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What items give restaurants their profit?

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  • Shep May 12, 2005 01:50 PM
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Is it the side dishes? The starch? The drinks ($1.49 for 5 cents worth of diet soda, or $8 for $1.49 worth of wine)? The available profit margin seems pretty thin, maybe that's why the business is so Darwinian.

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  1. Bottled water (still or gas) frequently served either without a request or in response to a simple request for "water." And even more frequently glasses are refilled and new bottles opened without any request at all. Food Arts has had a couple of recent articles about how bottled water is a great profit center.

    3 Replies
    1. re: TomSwift
      j
      JK Grence (the Cosmic Jester)

      Thankfully we don't have restaurants around here that stoop to lows like that. If I didn't order it, I'm not paying for it, pure and simple.

      There is one particularly memorable sushi restaurant here in Phoenix (ShinBay) where if you just want water, they provide complimentary bottled water... from Trader Joe's. I don't know if they do ice from TJ's bottled water too, but as fanatical as the owner is about quality, it wouldn't surprise me one bit.

      1. re: JK Grence (the Cosmic Jester)

        Now that you mention it, considering the water quality in Tempe and Scottsdale, it's surprising that more restaurants don't do that.

        1. re: Fida

          The thing is the items that make a huge profit are balancing out the items (like certain steaks) that make no profit.

    2. v
      Victoria Libin

      Lower cost, low labor items. Generally, alcohol which has costs of about 20% compared to 33% food costs (many restaurants go over that percentage into the 40% range if they have lots of luxury items on their menu). Wine is not bad either as it is in the 40% range cost wise assuming a reasonable markup but labor is low. By the time you factor fixed costs such as rent and labor into the mix, a very successful restaurant is doing 10% in profits if they are well managed. In the Bay Area restaurants are averaging 2-5% in profits...not much at all.

      1. Depends on the type of restaurant. A friend had a family dining kinda place located on the beach in a resort town. He claimed the markup on the sodas sold at the window that served beach goers was enough to send him and his wife to Europe every fall. His cost per soda was under $.05 and he charged a buck for a cup full of ice and just a few ounces of soda.

        1. Truffles and fois gras.

          1 Reply
          1. re: 2chez mike

            You're kidding right?

          2. We had a restaurant in the family one time, but with all the skimming, nobody knows where the profit and loss was. I had a friend (now deceased) who was a food service writer in San Francisco. She really knew the business. This was many years ago, but she said a regular restaurant (not hot dog stand, etc) should expect to pay 27% to 33% for food. The rest goes into rent, taxes, insurance, wages, laundry, advertising, etc. (And don't forget waste and pilferage!) I recall at a party one night we spent several hours calculating the required menu price to adjust for 50% more food on the plate. Got some interesting figures.

            1. My son worked as a busboy at a high end Italian restaurant in Toronto. He was told that the $12 thin crust pizza cost 50 cents to make. Of course that doesn't factor in rent, dishwasher, napkins etc.

              1 Reply
              1. re: Judith

                That doesn't surprise me at all, especially considering that the higher-end the restaurant, the more minimalist the pizza is.

                Pasta is really cheap to make, too, as anyone who has ever had to feed a crowd knows.

              2. if you believe the boffins at Harvard Business School the answer is dessert. Finale are two Boston based restaurants that focus on dessert. They do mains as well, but desserts are thing. Frankly I think the desserts are pretty awful there - very fussy, with too little flavour. www.finaledesserts.com

                1. It depends on the restaurant. Fast food places make their money on volume of sales. So their food costs are fairly high (50%). High-end restaurants keep a lower food cost (25% to 35%) to make up for lower volume.

                  Food cost is the percent of the amount you pay that goes to buying the food it took to make that item. If a restaurant is selling a hamburger for $1 and the bun, patty, and catsup cost them $0.50 then the food cost is %50.

                  Most often the item in a restaurant that has the lowest food cost (aka the biggest rip-off) is coffee. Usually around 2%. But the restaurant isn't making tons of money off of coffee. 100 cups of coffee won't make as much as one $200 bottle of wine at 50% cost.

                  Does any of this make sense or am I rambling?

                  Eli

                  1 Reply
                  1. re: ChefElias

                    Well, yeah. In my business, I can sell 50 little ones for $10 apiece, or one big one for $500. Definitively my costs are much lower on the big one. So my apparent best choice is to focus on that market segment that wants the big ones. The folks that only need little ones, well, somebody should take care of them, but not me.

                    If anybody wonders why a trip out to replace your hallway light switch is not the electrician's highest priority, that might be why.

                  2. At fast food places, it's the sodas and fries. That's why they always push the alleged "value meals." The chains advertise their low burger prices and then add two bucks or more for sugared water and potato.

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