Restaurants have notoriously thin margins. I’m not defending this bill, and there are definitely awful practices out there, but it ain’t easy. Even a $34 dollar steak only kind of covers all the ancillary costs that make it happen.
The biggest issue with the crunch we have going on is that food (prepared or otherwise) should be way more expensive, and that shouldn’t be an issue because most people should be making way more money. All of those should/shouldn’ts got way out of whack over the course of decades, and the circus only continued because people found crappy ways to keep it going.
It’s a lot of industries. Construction is a great example. The developers make money. The material vendors make money. The builders make money. The sub contractors who actually put the parts together get haggled on invoices and take the lower amount because they have payroll to make and equipment loans to pay. Loans that are happily given out because the equipment can be easily repossessed.
It’s a very good thing everything is correcting, but it’s going to be an ugly process as workers get their due and pass the burden on to the small business owners.
Assuming restaurants have the same overhead as any other business: rent, staff, insurance, maybe equipment (manufacturing, etc.), what else?
They don’t have expenses like vehicles, tariffs on imported goods, the cost to fly staff out for conferences, tech costs, and so on.
The only difference is the product they bring in, and the product they put out.
As a consumer, who doesn’t get the benefit of industry discounts or high-volume prices, making food is really inexpensive.
When I see a restaurant, for example, selling pasta with marinara sauce for $15-20 a plate, I’m curious to know why they have to beg to cover costs. You can make the same dish for a family of four for under $3, and save $100 you’d spend getting the same dish at a restaurant.
So, again, if the cost of ingredients allows for such a significant markup, well beyond what most other businesses are able to get away with, why are restaurants having to charge “service fees” on top of tips?
It’s the behind the scenes that cause a lot of the markup. There might be only two or three food service providers in your area. Food Service Company A has the same prices as Food Service Company B and C. There is no real competition to force prices down for restaurants.
If you are a franchise restaurant, you have to pay franchise fees, buy your all products from the franchise, work within the certain parameters, etc. There is no real way to find ways to drive down prices since your prices are set by the franchise through the prices of the product, corporate oversight, etc.
So I’m stretching it a bit because at the end of the day this really does apply to more than restaurants, but the other commenter had it right.
Things like rent, insurance, etc go into the cost for well above the plate. So the ingredients are one thing, but you have to make up the cost of rent, paying the staff when there’s low customer volume, all the insane amount of costs that go into running a business. That server has to make up for the cost of printing menus and delivering them by mail.
None of this is the servers fault, who should get a fair wage, but it all adds up in a way that makes it hard for the owner. In fact, the person who sold them the grills, refrigerators, and all the other equipment, knows exactly and empirically how hard it is and sets their prices accordingly.
And it’s not like that company’s delivery drivers, techs, and fabrication workers also don’t deserve a wage. Or the Tyson folks that are plucking the chicken delivered.
The issue is, at the end of the day, those companies probably should be less profitable. But instead of accepting that, we put all of the companies that make all the stuff that run that restaurant into bigger companies that are now part of mutual funds, and they sell it out knowing they can grab it back if it goes under.
So you might be able to get away with making a few plates and some money, but trying turning it into something that will let you pay your rent and put your kids into a school. “Bob’s Burgers” is pretty true to life.
This is how to tell someone you haven’t checked grocery prices lately without actually telling them you haven’t checked grocery prices lately. A box of mediocre pasta alone is going to cost you $1.75. A jar of Preggo will run you another 2.50. So 4.25 for an I hate life spaghetti and marinara meal.
The sauce they make probably doesn’t come out of a jar of reconstituted tomato paste and dried seasonings either.
If you buy decent ingredients you are looking at $3 for the pasta and $9 for the sauce. Or $12 for an “ok for a home cook” spaghetti meal with no protein.
Restaurant serving sizes (for better or worse) are usually 2x+ larger than you would serve at home. Rent isn’t free for the restaurant either. Or labor. Or utilities. Or equipment. Etc. General rule of thumb is that a restaurant needs to charge 3x raw food costs to cover expenses.
So your I hate life pasta would need to be priced at $6.50 and your ok for home but not something I would be happy with getting at a restaurant pasta would need to be priced at $18.
This is how to tell someone you haven’t checked grocery prices lately without actually telling them you haven’t checked grocery prices lately.
I’m going to assume you don’t cook at home.
No restaurant worth eating at buys packaged pasta, or packaged bread/buns, or canned sauce.
Flour is cheap, like really cheap. If a restaurant is buying real ingredients, then they are spending pennies and charging tens of dollars.
Restaurant serving sizes (for better or worse) are usually 2x+ larger than you would serve at home.
I highly disagree. I’ve never left a restaurant “full”, even after spending enough to buy a months worth of real food ingredients.
Rent isn’t free for the restaurant either. Or labor. Or utilities. Or equipment. Etc. General rule of thumb is that a restaurant needs to charge 3x raw food costs to cover expenses.
This I agree with. Is rent, labor, equipment at a restaurant significantly more than other places of work? Paying min wage doesn’t exactly eat through your margins.
I worked at a pizza shop way back ages ago (early 2000’s), but I think the formula is generally the same. Food costs they would shoot for 33%, labor ended up being around 33%, the rest was overhead for the facility (rent, AC, etc) and profit.
I think that’s actually a pretty fair amount of profit in that. But that was almost 20 years ago. I feel like the formula is likely similar though.
So way late, but no that’s shifted a lot. This is anecdotal but does speak to a lot of industries: my understanding is that pizza shops now live or die by cheese prices.
Labor, while fluctuating, doesn’t move a ton month to month. Dairy can.
That’s like I said anecdotal, but broadly, real-estate, equipment purchase/finacince has all been so hyper optimized it squeezes the business owners out.
It doesn’t matter the market. PIZZAOVEN-XL will sell it to you, let you leverage payments against your home equity, grab it back and resell it. They can deal with the cash flow issue. They are “assembled in America”. They don’t care if you go out of business. They’ll do it again for the same person that moves into the same space trying to do the. Exact. Same. Thing.
And I’m not trying to draw a blanket statement across all industries. I’m just saying the wheels that make every industry move are smarter and literally longer lived than anyone starting out, and there’s a reason “John deer” and “John deer finance” are seperate companies.
Cheap sub contractors need so much constant control to make sure things are delivered on spec that it is almost like it costs more than to hire the more expensive company with a reputation for solid work
Saw exactly this when I was doing commissioning for a large municipality. No matter how tight the specs were, some of these knuckleheads would do it their own way and get mad when we forced them to do it right.
Some of them would just claim bankruptcy if the mistake was big enough.
Pro-tip, friends: don’t pick the lowest cost of construction bids, I guaran-fucking-tee it’ll cost you more than you saved. And, anyone who says they “meet code” is really saying they do the bare minimum required.
Soda, which is even more than 10x the actual cost to the business. When I worked in a gas station in the 90s the cost for a 32oz soda in syrup, machinery, water, and maintenance was 3 cents. The cup, lid and straw cost 7 cents, so the drink as a whole cost the business 10 cents and was sold for $1 which is a 1000% markup.
Since sodas in restaurants go for around 3$ with refillable glasses I can’t imagine they aren’t marking that up somewhere between 500% - 1000% (5x to 10x).
No it isn’t. It is literally accurate that some of the stuff is marked up really high and other stuff isn’t. That was literally the point, and you clearly don’t like being wrong and want to make the argument about something than the markup.
The point that other costs are significant and the markup is necessary would be good to switch to, but your point making a few dollars off a soda isn’t much is wrong because businesses do make most of their costs back from certain items with high markup as that is the cost of doing business.
Overall they are on thin margins, which does not mean they aren’t marking up some specific items many times their initial cost. In fact, if they didn’t mark some stuff up that much they would go out of business.
But an average of thin margins overall because the building, tables, A/C, and other overhead is more than the good doesn’t mean they don’t have a high markup if you look at literal cost to retail pricing.
I mean, just from the OPs bill, the fusilli at $20 is one example (all restaurant pasta and rice dishes are considerably overpriced). The single cookie is another. The lemonade is another. Also, the garlic bread…
I get that there are other costs, but that applies with every business, even those running on single-digit margins. None of those businesses ask for an 18% service fee + tips.
So, I’m asking are restaurants just poorly managed, or is it something else?
Labor, rent/lease, insurances, permits, ingredients (not all of which get used), and a demand by the public that going out to eat be very accessible. The list goes on.
Does this not apply to every business, including those that can’t mark up their goods by as much as a restaurant?
Going out to eat needs to be 30% more expensive to make the industry even moderately sustainable, no question.
30% would be reasonable. I’d have no issues at all with that.
But what justifies a $20 plate of pasta? Or $15 for a rice dish? Or $20 for a pizza?
These are foods based on ingredients that are pennies per serving.
Restaurants have a certain speed that they can make money in a day and have the same overhead costs no matter how busy they are. They have to average out the slow days, the time they need to prep and stock, and so on.
Every business marks up the majority of their stock by 200-300% to cover overhead. That is also why a lot of businesses can put stuff on sale for 50% off to clear stock because then they are basically breaking even by item to make room for something else with a high markup.
Grocery stores, home improvement stores, convenience stores, auto parts stores, gardening stores, bike shops, and pretty much every single business pays half or less for the vast majority of the products compared to the price on the shelves.
Yes, there are exceptions, but restaurants are routinely marking up ingredients by hundreds of percent more than even retail grocery stores. And they pay their employees less.
Even if another industry marks up more than 35%, very few ask for tips on top of that. These guys asked for a tip and charged an 18% service fee, which is ludicrous.
Are restaurants just poorly managed, or is there another reason why they can’t pay their employees a living wage when their markup is like 400-1000%?
Restaurants have notoriously thin margins. I’m not defending this bill, and there are definitely awful practices out there, but it ain’t easy. Even a $34 dollar steak only kind of covers all the ancillary costs that make it happen.
The biggest issue with the crunch we have going on is that food (prepared or otherwise) should be way more expensive, and that shouldn’t be an issue because most people should be making way more money. All of those should/shouldn’ts got way out of whack over the course of decades, and the circus only continued because people found crappy ways to keep it going.
It’s a lot of industries. Construction is a great example. The developers make money. The material vendors make money. The builders make money. The sub contractors who actually put the parts together get haggled on invoices and take the lower amount because they have payroll to make and equipment loans to pay. Loans that are happily given out because the equipment can be easily repossessed.
It’s a very good thing everything is correcting, but it’s going to be an ugly process as workers get their due and pass the burden on to the small business owners.
Sounds like sit down restaurant menus should reflect the actual costs including waitstaff then like any fast food place is able to do.
Wait staff with tips get more than fast food restaurant employees though
That’s a great argument for the manager/owner to do a shit job
Help me understand.
Assuming restaurants have the same overhead as any other business: rent, staff, insurance, maybe equipment (manufacturing, etc.), what else?
They don’t have expenses like vehicles, tariffs on imported goods, the cost to fly staff out for conferences, tech costs, and so on.
The only difference is the product they bring in, and the product they put out.
As a consumer, who doesn’t get the benefit of industry discounts or high-volume prices, making food is really inexpensive.
When I see a restaurant, for example, selling pasta with marinara sauce for $15-20 a plate, I’m curious to know why they have to beg to cover costs. You can make the same dish for a family of four for under $3, and save $100 you’d spend getting the same dish at a restaurant.
So, again, if the cost of ingredients allows for such a significant markup, well beyond what most other businesses are able to get away with, why are restaurants having to charge “service fees” on top of tips?
It’s the behind the scenes that cause a lot of the markup. There might be only two or three food service providers in your area. Food Service Company A has the same prices as Food Service Company B and C. There is no real competition to force prices down for restaurants.
If you are a franchise restaurant, you have to pay franchise fees, buy your all products from the franchise, work within the certain parameters, etc. There is no real way to find ways to drive down prices since your prices are set by the franchise through the prices of the product, corporate oversight, etc.
Great points!
So I’m stretching it a bit because at the end of the day this really does apply to more than restaurants, but the other commenter had it right.
Things like rent, insurance, etc go into the cost for well above the plate. So the ingredients are one thing, but you have to make up the cost of rent, paying the staff when there’s low customer volume, all the insane amount of costs that go into running a business. That server has to make up for the cost of printing menus and delivering them by mail.
None of this is the servers fault, who should get a fair wage, but it all adds up in a way that makes it hard for the owner. In fact, the person who sold them the grills, refrigerators, and all the other equipment, knows exactly and empirically how hard it is and sets their prices accordingly.
And it’s not like that company’s delivery drivers, techs, and fabrication workers also don’t deserve a wage. Or the Tyson folks that are plucking the chicken delivered.
The issue is, at the end of the day, those companies probably should be less profitable. But instead of accepting that, we put all of the companies that make all the stuff that run that restaurant into bigger companies that are now part of mutual funds, and they sell it out knowing they can grab it back if it goes under.
So you might be able to get away with making a few plates and some money, but trying turning it into something that will let you pay your rent and put your kids into a school. “Bob’s Burgers” is pretty true to life.
This is how to tell someone you haven’t checked grocery prices lately without actually telling them you haven’t checked grocery prices lately. A box of mediocre pasta alone is going to cost you $1.75. A jar of Preggo will run you another 2.50. So 4.25 for an I hate life spaghetti and marinara meal.
The sauce they make probably doesn’t come out of a jar of reconstituted tomato paste and dried seasonings either.
If you buy decent ingredients you are looking at $3 for the pasta and $9 for the sauce. Or $12 for an “ok for a home cook” spaghetti meal with no protein.
Restaurant serving sizes (for better or worse) are usually 2x+ larger than you would serve at home. Rent isn’t free for the restaurant either. Or labor. Or utilities. Or equipment. Etc. General rule of thumb is that a restaurant needs to charge 3x raw food costs to cover expenses.
So your I hate life pasta would need to be priced at $6.50 and your ok for home but not something I would be happy with getting at a restaurant pasta would need to be priced at $18.
I’m going to assume you don’t cook at home.
No restaurant worth eating at buys packaged pasta, or packaged bread/buns, or canned sauce.
Flour is cheap, like really cheap. If a restaurant is buying real ingredients, then they are spending pennies and charging tens of dollars.
I highly disagree. I’ve never left a restaurant “full”, even after spending enough to buy a months worth of real food ingredients.
This I agree with. Is rent, labor, equipment at a restaurant significantly more than other places of work? Paying min wage doesn’t exactly eat through your margins.
That whooshing sound, in case you were curious, was the point sailing right over your head.
I worked at a pizza shop way back ages ago (early 2000’s), but I think the formula is generally the same. Food costs they would shoot for 33%, labor ended up being around 33%, the rest was overhead for the facility (rent, AC, etc) and profit.
I think that’s actually a pretty fair amount of profit in that. But that was almost 20 years ago. I feel like the formula is likely similar though.
So way late, but no that’s shifted a lot. This is anecdotal but does speak to a lot of industries: my understanding is that pizza shops now live or die by cheese prices.
Labor, while fluctuating, doesn’t move a ton month to month. Dairy can.
That’s like I said anecdotal, but broadly, real-estate, equipment purchase/finacince has all been so hyper optimized it squeezes the business owners out.
It doesn’t matter the market. PIZZAOVEN-XL will sell it to you, let you leverage payments against your home equity, grab it back and resell it. They can deal with the cash flow issue. They are “assembled in America”. They don’t care if you go out of business. They’ll do it again for the same person that moves into the same space trying to do the. Exact. Same. Thing.
And I’m not trying to draw a blanket statement across all industries. I’m just saying the wheels that make every industry move are smarter and literally longer lived than anyone starting out, and there’s a reason “John deer” and “John deer finance” are seperate companies.
Cheap sub contractors need so much constant control to make sure things are delivered on spec that it is almost like it costs more than to hire the more expensive company with a reputation for solid work
Saw exactly this when I was doing commissioning for a large municipality. No matter how tight the specs were, some of these knuckleheads would do it their own way and get mad when we forced them to do it right.
Some of them would just claim bankruptcy if the mistake was big enough.
Pro-tip, friends: don’t pick the lowest cost of construction bids, I guaran-fucking-tee it’ll cost you more than you saved. And, anyone who says they “meet code” is really saying they do the bare minimum required.
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Soda, which is even more than 10x the actual cost to the business. When I worked in a gas station in the 90s the cost for a 32oz soda in syrup, machinery, water, and maintenance was 3 cents. The cup, lid and straw cost 7 cents, so the drink as a whole cost the business 10 cents and was sold for $1 which is a 1000% markup.
Since sodas in restaurants go for around 3$ with refillable glasses I can’t imagine they aren’t marking that up somewhere between 500% - 1000% (5x to 10x).
deleted by creator
No it isn’t. It is literally accurate that some of the stuff is marked up really high and other stuff isn’t. That was literally the point, and you clearly don’t like being wrong and want to make the argument about something than the markup.
The point that other costs are significant and the markup is necessary would be good to switch to, but your point making a few dollars off a soda isn’t much is wrong because businesses do make most of their costs back from certain items with high markup as that is the cost of doing business.
deleted by creator
Overall they are on thin margins, which does not mean they aren’t marking up some specific items many times their initial cost. In fact, if they didn’t mark some stuff up that much they would go out of business.
But an average of thin margins overall because the building, tables, A/C, and other overhead is more than the good doesn’t mean they don’t have a high markup if you look at literal cost to retail pricing.
deleted by creator
ON AVERAGE.
I mean, just from the OPs bill, the fusilli at $20 is one example (all restaurant pasta and rice dishes are considerably overpriced). The single cookie is another. The lemonade is another. Also, the garlic bread…
I get that there are other costs, but that applies with every business, even those running on single-digit margins. None of those businesses ask for an 18% service fee + tips.
So, I’m asking are restaurants just poorly managed, or is it something else?
deleted by creator
Does this not apply to every business, including those that can’t mark up their goods by as much as a restaurant?
30% would be reasonable. I’d have no issues at all with that.
But what justifies a $20 plate of pasta? Or $15 for a rice dish? Or $20 for a pizza?
These are foods based on ingredients that are pennies per serving.
Restaurants have a certain speed that they can make money in a day and have the same overhead costs no matter how busy they are. They have to average out the slow days, the time they need to prep and stock, and so on.
Every business marks up the majority of their stock by 200-300% to cover overhead. That is also why a lot of businesses can put stuff on sale for 50% off to clear stock because then they are basically breaking even by item to make room for something else with a high markup.
For sure, clothing companies can do this, but I don’t think most businesses can.
The restaurant industry just seems doomed if they have to rely on service fees and inflated prices on top of tips.
And those added fees and tips keep people away, so the business model itself seems flawed and self-destructive.
Grocery stores, home improvement stores, convenience stores, auto parts stores, gardening stores, bike shops, and pretty much every single business pays half or less for the vast majority of the products compared to the price on the shelves.
Average retail markup is usually under 35%.
Yes, there are exceptions, but restaurants are routinely marking up ingredients by hundreds of percent more than even retail grocery stores. And they pay their employees less.
Even if another industry marks up more than 35%, very few ask for tips on top of that. These guys asked for a tip and charged an 18% service fee, which is ludicrous.