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Jun 1, 2009 09:25 PM

Who makes more money,cheap or expensive restaurants?

My husband and I were talking about this and I'm just really curious. Which type of restaurant is more likely to make more money, an expensive restaurant or a cheap one?

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  1. Not exactly an easy comparison.
    Say you have an expensive restaurant that grosses $2,500,000 a year, if successful they could probably net $250,000 profit considering all costs.
    Take a cheap restaruant like a McDonald's grossing $2,500,000 a year and I'd imagine with a lower food cost of at least 5% they could probably eclipse the profit of the more expensive restaurant.

    Generally a cheap restaurant will have lower food costs and fixed and variable expenses than an expensive restaurant. If they both gross the same, the cheaper restaurant will always make more money.

    1. Definitely not easy.
      Add to Monku's example.
      The type of restaurant will also determine costs. A cheap Korean place will likely have higher food source costs than a McBurger or Taco Swell place will have because they don't have the same leverage or buying power that a national chain or even local chain will have.

      If you base the comparison on number of patrons (the same number of customers for each type of restaurant) the more expensive place will likely have the better profit.
      A cheap establishment will have to have a lot more patrons to get that 2.5M/year gross.

      1. When you say "make more money" what do you mean; gross sales, income, net profit or profit margin? That said I don't think you can draw a general rule either way. A recent thread in the Food Media and News board ( linked to an article on the top 100 grossing restaurants for 2008. If you look at the average dinner check it ranges from a high of $144 to as low as $14. You can always make up low per diner income with volume. The $14/person place (Zehnder's in Frankemuth Michigan) and their local competition (Bavarian Inn, $15/person) both made the list by herding (and I do mean just like cattle) more customers through their places than any of the other establishments.

        Take a look at the article referenced in the thread linked above. (Hint: You can click the column headings on the table in that article to sort the table on that column, e.g. average dinner check, number served, etc.)

        1. The most $uccesfull restaurateurs I've met are McDonalds franchisees with more than one location. One had at least 3 in south Los Angeles and he drove around in a Rolls Royce.

          1. If successful, cheap ones net more. Successful expensive restaurants usually have a bottom line of under 10%, and a downturn in sales can have an immediate catastrophic effect on profit since fixed costs are so high. I know many a burrito joint and pizza place that net 25%.