What Is FIFO? How It Works for Retail & Restaurant Inventory

You can spend all you like on marketing, you can open up new sales channels and expand your product lines so that your customers spend more and more at the business, but that’s no guarantee you’ll see your profits rise. That’s because business isn’t just about selling. It’s also about trading efficiently.

If you want to run an efficient business, you can’t let the inventory, which locks up so much of your cashflow, go to waste. Every time a restaurant lets some food go off, or a retailer sees milk on the shelf start to spoil, those profits shrink a little bit more.

But what can you do about it as a manager? You have enough on your plate that you can’t spend your days running around the business checking the quality of your inventory! Well, that’s where FIFO comes in to play. FIFO is an essential policy for reducing wastage and is used by businesses all over the world.

Today, we’re talking all things FIFO. Be ready to learn:

• What is FIFO?

• What are the benefits of FIFO?

• How can you implement FIFO in your business?

• What about LIFO?

• Key points to remember when using FIFO

Ready to reduce the waste in your business? Of course you are! So let’s get started.

What is FIFO?

FIFO stands for First In, First Out. It’s a simple inventory management method that works in most businesses and means the oldest stock gets sold or used before newer stock. In other words, the items that arrive first should be the first ones to leave the shelf, storage room, or kitchen.

In practice, FIFO works by organising inventory so older products are always placed at the front, and new stock that comes in goes to the back and comes forward as the old stock sells. In a restaurant, for example, ingredients with the earliest use-by dates get used to ensure no ingredient gets too close to its use-by date. In retail, older produce or packaged goods are moved to the front of the display so customers pick those up before fresher deliveries.

Why bother with all this? Because First In, First Out reduces your wastage significantly, meaning when you buy twenty of something, you get to sell all twenty. Because if you buy twenty, sell fifteen, and bin the other five, that five you failed to sell come out of your profits from those you did!

What are the benefits of FIFO?

• Reduces waste and spoilage. The biggest and most obvious benefit of FIFO is that it helps businesses reduce expirations, spoilage, and wastage. This is especially important for businesses like grocers that buy stock with very limited lives, where wasted stock quickly eats into profits. For these (and all businesses), a significant improvement in this area makes the difference between success and failure.

• Improves cash flow. Inventory locks away an awful lot of your working capital, so the faster and more efficiently your products move, the better. FIFO keeps stock circulating efficiently, which means less cash is trapped in forgotten items at the back of a shelf or storeroom, and more money is available to reinvest in the business!

• Keeps inventory fresher for customers. This might not be the first thing you think of, but FIFO actually improves your service, too. It does so by maintaining consistent product quality and ensuring you never sell off goods to your customers. Customers are more likely to receive fresh food, newer products, and items with better shelf life, rather than, say, vegetables that go bad after one night in the fridge. For you, this means improved trust and more repeat business.

• Makes stock management simpler. FIFO creates a clear, easy-to-follow process for staff: older stock comes to the front, newer stock goes behind. This is a straightforward system they can follow that reduces confusion, improves consistency, and makes it easier for managers to train staff and maintain an organised storage area. 

How can you implement FIFO in your business?

Great! So you’re sold on the benefits of FIFO. Now what? Well, if you want to implement FIFO successfully, there’s a handful of things you can do to get it working smoothly. Ultimately, it’s not too hard to do. Just tell your teams you have a FIFO policy, right? Not quite. To get the most out of FIFO, there’s a little bit more to it. Here are our tips for getting the maximum benefit:

Organise stock subtly for customers and clearly for staff

The foundation of FIFO is simple: older stock must always be chosen before newer stock. In your warehouse or storage area, this means arranging shelves and fridges so the oldest items sit clearly at the front, and so dates are easier to check. On the other hand, customers will often compare dates and take the newest items, so in your store, arrange stock by dates, but don’t make those dates too visible. This means customers won’t know there’s a difference between the products, and won’t take the freshest stock!

Label everything clearly

Clear labelling makes FIFO far easier to follow, especially in busy retail and restaurant environments. If your team are in a rush and can’t see the dates clearly enough to make a quick call, that’s when FIFO stops working. So be sure to add delivery dates, use-by dates, or prep dates to products as soon as they arrive (or as soon as packaging is opened, as that’s when food gets a new use-by date). In kitchens, this can be as simple as dated stickers on containers, while retailers can rely on visible shelf rotation labels in back-of-house storage.

Train your team on the process

This bit is perhaps the most obvious. FIFO only works when everyone follows the same routine. Every single member of staff should understand: firstly, why stock rotation matters, as well as how to sort and store new deliveries correctly, and how to spot and use products approaching expiry (as well as getting rid of them if they’ve past their date). Short training sessions and simple written procedures they can refer to can help make FIFO a simple part of everyday operations, rather than something you and your managers constantly need to enforce and check on.

Build FIFO into daily checks

Successful businesses make FIFO part of their regular workflow. This should not be something that causes stress, or needs constant attention. All that’s needed is for FIFO to be added to the daily task list, and for one team member to spend a few minutes checking the dates and order of your stock. Frequent checks prevent products from being forgotten in the back and help catch issues before they turn into waste.

Use inventory systems to support rotation

POS systems like Epos Now’s come with built-in supplier and inventory management, with purchase orders that can help you manage dates and reorder more intelligently. Inventory reports can also notify your team of products that are moving slowly so they can implement sales strategies and promotions to ensure wastage remains low.

What about LIFO?

LIFO stands for Last In, First Out. It’s the opposite of FIFO, meaning the most recently purchased or produced stock is sold or used first, while older inventory remains in storage for longer.

This method is less common in restaurants and businesses dealing with perishable goods, because it can increase the risk of spoilage. However, LIFO can be useful in specific industries where products do not expire or where newer stock is identical to older stock. Businesses selling non-perishable materials like sand, gravel, bricks, or bulk construction supplies may naturally operate in a LIFO-style flow because the newest stock is often the easiest to access.

Some businesses also benefit from LIFO from an accounting perspective. In periods of rising costs, selling the most recently purchased (and often more expensive) stock first can reduce reported profits on paper, which may lower taxable income in some regions. But this benefit doesn’t outweigh the drawback of wastage, so it’s not advisable to use LIFO if your stock can spoil!

Some examples of businesses that may benefit from LIFO include:

• Gift shops

• Jewellery stores

• Sporting goods stores

• Bike shops

• Book stores

• Clothing stores

Key points to remember when using FIFO

FIFO is an effective tool for businesses, but it doesn’t have to upend your inventory strategy; it should just be a supplement. One quick five minute job a member of your team can do each day to keep your stock rotation spot-on.

Consistency and clarity is what makes FIFO work. That means clear date labels, smart shelf placement, and regular stock checks help ensure older products never get forgotten at the back. Just as importantly, your team needs to understand the process, because even the best system fails if staff place new deliveries in the wrong spot and they get forgotten about. So have clear, written policies, and maintain open communication with your team!

It’s also worth remembering that FIFO is about more than reducing waste. When used properly, it improves cash flow, protects margins, and helps customers receive fresher products. For restaurants and retailers especially, these small operational improvements can add up to a major impact on profitability.

Speaking of profitability, nothing is better for your business than the right POS system that can help with everything from FIFO and inventory tracking to expanding your sales channels. Want to learn more about that? Take a look at Epos Now’s latest retail and hospitality POS systems, or visit our resources page to read more of our handy business guides!