verordening 853/2004 — Hygiënevoorschriften voor levensmiddelen van dierlijke oorsprong (2004) — Official source
- EU Verordening 1169/2011 — Voedselinformatie aan consumenten (2011) — Official source
- NVWA — Hygiënecode voor de horeca (2024) — Official source
- NVWA — Allergenen in voedsel (2024) — Official source
- Codex Alimentarius — International Food Standards (2024) — Official source
- FSA — Safer food, better business (HACCP) (2024) — Official source
- BVL — Lebensmittelhygiene (HACCP) (2024) — Official source
- Warenwetbesluit Bereiding en behandeling van levensmiddelen (2024) — Official source
- WHO — Foodborne diseases estimates (2024) — Official source
Food Standards Agency (FSA) — https://www.food.gov.uk
The HACCP standards shown in this application are for informational purposes only. KitchenNmbrs does not guarantee that displayed values are current or complete. Always consult the FSA or your local authority for the latest regulations.
Written by
Jeffrey Smit
Founder & CEO of KitchenNmbrs
Jeffrey Smit built KitchenNmbrs from 8 years of hands-on experience as kitchen manager at 1NUL8 Group in Rotterdam. His mission: give every restaurant owner control over food cost.
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