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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 (http://chowhound.chow.com/topics/610635) 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%.

            1. There's also the table turn-over factor. Inexpensive restaurants are going to serve customers faster in most cases, so they'll turn their tables over more often and collect more revenue.

              1. Restaurants that sell a lot of liquor make more profit.

                Upscale restaurants have higher prices but then have higher overhead. If it is slow, they lose a lot of money to food waste. Booze is the money maker for most restaurants.

                1. I have been a landlord of many restaurants, and in my experience, high-end, trendy restaurants initially have a good run, but many burn out within 5-7 years. It's a tough business at all price points. Many mid-priced company owned, non-hamburger chains are remarkably profitable and stable every year, and pay additional rent as a percentage of sales. I'm not able to disclose figures. The Darden group is a great example of success.

                  1 Reply
                  1. re: Veggo

                    I don't know anyone who goes to the Olive Garden or Red Lobster or raves about them, but they do the biz.

                  2. I think waitstaff at inexpensive places get hurt, especially in this economy, people cheap out on tips. The waitperson relys on turning the table as much as they can to eek out a living. I tend to tip over the 20% line at those places cus the people work very hard.

                    1. Want to know who makes alot of dough? That guy with the baggy pants selling hot dogs from a cart on a busy street/corner of a big city. Taco trucks are coming into their own too.

                      1 Reply
                      1. re: mrbigshotno.1

                        Standing on concrete for 6+ hours a day, day after day, in any kind of weather, without a bathroom is not an easy way to make money. Kudos to those who take it on.

                      2. I'm taking a guess here based on my habits as a restaurant customer. I would say that cheap restaurants make more money.

                        Expensive restaurants tend to be in "nicer" locations so presumably, their rent is higher. Also, dining in expensive restaurants is for me a special occasion event, so even though I may drop $200-300 that night, it is something I do roughly 3-4 times a year (anniversay, spouse birthday etc). However, I will stop by a cheap cafe or diner on most weekends for lunch or dinner and also at least once mid-week for a dinner takeaway . I spend $30-40 on average , so if you figure I do this a minimum of 8 times a month, that is easily more than what I spend in expensive restaurants.

                        Plus, I don't linger all night at the cheaper restaurants. In an expensive place though, I'll stay to soak up the atmosphere, enjoy the special occasion and also they tend to serve at a slower pace. This means I am tying up the table for a lot longer which results in lower turnover.

                        1. What makes money?

                          1. Fast food in a good location
                          2. Mexican
                          3. Pizza and Italian
                          4. Chinese

                          It is all about food cost and labor.

                          1 Reply
                          1. re: duck833

                            It's all about cash flow and gross sales. The more you gross, the more you net. It's not about profit per item and a corporate chain restaurant will generate more sales than most private sector restaurants......in the case of your choices listed I would say a Fast Food in a good location has the potential to make the most money....but any of the four has the potential to make money and be successful.......just like any other ethnic restaurant or concept restaurant out there.

                            I would argue that rent and or bank notes are more likely to make or break the success of a food business. If you make bad deals and extend yourself too far without a realistic chance of generating the necessary sales to cover your overhead on these two components......running good food and labor costs will not really matter much in the end. You can sell plenty of pasta and rice at a great profit margin, but if you have all brand new equipment, furniture and a high rent address.....those notes become very hard to pay for, quickly.