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Feb 20, 2013 01:12 PM

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.

    6 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. re: DiningDiva

            Unless it's a place where a Western/US-influenced breakfast is less common.

            While living in Shenzhen, I'd go to The Flying Pan in Hong Kong for pancakes and sides. Not that it was ever a pleasant experience, but it hit the spot once in a while. They're open late too.

          3. re: baseballfan

            We have a few of these breakfast places in our area and they often change hands. It seems like buying yourself a minimum wage job. Customers expect low prices for eggs and toast and volume migjht be high, but even then you're not making much profit once overhead is paid.

          4. The original comment has been removed
            1. An Italian restaurant which serves a lot of pasta and caters to a clientele that typically orders soft drinks with their meals.

              1. The original comment has been removed
                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.