An estimated 30-40% of the world’s food supply ultimately lands in landfills. To restaurants, this equates to a huge financial blow, but more importantly, it’s a huge sustainability issue with massive downstream consequences.
This is why effective inventory management is so crucial to a restaurant’s success.
Any great restaurant owner can vouch that running a restaurant is much more than serving food. It is an eternal juggling process of tracking and managing levels of inventory. Restaurants must keep a close watch on what ingredients are available and when to reorder.
With effective inventory management, you can streamline purchasing decisions, reduce waste, minimize the risk of theft or misuse, and ensure that profits stay as high as possible.
However, relying on manual methods to manage inventory can be a challenge. Without real-time insights, you may find yourself losing more money than necessary on excess stock, spoilage, or miscalculations. As a result, inventory costs rise, and profitability suffers.
This is why around 41% of restaurant operators are currently turning to AI as a solution.
Difficulties in Managing Inventory
Restaurants face a variety of unique challenges when it comes to managing inventory manually, including:
- Time-Consuming Manual Processes: Inventory management often requires staff to count and record stock levels, which can take up valuable time that could be better spent on other operational tasks.
- Inaccurate Data Entry: Humans make mistakes, and when tracking inventory by hand, restaurants open themselves up to discrepancies between actual stock and recorded quantities.
- Inconsistent Tracking: Without a centralized system, inventory may not be tracked consistently across different shifts or locations.
- Difficulty Spotting Waste or Theft: Manually tracking inventory makes it harder to identify patterns of waste, spoilage, or theft in real-time, allowing these issues to go unnoticed until it’s too late.
- Limited Real-Time Insights: With a lack of automation, restaurant owners and operators have to rely on outdated reports or guesswork to make purchasing decisions, which can lead to over- or understocking.
- Increased Labor Costs: Because manual tracking takes longer and requires more hands-on attention, labor costs for inventory management can be higher than with automated systems.
This outdated style of inventory management is one of the leading causes of food waste, and ultimately, it becomes a system that eats into restaurant profits and leaves operators scrambling to stay afloat.
How AI Helps
Accurate Demand Forecasting
According to the USDA, more than 30% of all available food in the U.S. ends up going uneaten. For restaurants, this significant waste is not just an environmental concern, but can also erode profit margins. This is where AI comes into play.
AI can forecast demand accurately by analyzing historical data, including sales trends, seasonality, and even local events. With this information, it can predict how much of each ingredient is likely to be used during a given period.
These insights make it easier for restaurant operators to make more informed purchasing decisions and stock just the right amount of food.
Additionally, AI-powered systems can help restaurants stay compliant with local regulations. Many cities and municipalities have begun enforcing fines for improper disposal of food waste.
For example, certain local governments require restaurants to separate food scraps from regular trash or compost them in designated bins. Failing to follow these rules can be costly. By using AI to track waste patterns, restaurants can avoid this issue altogether.
AI can also track and analyze customer behavior and waste patterns in the kitchen, such as determining which ingredients are often thrown out and why. If a particular ingredient consistently ends up in the trash, AI can help pinpoint the root cause, whether over-purchasing, spoilage, or customer preferences.
From there, chefs can use this valuable data to adjust recipes, portion sizes, or ingredient choices to reduce waste.
Automatic Ordering and Vendor Management
AI also helps solve stock issues by automatically generating purchase orders based on predicted demand and real-time inventory levels. By analyzing factors like current stock, historical usage, and anticipated sales, AI systems can make accurate recommendations for when and how much to order.
With an automated ordering system, restaurant operators no longer need to call suppliers to negotiate prices or track multiple orders manually. Instead, they can compare prices across multiple vendors instantly to find the best deals for their ingredients. Many AI systems can even take into account factors such as shipping costs, order quantities, and even vendor reliability.
For example, Buyers Edge Platform, which is a leader in digital procurement solutions, has helped restaurants save up to 10% on their annual food costs by providing visibility into supplier pricing and helping them make smarter buying decisions.
Real-Time Inventory Tracking
Real-time inventory tracking is one of the most widely adopted uses of AI. It offers a more dynamic solution compared to manual tracking that provides accurate, up-to-the-minute insights into inventory levels, all while eliminating the risks associated with human error.
It works by integrating with a POS system or any form of kitchen management software, and as items are used or sold, the system automatically updates inventory levels in real-time.
Over time, the algorithms behind these systems continuously learn and improve, becoming more accurate and effective as they process more data.
Pricing
Setting the right prices for menu items is one of the most challenging aspects of running a restaurant, and many restaurant owners are never quite sure if their prices are aligned with customer demand, competitive pricing, or ingredient costs.
AI-powered benchmarking can help eliminate the guesswork from this process by providing data-driven insights into the optimal pricing strategy. These systems can analyze a number of factors, including historical sales data, competitor pricing, and market trends, to suggest the most effective pricing for each menu item.
A recent Toast Restaurant Trends Report sheds light on how pricing decisions can directly impact sales. For example, the report revealed that hot dog sales dipped by 9% in Q2 2024 compared to Q2 2023, even though prices only increased by 1.9% year over year. This could suggest a shift in customer preferences or, more likely, that the price increase was too much for many customers.
On the flip side, the report also highlighted a 1% increase in the popularity of bowls from Q2 2023 to Q2 2024, despite a 4.6% price increase. This suggests that, in this case, customers were still willing to pay more for a dish that they valued highly, possibly due to trends in health-conscious eating or consumer demand for customizable, trendy dishes.
AI can help identify these trends early on, providing insights into which menu items are not only popular but also able to withstand moderate price hikes without losing demand.
Why It’s Time to Embrace AI for a More Profitable Restaurant
The moment for AI in the restaurant industry has arrived. As the challenges of inventory management continue to grow, AI offers powerful solutions that can transform the way restaurants operate.
If you’re a restaurant owner or operator looking to capitalize on the potential of AI, consider partnering with a trusted industry leader like EMERGING. We offer a wealth of strategic growth resources, mentorship, and direct connections to key players in the food and beverage industry.
With our valuable connections and insights, we can help you implement innovative, AI-driven solutions, so you can scale and adapt to the evolving restaurant sector.
