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What kind of restaurant has the highest profit margins?

Let's define a "restaurant" as any place where you can buy food that's meant to be eaten there, from a hot dog stand to a $400 per head Alinea-type place.

As a percentage of the cost of the meal to the diner, what price level of the restaurant industry has the highest profit margins?

I'm inclined to say fast food, because of their soft drink sales, but that's just a guess. Any industry pros care to weigh in?

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  1. Not an industry pro but I would hazard to guess that a breakfast place would do pretty well from a profit margin perspective since the ingredients are inexpensive as a rule and the table turnover is high. I am thinking specifically of places that specialize in breakfast and usually are closed by 2 or so in the afternoon.

    Will be interested to see what others with more knowledge say.

    4 Replies
    1. re: baseballfan

      This might be offset by other factors, though - they don't make any sales during the evening, people expect breakfast to be fairly cheap, and they won't make have the high profit items from the drink menu (most people don't consume soft drinks or alcohol for breakfast).

      1. re: baseballfan

        Not necessarily.

        A large portion of the menu is tied items that are considered commodity items where the price regularly fluctuates and can be radically affected by the weather. Milk, eggs, cheese, pork and flour (wheat) are all heavily traded commodities.

        Americans are conditioned to expecting food to be cheap and inexpensive (comparatively speaking). The challenge for many restaurants then becomes how to purchase food and price it to fit the neighborhood and niche they fill. Buying the raw ingredients and making from scratch isn't always the most cost effective answer since what you might save in food cost, you most surely use up in labor cost since you've got to have at least semi-skilled labor to turn those raw ingredients into a finished product.

        Pancakes at $10 aren't usually accepted to well even though they may be made from scratch in the kitchen by trained cooks or even a chef. Pancakes from a mix save time, labor and can be sold cheaply to satisfy a customer base that has learned to expect them to be inexpensive.

        There is a B/L place up the street from my house that does great business, especially on holidays and weekends. Line out the door type of business that includes a very large and very good selection of gluten-free breakfast and lunch items. They've had to add dinner 4 nights a week (with liquor license) in order to pay their bills and survive. They've also had to increase their prices, which were far too low for what you got.

        The surprisng thing the owner told me was that they also had a steady customer base of seniors and retirees that would come in and have coffee and occasionally an English muffin or pastry, but they'd take up a table for extended periods of time reading the newspaper or chatting with friends who came in. Coffee and a muffin won't pay the rent, the hired help, or provide any kind of income for the owner.

        1. re: DiningDiva

          ah yes,
          the retiree customer base of campers.

          they ruined the happy hour program at one of the restaurants that i frequent. they'd arrive at the last possible moment of the happy hour time frame, order an inadequate amount of food, and would then camp out at tables FAR too long thereby interfering with the normal dinner service.
          the entire happy hour program ended up being scotched because these selfish campers 'gamed" the restaurant.

          1. re: westsidegal

            At the opposite end of the spectrum, two casual restaurants in our area did away with wing nights because teenagers (and to be fair, some adults) were coming in and ordering 6-12 25 cent wings and water while taking up a table from 6pm to 9pm.

            I know the owner of a third restaurant that during special nights like wing night or peel and eat shrimp restricted table size to 4 people max (moving tables together was not allowed), which broke the customers' habit of large groups "camping" together all night. He said the tables turned far faster when the groups were smaller.

            This policy did run off a segment of his clientele but he said sales and profits actually increased because he was able to accommodate the type of customer that might order a few wings as an appetizer but really came in for an entree and most importantly, booze.

      2. An Italian restaurant which serves a lot of pasta and caters to a clientele that typically orders soft drinks with their meals.

        1. A list comes out every year. I couldn't find the 2012, but Tao and (now closed) Tavern on the Green have topped quite a few years. Hint: Lots of booze sales.


          1. Based on the comments here, the owners of those Burger Kings and Sonics that sell alcohol must be rolling in dough.

            1. There's a rough rule of "thirds" across the western world about restaurant pricing - one third of a menu price being food costs, one third being wages and one third being the owners gross profit (out of which has to be paid building rental costs, equipment, light, heat, etc - and then the owner's net profit). It pretty much works at all price points.

              I reckon two things swing it towards a higher margin. First, will be a small family business where the owners are the staff - they would have a "claim" on the wages third and the profit third. The other area is probably where a place can sell higher end wine - there is, generally, a high mark-up on wine so being able to sell more expensive stuff brings in the cash.

              2 Replies
              1. re: Harters

                That's pretty much self-limiting. The Subway franchise model won't produce an appreciable level of income on a single-store basis unless you're willing to work in the store but if you own several, then paying someone minimum wage is a more reasonable alternative.

                Ditto higher-end restaurants, you may want to maintain a presence as the owner but it's not like you're replacing a full-time worker.

                1. re: Harters

                  one element you are omitting from your calculation is that landlords will often give a "small family business" a FAR worse deal in terms of rent, what's covered by the rent, the terms of the lease (such as whether the lease is triple net, what any cancellation options are, whether there must be a personal or other financial guarantee etc. ) than they would give to a chain that has a legal department involved in negotiating the lease.

                2. I would say a place that serves a lot of cheap appetizers (purchased wholesale and reheated) and a lot of alcohol.

                  1. I would think restaurants that do a high volume of well-marked up alcohol have very high profit margins. Just a guess though.

                    1. Ever seen a Chinese restaurant going out of business? Nope. All family owned and staffed (including extended family). Rice. Virtually every ingredient locally sourced from other Chinese businesses like 'market gardens/poultry/pig farms. A family member in China to buy/ship the condiments in bulk. (They run around and pick up say 45 gallon barrels of soy sauce etc etc. Then onto a palate and plastic wrapped and delivered directly to the ship leaving for Seattle. Everything is VERY well coordinated to maximize the bottom line.
                      They need every penny so after Chan and Hui have been accepted into the Harvard business school dad can write a cheque for the full tuition and give both girls new 'BMWs' as going away presents knowing both girls will be spending every spare moment back working at the restaurant until they take it over in a couple of decades.

                      10 Replies
                      1. re: Puffin3

                        Sorry, Puffin, but you are mistaken. In the San Gabriel Valley (east of Los Angeles), Chinese restaurants go out of business all the time. Most of the owners are not wealthy at all. My parents certainly weren't wealthy. My "full tuition" to public university consisted of financial aid packages. My 'BMW' was a mail-order bicycle that I paid for myself. My siblings and I got out of the restaurant business because it was too much hard work for little profit.

                        1. re: raytamsgv

                          Fair enough. 'The exception proves the rule' though.I guess I was referring more to Chinese restaurants that have opened in small towns years ago were they were the only Chinese restaurant for twenty miles around them. I guess now too many Asians are trying to get too small a market share.

                          1. re: raytamsgv

                            Yeah, I was going to take exception to Puffin's assertion, as well. Two of the universities I went to had a very high percentage of Asian students, and I befriended many. Not one of them that I got to know well had family in the restaurant business. Most of them had parents that were engineers, scientists, professors, attorneys, doctors and the like.

                            The most well-off roommate I ever had was of Chinese descent. His parents came over from china shortly before his birth, and his mom did not speak a lick of English. But he would take some of us to their house on the weekends, and the food was amazing. After dinner us and his parents would play mahjong until the wee hours. Myself and my other four roommates all slept in our own rooms when there. His dad was a florist.

                            1. re: MonMauler

                              I guess I was thinking about the Chinese restaurant that was in every little town on the Prairies when I was a kid in the fifties. Their kids are now todays engineers/doctors and the like with their own kids. The original owners of these little 'ma and pa' restaurants wanted a better life for their kids. They worked very hard. Were very frugal and many were able to send their kids off the universities with no financial burdens on the kids. Good on them I say!

                          2. re: Puffin3

                            don't know when and where you could have avoided witnessing a chinese restaurant going out of business, but having lived a bi-coastal existence my whole life i most certainly HAVE seen chinese and virtually all types of mom 'n pop restaurants go out of business on a regular basis.

                            as a general rule, landlords are not kind to such businesses.
                            many local suppliers are not kind to such businesses.

                            the chinese students that i befriended at berkeley were certainly NOT there with BMWs. they were, for the most part, extremely industrious, self-disciplined, kids who were well aware of the sacrifices their families had made on their behalf. (far more aware and grateful than most of the other students).

                            also, the chinese students, like the hispanic students, often, since they had the best english skills in the family, had to make complicated financial and legal decisions for the family that, for most kids their age would have been considered "well above their pay grade."

                            1. re: Puffin3

                              I'm assuming from what you've said that you have no personal knowledge of the situation? I know quite a few people/family who've had Chinese restaurants and none fit what you're describing and some have lost their restaurants.

                              1. re: chowser

                                You're looking at the child of parents who had 3 failed Chinese restaurants.

                                So unless we were just extremely unlucky (highly likely, by the way) and the outliers of outliers, I would venture a guess that Chinese restaurants are not immune from the "GOOB disease".

                                1. re: ipsedixit

                                  Did you have sisters named Chan and Hui? I'm rereading all the facts in Puffin3's post and there isn't one thing in it that rings a bell. Well, there is the rice thing. That's one.

                                  1. re: chowser

                                    We were excommunicated from the Orange Chicken family before we opened up our restaurants.

                              2. Most likely a one man hot dog cart/food truck, probably not paying any insurance, workmans comp etc. Large FF chains make a healthy profit because of their size, they can really get rock bottom wholesale prices. Three quarters of the full service joints are just scraping by, ya gotta love the biz, either that or be a masochist.

                                3 Replies
                                1. re: mrbigshotno.1

                                  I would lean towards this. A relatively cheap offering - pizza, dogs, wings, burgers, alcohol, fries or some combination thereof - with a large enough customer base and enough outlets to be able to take advantage of economies of scale.

                                  1. re: MonMauler

                                    Actually, wings are NOT cheap. The price of chicken wings has risen pretty steadily (as has the price of chicken tenders) over the last year. We actually discontinued chicken wings because the food cost got way beyond where we could price them for our customers. They got beyond the value/price point. White meat chicken tenders aren't far behind.

                                  2. re: mrbigshotno.1

                                    I was thinking something along these lines, a place w/out a brick and mortar presence, with a lower fixed cost.

                                  3. I would think pizza. Flour, tomato sauce, polly-o don't cost much. Equipment: a used oven and two fridges, one for bevs and one for toppings. Margin may be higher on pasta, but I never saw a resto serving just pasta.

                                    1. Does a movie theater count? The markups on popcorn and soda are unreal.

                                      17 Replies
                                      1. re: PotatoPuff

                                        Good point. Places where there is a captive audience probably have the highest. Ski resorts, for one.

                                        1. re: chowser

                                          Ballparks, stadiums, amusement parks, airports ...

                                          But then you have to factor in rent ...

                                          1. re: ipsedixit

                                            I was thinking of ski resorts where they own the space. It's a major money maker at my resort. I'd love to know Disney's profit margin for their restaurants/fast food places.

                                            1. re: chowser

                                              Room service!

                                              Now, that's a high margin business.

                                              1. re: chowser

                                                If you omit the rent cost in your margin calculations because you own the space, you are artificially inflating your margins by the amount you could have received if you rented out the space to another operator.

                                                1. re: nocharge

                                                  Whether you own or rent, there is always the potential to rent/sublet to another business, as long as the lease allows. Net profit is generally calculated, extreme simplification, as gross revenue minus actual costs. You could consider opportunity costs but they generally don't enter the balance sheet.

                                                  1. re: chowser

                                                    I was considering it from a restaurant analysis standpoint rather than accounting. The free rent is essentially return on a real estate investment that may have little to do with how efficiently the restaurant's operations are run. It's certainly an issue I would consider if I were to set bonus targets for a restaurant's management team.

                                                    1. re: nocharge

                                                      That would be the case for all businesses, whether they're rented or owned. If I rented a place and could sublet it for more than my profit, similar as if I owned it, it would make sense to do so.

                                                      1. re: chowser

                                                        Well, my point is that when analyzing the operational characteristics, such as profit margins, of a restaurant with free rent, it would make sense to consider the opportunity cost associated with not renting out the space to someone else. Otherwise you are mixing in real estate investment with issues such as whether the restaurant management is running a tight ship or the profitability of the particular restaurant concept in that space. When discussing margins for different restaurant concepts, I think it's fair to assume that there is a cost for rent regardless whether it's an actual expense or just an opportunity cost.

                                                2. re: chowser

                                                  disneyland made the mistake of not buying up the surrounding laND FOR HOTELS AND RESTAURANTS. they corrected that at disneyworld.

                                                3. re: ipsedixit

                                                  A restaurant consultant once told me that the lowest food cost percentage he ever encountered was at a Chinese restaurant in an airport terminal. High prices and inexpensive ingredients led to a low-to-middle single digit percentage. However, factoring in rent, it's not clear that this restaurant was more profitable than any other regular restaurant.

                                                  1. re: nocharge

                                                    Having negotiated airport leases, it is almost impossible to make alot of money in a terminal.

                                                    1. re: ipsedixit

                                                      Are employees at airport food service ops generally hired by the vendor or by the company handling the overall airport contract (like Host, for instance?). And are they paid union wages & benefits or just minimum wage.

                                                      Just curious, no ulterior motive with the question. Restaurants typically don't have to deal with union labor and benes, but it's increasingly common on the non-commerical side of the business. And I am just curious as to where airport food and concessions fall in this dynamic

                                                      1. re: DiningDiva

                                                        That's a complicated question.

                                                        But, yes, the airport concessionaires hire their own employees. They are, as far as I know, not union employees, but because the concessionaires are operating under government (i.e. state or city) contracts, they are generally obligated to provide above minimum wage, benefits, etc. Moreover, because they are operating under government contracts, they many times have to be MBE (minority business enterprises) or DBE (disadvantage business enterprises).

                                                        1. re: ipsedixit

                                                          the city of sea tac, next to the seattle airport between seattle and Tacoma, passed a $15/hour minimum wage effective the beginning of this year. however the court ruled it did not cover the airport, much to the dismay of many airport workers. the seattle minimum wage deal will be phased in over 6-7 years.

                                                      2. re: ipsedixit

                                                        One of my golf buddies, who is black and is a very good golfer, has 3 very successful leased spaces at DIA (Denver).

                                                4. re: PotatoPuff

                                                  That's because their take of ticket sales has dropped precipitously. If they can't make money selling you pricey popcorn and soda then you won't be seeing many movie theaters.

                                                5. I'd say that there's too much variation to generalize. As a rule, restaurants are low-margin, high-risk businesses. Those that are most successful have a good concept, a good location, and are well managed. Restaurants of all types succeed or fail based on these fundamentals.

                                                  Take fast food as an example. In-n-Out has been hugely successful because it has always been a family business, and the owners found a winning formula and stuck with it. Other chains, such as Burger King, have not done so well.

                                                  Take high-end restaurants as another example. They can certainly be a cash cow when they're hot, but they can disappear very quickly if they don't have a concept which holds up over time.

                                                  A high-profit margin for a couple of years is one thing. A lower, but sufficient, profit margin which holds up for decades is another.

                                                  1. PIZZA.

                                                    Look at Grimaldi's. $14 for a large plain pie. They use polly-o cheese and generic canned tomatoes.

                                                    3-4 cups of flour per pizza. Flour is about $3 a 5 pound bag. That's $0.60 of flour per pizza.

                                                    Crushed tomato is $0.30 a cup add in spices, etc. then $0.50 a cup, $1.00 of sauce per pizza.

                                                    Polly-o mozarella is $2.50 a pound, one pound would be generous per pizza.

                                                    None of these are wholesale prices. Approx $4.10 ingredient cost per plain. The money is in the toppings. You pay the same price regardless half or full pie.

                                                    $2 for extra garlic? You can buy 3 pounds of minced garlic for $8. That's $0.16 an ounce which is less than what you'd get on your pizza. $2 for extra sauce? Another $0.50 worth?

                                                    It's an all cash business, no credit card transaction fees, employing cheap below market labor, no decor to speak of, etc. etc.

                                                    8 Replies
                                                    1. re: Pookipichu

                                                      You're still describing a roughly rule-of-thirds ratio. Their energy costs, rent, insurance, labor, packaging, paper goods etc. still have to be factored into the price -- before they make any profit. If they were spending $7 to make a $14 pizza then they wouldn't be in business for long. Nobody gets wealth from a single location pizza shop.

                                                      1. re: ferret

                                                        My cost estimates are based on supermarket prices. Factor in wholesale discount, immigrant labor, negligible costs for packaging (pizza boxes) and napkins, the space hasn't seen a renovation in forever, it's heated by the oven in winter, the toppings have an outrageous markup. It's not a rule of thirds when they charge up to 15 times their cost for a topping.

                                                        ... and most importantly,it is an all cash business, you can get rich from pizza. Water and flour and undeclared income.

                                                        1. re: Pookipichu

                                                          I'm not sure if the OP was talking about ways to get rich, illegally, in the restaurant business, eg. cheating on taxes. If that were the aim, then launder money through a cash business--that would be far more than you could make cheating on taxes.

                                                          1. re: chowser

                                                            The OP asked about profit margins. Even declaring all income, an all cash business saves on credit card transactions fees and ancillary costs (equipment rental, need for dedicated landline, etc.) I gave examples of how it is a very high margin business. You are focusing on one aspect of the post.

                                                            1. re: Pookipichu

                                                              True--my mind just went there. Sorry!

                                                          2. re: Pookipichu

                                                            Your estimates are based on your perspective of what it costs to operate a food establishment. Based on your comments, I can tell you never have owned and operated your own business and clearly do not know what you are talking about. First off, you are guessing what their prices are on ingredients, you failed to factor in the costs of wages, taxes, payroll remittance, employer contributions, insurance, lease/rent, electricity, gas/propane, phone, pos system, internet, frieght, gas, trasportation...

                                                            The food and beverage industry has some of the worst cost of sales margins out there.

                                                            1. re: owneroperator

                                                              All I know is that the pizzeria store owners I've met, do very well for themselves.... do you own a pizzeria or are you just taking my specific example and generalizing it for your own purposes?

                                                        2. re: Pookipichu

                                                          In my area back in the day one needed permission to open a pizza shop. Failure to do so was often a fatal mistake. Very little competition & cheap ingredients made the blessed owner's millions.

                                                          Over the years O.C.'s grip on the industry was broken and a town with a 15k population can have a dozen pizza/sandwich shops.

                                                          Competition and dramatic food costs increases have whittled avg net profits down to under 6 figures. Sounds great until you lay out 20k for family healthcare & put money in a retirement account. Then divide whats left by 84 hrs a week and the hourly rate really is not that great.

                                                        3. Alcohol often brings in way more than food. Lottery can also be huge.

                                                          7 Replies
                                                            1. re: ipsedixit

                                                              +1, Was thinking strippers but did not say. TY for the friendly reminder. With over 100 strip joints Portland, Oregon is a very competitive market.

                                                              A couple decades back, a friend here when got divorced opened a strip club. With attention to detail, sold more kegs per seat than any place in Oregon for several years in a row in the '90s. He did very well on beer, lottery, and hard alcohol. Food is not where made the money. Sold good burgers, sandwiches, and sides for a very reasonable price. Says the quality food options were only to keep customers happy, around, coming back, stopping by to eat, and for a lunch draw. He raced West Coast Late Model Series cars on pavement as a hobby. Unfortunately his racing expenses passed strip joint earnings, so lost the place. The location did not make money before him or since.

                                                                1. re: ipsedixit

                                                                  In In other words, the best way to make money in the restaurant business is to forget about the food aspect.

                                                                  1. re: chowser


                                                                    You think Hooters stays in business based solely on their wings?

                                                                      1. re: chowser

                                                                        I miss Calico Jack's when visit Central & Western Florida (not sure if were or are elsewhere). CJs is like Hooters but with better food and atmosphere IMHO. Bright pink and light blue instead of orange and white. CJs was my favorite oyster bar when lived in Florida in the late 80s and early 90s. The bucket of oysters, chicken sandwiches, seafood gumbo, and CJs juice were hard to beat elsewhere. And great prices. Their slogan, "Only One Thing Tastes Better Than an Oyster... But You Do Not Eat It On A Cracker". Still have some CJs juice cups around. Does anyone know of any around or are they all closed?

                                                              1. Alcohol. Tap beer. Big markup. The "specialty cocktails" list, huge profit margins. Low labor cost on booze. Line cook gets paid $12 per hour, sets up and breaks down station (while no one is spending money on food) and we'll say, a 3 person line serves 150 meals during service. Food costs, labor costs, etc. Let's compare to the bar where we pay the bartender $2.75 hr. because he gets tips. He shows up to prep maybe 2 hours before opening. He pours 125 $5 pints of beer from the $100 keg. He mixes another 200 $8 drinks that cost $1.50 each and then there's the wine. At the bar - low labor cost combined with high margins and even higher volume. Now that's where the profits are. Way back when I tended bar, albeit a nightclub vs. a full service restaurant, I could put out 1000 mixed drinks per weekend shift and we worked on between 18 and 22% alcohol costs.

                                                                2 Replies
                                                                1. re: bobbert

                                                                  +1, good numbers bobbert. Totally agree the kind of restaurant with the highest profits is one with a popular bar.

                                                                  OP may have been asking what are the highest profit non-bar restaurant(s). Any further thoughts if we exclude alcohol?

                                                                  Once pay the overhead to have a place... Minimum inventory providing the most options helps (example: pizza, salad, and sandwiches can be made with common items). Probably breakfast, lunch, and dinner should all be served. Good coffee, soft drinks, and beverage options are wise (legal and addictive is great such as providing caffeine). Cigarettes. Lottery if able for more traffic and income. Also sweets, corporate catering, and take-out (maybe even delivery) would boost the bottom line of a kitchen. Many create then sell their own brand of take-home items (most through a co-packer). Being unique pays. A focus on family dining brings in more per visit - McDonald's advertising to kids has been very good to them. Those restaurants that gain regular customers who tell (and bring) others do best.

                                                                  1. re: smaki

                                                                    I'd go with an above average quality food truck. Owners who REALLY knew what they were doing visa vi setting up in profitable locations serving a best quality product and charging for it. The 'down-town' business crowd of 'hipsters' don't care what they pay for a hot dog as long as they can look forward to eating the next one tomorrow.
                                                                    Owners doing the driving/buying/cooking/serving/routine maintenance.
                                                                    These are all critical elements of course. The only thing missing is for the owner/s to put about 30% of the cash that comes through the window in their pocket/s.

                                                                2. My family has owned a business for more than 5 years. Understanding all the key factors in making a profitable income could be hard. It's majors factors are Area*community population*and Nearby competitors divided by half the population. :) there my friends could possibly be a start to your financial change in profit.

                                                                  1. I knew someone who was an owner of a really popular sushi bar who claimed it was more profitable than expected. His family owned restaurants so he pretty much knew what he was getting himself into. I think part of it was small portions of ingredients compared to other cuisines, high turnover ingredients so waste was manageable and sushi is addictive to some people and they can't stop ordering after the first round. He was located in a strip mall so his rent was affordable.

                                                                    5 Replies
                                                                    1. re: free sample addict aka Tracy L

                                                                      I can't think of any type of restaurant other than sushi where half of the menu could be unavailable on any given day and people wouldn't consider it a failure of management.
                                                                      So maintaining a high quality of ingredients would be easier to manage, which I think would support the bottom line.

                                                                      1. re: Kris in Beijing

                                                                        The problem with sushi is

                                                                        1. Cost of goods. Sushi grade fish is not dirt cheap.

                                                                        2. Competition. Sushi places are a dime a dozen. You can get sushi at Safeway. That kind of limits your possible profit margins.

                                                                        Sure, there are places that charge ultra-premium prices for ultra-premium fish flown in from Japan. But what does flying in fish from Japan do to your food cost?

                                                                        I've seen my share of failed restaurants and don't believe in any magic bullets (sushi or otherwise) in terms of profitability. A friend of mine opened four high-end Japanese restaurants and two very low-end pure sushi places. Of the high-end ones, the original one is doing very well. One is just getting by. The other two have closed. And the were all based on the same name and concept. As for the two low-end pure sushi places, only one is still around.

                                                                        1. re: nocharge

                                                                          Agree 100% about no magic bullets - but there are definitely certain markets that support dramatically 'reduced quality' sushi while still having a high demand. Israel immediately comes to mind of a market that has a high demand for sushi, and is happy with what I consider to be an extremely low quality product (I was once in a restaurant where there was a bone in my sushi and was told by management that 'because sushi's fish - bone's are a normal risk').

                                                                          I have no idea what that means for the profit margins in an Israeli sushi restaurant, but I could understand how in some markets that could translate into lower cost of goods (i.e. if a number of popular items don't require raw fish) and a high enough demand/low enough competition.

                                                                          Totally agree that there are no magic bullets - but I could see how in the right market a sushi bar that also had high alcohol sales could be very profitable.

                                                                          1. re: cresyd

                                                                            (I know this is late.) Rock and Roll sushi. Cooked ingredients. Customers don't care. Prices are still high.

                                                                        2. re: Kris in Beijing

                                                                          also, the volatility of seafood prices. . .

                                                                      2. I recently dined at a nationally known upscale steakhouse. A diner in our group ordered a filet of beef. It was a good-sized filet wrapped in a single bacon slice set in the middle of a large plate...$40.00.
                                                                        Now, there's an example of substantial profit margin.

                                                                        26 Replies
                                                                        1. re: Gail

                                                                          How so? Even at wholesale, the food cost (8 oz dry-aged? Top Choice? Prime?) was probably somewhere around $10-12. Labor and overhead were likely the same, each, leaving the restaurant with maybe $5 profit on the item.

                                                                          Again, in the 10% range, more or less.

                                                                          1. re: acgold7

                                                                            I think a lot of people misunderstand purveyor pricing. Some food products are certainly much cheaper at the purveyor level than retail. Meat and seafood not so much so. I think the purveyor's offer a "consistently" better quality product with the convenience of delivery & credit but not much cheaper if any.

                                                                            Don't get too many nice 8oz fillets after trimming up a whole tenderloin :-)

                                                                            1. re: Tom34

                                                                              It's less than $5 per pound for flank at Costco... if you buy 50 at once. It's about $8 a pound if you're buying 3 at once.

                                                                              So there's margin, but not super crazy amounts.

                                                                            2. re: acgold7

                                                                              I find that amazing. I would think this chain could buy better...I'm still wondering. Are you familiar with huge, upscale restaurants and how they buy?

                                                                              1. re: Gail

                                                                                A couple things you have to consider Gail is the shear size of the US beef industry. In just one day 7/08/14, close to 400,000 lbs of whole tenderloin were traded. (150K select, 220K choice & 27K prime).

                                                                                With these kind of daily numbers steakhouse chains really aren't big players compared to huge purveyors like Sysco and supermarket chains like Albertson.

                                                                                The good stuff, "high choice & prime", is in very high demand and it follows the money which often brings it to other countries. The need to discount it rarely occurs.

                                                                                1. re: Tom34

                                                                                  Tom, et al,
                                                                                  Thanks guys for all the info. I feel very enlightened.
                                                                                  Yes, the $12. baked potato! This place was slammed on a weekday. Where is all the disposable income coming from...can't all be expense accounts.

                                                                                2. re: Gail

                                                                                  Buy better than what? They're probably getting their goods at half to one-third the retail price of the same quality, if it could even be found at retail, which the really prime stuff can't. But as Tom correctly points out, there aren't too many beautiful prime filets on a tenderloin, so even if they pay $10 a pound for the same stuff that's $30 at retail, what do they do with the stuff they trim off?

                                                                                  Sure, crappy thin supermarket bacon is $2.50/lb on sale, but the thick center cut stuff that actually has some meat in it is close to $10 at retail and maybe half that at wholesale. That slice could contribute .50 to the plate.

                                                                                  1. re: acgold7

                                                                                    >>>Buy better than what? <<<
                                                                                    My thought was a national upscale steakhouse should be able to "buy better" than Joe's local upscale, 1 place, steakhouse.

                                                                              2. re: Gail

                                                                                upscale steakhouses barely break even on their steaks. that's why a baked potato costs $12 there.

                                                                                1. re: hotoynoodle

                                                                                  I think many places, not just Upscale steakhouses charge so much is because they need to (1) pay off the loans on a building that will be scraped off in 10 years and (2) give the "investors" some cash to throw around until they file chapter 11.

                                                                                  1. re: genoO

                                                                                    i have worked as a sommelier and manager for 2 upscale steakhouse chains in boston, one of which is in a national historic landmark building and another in a skyscraper owned by fidelity. neither of those buildings are coming down. second, these are not fly-by-night operations, since both have been in business since the 70s.

                                                                                    your scenario may fit somewhere, but not for that particular model.

                                                                                    1. re: hotoynoodle

                                                                                      What did you think their profit margins were? What did they serve/sell that really brought in profit?

                                                                                      1. re: Kris in Beijing

                                                                                        we made all the money on sides, desserts and booze/wine. wine mark-ups in steakhouses are stratospheric.

                                                                                        1. re: hotoynoodle

                                                                                          As staff, was that calculus pushed at you in terns of how you were to "encourage" patrons to dine?

                                                                                          1. re: Kris in Beijing

                                                                                            servers were trained to NOT try to pump food sales because the portions were so insanely large and often would try talking people out of ordering too many sides but to split desserts. however copious drink service was always encouraged, especially with $15-$20 martinis.

                                                                                            i was paid a percentage of wine sales and found it was in my better interest to NOT always push the most expensive bottles. most tables would blithely order several $150 bottles, but put the brakes on after one $500 bottle.

                                                                                            bottom line is they are expense account extravaganzas for most of the diners. weeknights would be 85%+ corporate cards paying the checks.

                                                                                          2. re: hotoynoodle

                                                                                            Hotoynoodle - you'll know that, in most countries, restaurant menu pricing broadly conforms to the "rule of thirds" - one third ingredient cost, one third staffing cost, one third to the owner (for other running expenses and profit). How far adrift from that is general American practice? I presume the unusual attitude towards "minimum wage" for serving staff will skew it somewhat, but are there other general differences in the basis for pricing?

                                                                                            1. re: Harters

                                                                                              It's the same general rule here, roughly, but if you are very good at controlling your costs, you can express it as 30/30/30... 30% each for food, labor and overhead costs, and hopefully 10% profit. If you are lucky.

                                                                                              At least that's what all my consultants tell me.

                                                                                              1. re: acgold7

                                                                                                A common concept is that of "prime cost", which is the sum of the food and labor costs. If you can keep it to around 60 percent, you are likely in good shape.

                                                                                                Interestingly, the ratio between the two components are often different for different types of restaurants. Steakhouses are known for high food costs since good meat is expensive. However, cooking the kind of items you typically find on a steakhouse menu rarely requires a large amount of sophisticated labor.

                                                                                                On the other hand, you have restaurants that use less expensive ingredients that require extensive prep work and elaborate cooking techniques.

                                                                                    2. re: hotoynoodle

                                                                                      About a week ago the "case" price for 0x1 top choice CAB strip loins from a major purveyor which supplies many steakhouse chains was $6.50 lb. After trimming fat the cap and end cut region of the loins figure 20% waste.

                                                                                      Excluding labor thats close to $8.00 lb portioned. I can buy that same product at the supermarket, with "their" labor cutting it, wrapping it & their electricity chilling it for about $11.00 lb. As I said, for top shelf proteins, restaurants are not getting that much of a break.

                                                                                      As you say, sides, drinks & desert are where the profits are with quality steakhouses.

                                                                                      1. re: Tom34

                                                                                        for example: last place i worked, we charged $18 for a souffle for 2. food cost was 10 cents.

                                                                                        1. re: hotoynoodle

                                                                                          The Little Accountant in me is having a fit right now.
                                                                                          I have visions of someone on Restaurant Impossible 3 years from now-> "eggs are cheap so we thought we could make money opening a breakfast and soufflé restaurant!!"

                                                                                          1. re: Kris in Beijing

                                                                                            "eggs are cheap" is one of the main reasons places serve brunch. however, it is also one of the reasons that only hotels do "fine dining breakfast", especially in cities where rent per square foot is sky-high.

                                                                                      2. re: Gail

                                                                                        We sometimes get in gorgeous whole rib primals with 40 days of dry age on them. Once portioned, and believe me, we trim as little as possible, our food cost on them is approaching 50%.
                                                                                        The point is that the kind of guest that purchases a $45 steak is also the kind that buys a $300 bottle of wine.
                                                                                        Loss leaders can be useful...

                                                                                      3. coffee shop. or any place that sells a lot of water based drinks or foods.

                                                                                        2 Replies
                                                                                        1. re: Monica

                                                                                          Food income vs food costs, probably a winning ratio.
                                                                                          But it's the other stuff that everyone seems to be forgetting: labor, location, taxes, permits, advertising, internet...

                                                                                          The good coffee/ espresso/ cappuccino machines are pretty steep.
                                                                                          And these places are often in higher rent areas.

                                                                                          1. re: Kris in Beijing

                                                                                            any place that sells food will have to deal with expensive commercial grade equipment.

                                                                                        2. the issue is obfuscated by whether you include rent/realty taxes as a cost when calculating the margin

                                                                                          Otherwise, I'd say the most expensive fancy restaurants would have the highest margins, but if you include rent, which is huge as these places are in extremely high-value locations in major cities, I don't think the margin is as high. Think like Mr. Chow in NYC

                                                                                          So maybe, a fancy restaurant in a cheap place? like maybe the Morton's in Hackensack?

                                                                                          1. Also, ice cream shops and bagel/deli shops...
                                                                                            bagel/deli shop probably more as it only sells food with highest profit margins. sandwiches, coffee, soda, juice...bagels and salads are all high profit and with enough customers, you will most likely do well.

                                                                                            1. Anyone doing a volume business. Bonus if takeout/otherwise no waitstaff.

                                                                                              1. Those Jap-adog carts have got to take the cake on this.

                                                                                                A cheap low-end frank with 2-3 spoonfuls of cheap toppings for $8-$10. The margins have got to be stupidly stratospheric.

                                                                                                7 Replies
                                                                                                  1. re: hotoynoodle

                                                                                                    That was the first thought that came to me also. 2nd thought was buying a cart :-)

                                                                                                    1. re: hotoynoodle

                                                                                                      I believe they originated in Vancouver, BC, Canada. Looks like they are expanding into Los Angeles.


                                                                                                      1. re: hotoynoodle

                                                                                                        There are at least one or two of these Japadog carts here in Seattle. And yes, I did first see them up in Vancouver.

                                                                                                        On a grander scale, there are lots of food carts / vans that hound workplaces which I'm sure have pretty good margins. There was one called "Gobble" (http://www.gobbleexpress.com/) that came by our work for a few weeks before deciding we were not worth their time. They listed a grand menu of turkey-based items like soups and sandwiches, etc. But when you actually go up to them, they will be "out of everything" and will essentially only sell turkey bits deep fried in flour. Good riddance.

                                                                                                        1. re: HungWeiLo

                                                                                                          You'd be shocked at how low the margins are at Gobble Express. Don't ask me how I know. There is nothing on the menu that is "turkey bits deep fried in flour."

                                                                                                          We are always happy to go anyplace we are asked to, but can't keep going if we are losing money. If you tell us your location and dates I will be happy to show you each and every daily truck spreadsheet.

                                                                                                          Please feel free to contact me personally via the email in my profile here or on the truck or restaurant websites if you'd like to discuss this. We almost never run out of anything -- quite the contrary -- so I am a little shocked to hear this. Sometimes we do run out of a few items late in the day but rarely during the lunch rush.

                                                                                                          I think we should all view with skepticism any post which contains phrases like "have got to be" or "I'm sure have," because that means the writer is guessing or making assumptions, and doesn't really know, notwithstanding any family history or prior experience in the business.

                                                                                                          Note that this is the first time I have ever mentioned the name of our place on this board, ever, and then only to correct errors of fact when soneone else mentioned it first. I am in no way trying to advertise it or push it or suggest you go there.

                                                                                                          1. re: HungWeiLo

                                                                                                            Let's just explore Food Truck economics a bit using real actual numbers from a real actual gigs, shall we? Conjecture is fine but facts are better.

                                                                                                            Most Trucks look at a $1500 lunch as pretty good. Not stellar but good. That's probably about 150 covers for most of them, more or less. Most consider it achievable. Many won't even roll for less than that and require that as a minimum from their clients just to cover their expenses.

                                                                                                            Sometimes you take on a new client -- and to clarify the post above, we only go where we are asked to; we don't "hound" anyone -- without requiring the minimum in the hope you will do well and if they don't at first, you hope they will build. But if they don't you have to move on.

                                                                                                            Here are the actual numbers from a recent corporate lunch from a place where we had to stop going because we were consistently losing money.

                                                                                                            Net sales after taxes 306.73 (35 tickets)
                                                                                                            Food Cost 107.36
                                                                                                            Labor 99.00
                                                                                                            Insurance 10.00
                                                                                                            Amort on Truck 65.00
                                                                                                            Consumables 30.00
                                                                                                            Mileage 3.36

                                                                                                            Profit (Loss) (7.99)

                                                                                                            We should have done at least $1000 in sales, but we didn't, and limped home with a truck full of food. So this probably wasn't the incident referred to above, as it's not likely we were out of anything, much less everything, but it's illustrative of the economics and why Trucks may stop going to a place after they've been there for a while.

                                                                                                            1. re: acgold7

                                                                                                              Good illustration. Because most people do at least some cooking at home the mindset is .30 cents for the roll, $1.00 for the protein put in the roll ........and they are charging $5.00............wow they are making a fortune.

                                                                                                              I know people who own both wholesale and retail food businesses. Some do very well & others just ok. After healthcare & retirement planning their average final "hourly" take home rate would be disturbingly low to most people. You own it, you live it and you breathe it. You will also sleep it because when there is a problem you will be waking up thinking / worrying about it long before the alarm clock goes off.

                                                                                                      2. generally gross margin is tied to the percentage of sales coming from alcohol.

                                                                                                        Even for the high-end tasting menus, the wine pairing are generating the lions share of gross margin

                                                                                                        1. I can tell you the highest profit margin on a food sale ever...

                                                                                                          The time the old woman sold jack the magic beans. A whole cow for just a few beans!

                                                                                                          1 Reply
                                                                                                          1. Where I work and live the 30/30/30 rule is pretty close to the mark, but it's with experience that you learn the caveats.
                                                                                                            It's more profitable for me to sell you the second cheapest bottle of wine on our list, rather than the vintage Chateauneuf Du Pape that has been lovingly cellared. My margin on that is less than the margin on the cheap plonk that I can sell you for $40.
                                                                                                            Agreed that sides are profitable, but desserts even more so.
                                                                                                            A lot of wage control is in the hands of good management. An example in a restaurant setting would be one of my ideas that changed our restaurant.
                                                                                                            At the end of the night, all the waitstaff were required to polish the cutlery, glassware and reset the restaurant for the next day. At $24.09 per hour (pay per hour in Australia).
                                                                                                            I hired five 16 year olds, on a traineeship basis (16.54 p/h) to come in the following morning and do that work.
                                                                                                            Reducing the amount of floor staff as the restaurant grows quieter. A staff member who started out with five tables at the beginning of the shift, will find themselves with 9 tables once desserts have been called.
                                                                                                            My training (in large hotel chains) drilled into me the importance of labour costs, and how to squeeze them without reducing service standards.

                                                                                                            Overheads are another thing. Linen is a huge cost. Breakages too. Spoilage, wastage too.
                                                                                                            Being profitable is a lot about mitigating the $$, being smart nets you a lot more than being fancy, classy or dirt cheap.

                                                                                                              1. re: flavrmeistr

                                                                                                                I'm always surprised by how crowded places like Applebees Outback and TGIF Friday's are. They advertise heavily to get butts in the seats just so they can upsell a couple of drinks or beers on tap.

                                                                                                              2. Some of those touristy restaurants in Maine that charges $40 plus for a lobster! and I got sick from it. yikes.
                                                                                                                Lobsters are pretty cheap these days.

                                                                                                                1 Reply
                                                                                                                1. re: Monica

                                                                                                                  if somebody goes to maine and pays $40 for lobster they deserve to be fleeced.

                                                                                                                2. Restaurant profits: The last couple of years, 2012, 2013, profits from restaurants across the US have net net net at 4.5%. If you are doing 1 million is sales you can do the math. With this in mind, lowering your food cost, labor cost, and fixed cost, the best restaurant to operate is the one with most flexibility in the variable cost area. So pay cash for the property, equipment, and limit your menu to quick service items with drive-thru. Pay cash for all purchases and do 2 million is sales. You follow this formula, you will make a successful go of it. If you can not do this, best to stay out of this business. It will eat you life and money very slowly. I am 32 years in and ready to retire.

                                                                                                                  1. I realize this thread is 19 months old, but for profit margin it seems to me you can't beat growing a franchise chain of your own! Remember the grossly misunderstood lawsuit over a scald from a spilled cup of McDonald's coffee? Well, even back then McDonald's annual gross on coffee sales was in the billions in the U.S.market alone, if I recall correctly. While Ray Krock did not build and own the original first-ever McDonald's, he did buy it and turn it into a bona fide "touch down." He ended up with enough pocket change to buy the San Diego Chargers!

                                                                                                                    I suspect that in today's market even the franchises make a pretty penny. After all, even The Queen of England owns one! Here are some fun and interesting links about McDonald's:

                                                                                                                    and finally:
                                                                                                                    And don't miss the original prices!

                                                                                                                    10 Replies
                                                                                                                    1. re: Caroline1

                                                                                                                      Thank you for pointing out the common misunderstanding about the hot coffee lawsuit. Stella (the lady who sued) was very much in the right, and the penalty that was assessed against McD had little to do with the incident itself but rather to them trying to suppress evidence, which everyone ought to understand is a major no-no. McD got exactly what they deserved.

                                                                                                                      1. re: johnb

                                                                                                                        I am not in any way defending McDonalds but exactly what evidence did they suppress? Early on in life I placed a hot cup of coffee between my legs for convenience sake and my genitals quickly informed me through my nervous system that my decision was not a wise one and I moved the cup.

                                                                                                                        1. re: Tom34

                                                                                                                          Somewhere in the past I read a discussion of the case that IIRC made that claim. Upon research now I can't find it. Whether or not that aspect is true, the key point is that McD knew the hazard being caused by the temperature at which they serve their coffee, based on at least 700 claims it had received for burns from such spills previously, some involving 3rd degree burns, some involving infants and children (this case involved 3rd degree burns, skin grafts, and a long hospitalization) and had paid settlements in some cases. [We can of course safely assume that the total number of such burn incidents is/was much greater than the number of actual claims]. The case really turned on whether the temperature at which they serve coffee (which is indisputably high enough to cause 3rd degree burns) is unreasonably high. It is true that other such cases have not always reached that conclusion.

                                                                                                                          The major portion of the jury award was a punitive award, based on their conclusion that given the information McD had, their behavior was callous. That punitive award was later reduced due to a separate law concerning the amount of punitive damages allowed, but the judge nevertheless stated that the punitive damages were justified in light of the “willful, wanton, reckless and what the court called callous” conduct of McDonald’s.

                                                                                                                          As the first two articles below indicate, most people don't understand the actual facts of the case. For example it is generally believed she was driving the car down the street when she spilled the coffee (false), or that it was just a spill, not something serious (false); in addition, very few people seem to be aware that due to the temperature of the coffee the spill caused serious burns, several days of hospitalization and a long recovery period during which she was not able to work.

                                                                                                                          I myself thought it was a ridiculous verdict until I read up on the case, and that completely changed my mind. The key point is that they insist on extremely hot coffee because, they say, some customers take it to work or home and only drink it there, and they want it to still be hot. Translation: they don't want to spend a fraction of a cent each to buy better, more insulated cups, and that saving is more important to them than the inevitable burns that will be experienced by a few customers as a result. To me, that it the definition of a callous business policy. That's why I say they got what they deserved.

                                                                                                                          More here:

                                                                                                                          And if you don't like those here is the Wikipedia article:


                                                                                                                          1. re: johnb

                                                                                                                            I see your point but what was the industry standard at the time for coffee temperature and what were the standards for cups at the time.

                                                                                                                            The last cup of DD coffee I had was way too hot to sit between my legs. I believe the cup did warn of hot contents.

                                                                                                                            1. re: Tom34

                                                                                                                              I don't know the answers to your questions. The "industry standard" argument has been used to attack the verdict. That overlooks the fact that McD and others with similar business models pretty much set the standard in the first place, so my question is how can they then wrap themselves up in that same standard and use it as a defense? For me, that doesn't wash.

                                                                                                                              For me, bottom line is any liquid that hot will cause 3rd degree burns on human skin in a few seconds. That's a scientific fact, and McD knew it. Any company that serves millions of cups of coffee to ordinary people in their cars, daily, knows it is a certainty that in the normal course of events a small percentage of those people will spill it on themselves and burn themselves, in some cases badly. This will happen with or without printed notices on cups, which is transparently a legal ploy not an effective countermeasure, which they also know as do you and I. They had knowledge of the danger, while ordinary people don't. That they refused, on grounds of a miniscule increment to profit, to take simple steps to prevent that result says to me that they are callous.

                                                                                                                              The judge and the jury were sensible people who understood the evidence presented, not fools as they have been portrayed. IMO the verdict was correct.

                                                                                                                              1. re: Tom34

                                                                                                                                I followed the case quite closely at the time because Robert Scott, the judge who heard this case, was also the judge for my divorce. How respected is/was he in the Albuquerque legal community? Well, I could not find one single top rated attorney in the entire city of Albuquerque who would accept my case to be heard by him. THAT should tell you something.

                                                                                                                                Now, as to what I remember of the case and what is reported in current available on line "histories" of the law suit today don't exactly match. But also keep in mind that history is always written by the victors! That said, here's the gist of what I remember:

                                                                                                                                The trial was a JURY trial, and she had some brilliant attorneys. They collected tons and tons of data, which included the information that McD's was the ONLY chain restaurant that served coffee at 190F while others served theirs 15 to 20 degrees cooler; that McD's had been loosing multiple lawsuits per year for many years that averaged from $60,000.00 to $200,000.00 per lawsuit, as I recall, plus attorney fees, but despite those losses, McD's obviously considered those costs negligible when stacked up against its billion dollars a year sales in coffee in the U.S. alone.

                                                                                                                                In argument, her attorneys readily admitted that it was the plaintiff's own fault that she spilled the coffee, BUT that had the coffee been the temperature of other restaurants, she would not have suffered 3rd degree burns that required hospitalization, skin grafts, and that caused insufferable pain. They also argued that because Mcd's caters to families with children through McD's playgrounds in most of their facilities, it was reckless child endangerment to serve coffee that hot in the presence of kids. They asked the jury to teach McDonald's a lesson they would FINALLY listen to by awarding the million dollars (I forget the exact amount, 3 million???) in punitive damages. And the JURY did exactly that!


                                                                                                                                Dear Judge Robert Scott stepped in, slapped gag orders on the plaintiff and her legal team, then negotiated with McDonald's to change their serving temperature for coffee universally if he reduced the award. He set the JURY'S DECISION aside, and went for it. So did McDonald's.

                                                                                                                                At that time, I knew a fair number of attorneys, both in Albuquerque, the state of New Mexico, and in El Paso. I can't recall a single one of them singing praises to Judge Scott.

                                                                                                                                It bugs me that Robert Scott comes out a hero in most reportage today. Being a judge IS a hard row to hoe, but there should be a way built into our legal system to knock 'em off the bench when they get too out of line. Robert Scott is not the only judge to fit that bill. Unfortunately. <sigh>

                                                                                                                                1. re: Caroline1

                                                                                                                                  >>Dear Judge Robert Scott stepped in, slapped gag orders on the plaintiff and her legal team, then negotiated with McDonald's to change their serving temperature for coffee universally if he reduced the award.

                                                                                                                                  this is called bribery. it is not legal. I trust you have made this facts known to the appropriate authorities.

                                                                                                                                  1. re: PSRaT

                                                                                                                                    Nope. Not bribery. "Coercion" is more correct. The thing that is upsetting about it is tossing the jury's decision aside. But Robert Scott has/had a VERY large ego, and was sure he knew more than any other bing on planet earth. Anyway, if "illegal" from a judge curls your toes, I could really do a number on you! Robert Scott did so very much that was exremely illegal in my divorce, except for the attorney friends who pulled their hair out while I pulled out mine, few would believe it possible.

                                                                                                                                    New Mexico does NOT have a long history of great judicial practices. Trust me on that one! Or do some deep research on Billy The Kid, for one. Total and abysmal misrepresentation of facts where he is concerned. Did you know he was a "lawman?" Anyway, as has been said before, the victors write history, so do not believe everything you read!

                                                                                                                                    There are serious problems in the American Judicial System, and not just in New Mexico. Pity, but true.

                                                                                                                                    1. re: Caroline1

                                                                                                                                      try the Feds. they do unseating well.

                                                                                                                                      but, it has to be something more than your personal opinion.

                                                                                                                                      "...then negotiated with McDonald's to change their serving temperature for coffee universally if he reduced the award."

                                                                                                                                      there is absolutely no better case than your alleged truth. it is, or it is not. opinions don't count, provable facts do.

                                                                                                                                      1. re: PSRaT

                                                                                                                                        You know, I'm really not interested in discussing this further.