6 ms·

Yes, this to me was the most telling part: That chicken is a confit (with duck fat, aka $$), then served with a stock/stew that takes days (of labor dollars) t

by dkrich 9y ago

Yes, this to me was the most telling part: That chicken is a confit (with duck fat, aka $$), then served with a stock/stew that takes days (of labor dollars) to prepare, plus cost of employees to serve, stuff to serve it on and rent to pay, not to mention the utilities (the water bills on that cursed grease trap were the opposite of "the gift that keeps on giving"). That damned chicken should be $40! But people won't pay $40 for chicken, so it's $29. This seems to suggest that the author (who I sympathize with very much) doesn't have much understanding of cost accounting, and therefore pricing, which is near the top of mistakes inexperienced business owners make. The cost of the chicken is variable. The costs of rent, labor, and utilities are fixed on a per plate basis. I'm friends with the owner of a very large and very successful restaurant and he once told me that he basically makes no profit on food and that the food is just a way to get people in to sell alcohol which is where the majority of his profit is made. It's also true that some foods are necessarily more profitable than others. People won't pay your costs for the chicken confit and you lose a few bucks on every one that goes out? Fine, add a few dollars to your pasta dish that costs far less to make and if you sell the same number you're even. Or, if the chicken isn't profitable and you aren't selling many of them, just accept that people don't want it and take it off the menu.

nathan_f77 9y ago
It's a strange concept to have loss-leaders in a restaurant. If I were starting a restaurant, I would probably just want to sell everything at a profit. I don't have a burning desire to pay people to eat my food.
- mhb 9y ago
  It's no stranger than paying them with the use of your room, utensils, plates, tables, etc. to eat your food. The different menu items are fungible just like all the other costs.
- dkrich 9y ago
  It seems counterintuitive to me too, but when you think about it it makes sense. If you sell burgers, the food costs are pretty high. After all, good hamburger meat, cheese, and whatever else you are going to put in it is pretty expensive. If you charge your costs plus some fixed percentage to ensure profitability on every item, but your customers are used to buying burgers at similar places that charge for the food at cost and make their profits on french fries and drinks, you will quickly earn the reputation of being overpriced. If you can earn some sort of adoration that drives people to your place regardless of price, like Shake Shack or In N' Out, then you have the luxury of charging a bit more, but that's hard to achieve.
  - marak830 9y ago
    Side note: burgers are actually quite cheap to make (even top of the line burgers: eg waygu pattie, day fresh iceberg lettuce, Roma tomatoes and a good in-house made sauce will have a cost of less than $4 unless you are screwing up your ordering), it's the incidentals that will actually cost most of the income. (I have a post lower explaining more, but basically food should never cost more than 25% of your total sales price) Adoration of customers is a nice theory. Never holds up in reality though. Those customrs go there because they know the quality and quantity for the price, and know that every time it will match that. If you have any doubt in that point, watch what happens to any chain that begins to serve lower quality or inconsistent quality food. There is customer comfort from repition, but even a moss covered stone can be moved for a good reason. Customers arnt moss covered stones though, they will try something new and if the price/quality point is better, they will move.
    - dkrich 9y ago
      Customer adoration is earned through consistency and branding. Not sure we're disagreeing. If Chick fil a suddenly started selling low grade meat they would surely lose their adoration but it's also true that there isn't a years long waiting list to open a Chick fil a franchise just because they're consistent.
      - marak830 9y ago
        I do agree with you, I just want to point out that it is a lot more ficle than tech. One bad service can ruin your reputation. No one forgets a bad meal, and a whole table with bad meals is a death knell
    - NaOH 9y ago
      >...food should never cost more than 25% of your total sales price) I'm in the food industry, and this pervasive food-cost mentality is one of the things I think people often do unwisely. Here's a simple example with made-up numbers: The burger ingredients are $2.50 and the burger sells for $10. There's a 25% food cost. The filet of beef tenderloin costs $10 and sells for $25. The food cost is 40%. Focusing on food cost means the burger is a better item for the restaurant. But I'd take the 40% food cost instead of the 25% food cost and then net $15 instead of $7.50. A percentage means nothing compared to cash in hand. That's nothing groundbreaking to say, but that discrepancy is often lost on food-industry people because they focus too much on the food-cost percentage.
- nunez 9y ago
  It kind of does. Most people come for the food and stay for the drinks, and it’s a lot easier to charge “a lot” for a drink (liquor, not beer) than it is for food because the number is smaller and people like small numbers.
joezydeco 9y ago
...he basically makes no profit on food and that the food is just a way to get people in to sell alcohol which is where the majority of his profit is made... Swap "alcohol" for "soft drinks" and you're pretty much describing the entire fast-food industry.
- jorvi 9y ago
  No way that McDonalds is selling Big Macs or French fries at cost. Do you really think it costs McDonalds nearly €2 to serve you an order of fries? Or nearly €4 for a Big Mac.
  - joezydeco 9y ago
    Given labor costs, packaging/disposables, energy (freezer, grill, holding cabinet, environmental, ventilation), franchise percentages, real estate lease, shrinkage/waste, promotional discounts/combo meals...yes. It comes very close.
  - dkrich 9y ago
    McDonalds operates at a larger scale than any other restaurant in the world and by a very large margin. What works for McDonalds won't work for restaurants that must order supplies on a much smaller scale. Also, in McDonalds' early days they didn't have the leverage over suppliers that they wield now, so its food costs have come down by orders of magnitude. This reminds me of something my cost accounting professor told me- to get to large scale businesses have to price items as if they are already at large scale. If you buy a stamping machine that cost $1 million capable of maximum output of 100,000 units, but currently only have sales of 5,000 units, do you price each unit at 1,000,000/5,000 or 1,000,000/100,000? If you opt for the former, you'll never get to maximum output because customers won't be able to afford your prices.
kazinator 9y ago
You have to be a very clever restaurateur to get away with $29+ entrees. This is not something you just plunge into on a whim. They should just have made darned turkey sandwiches or something. Charge 25 cents less than similar ones in a two mile radius. If everyone is asking $7, make yours $6.75. Have an espresso machine and great coffee. Don't hire any outsiders until business outpaces your sandwich-fu. Encourage take-out and phone-in orders (or online). Take-out people don't take up seats and you don't have to do dishes after them or clean the table.
- philippoi 9y ago
  Don't know what coffee roaster(s) they were getting their beans from, but pictures show a Synesso espresso machine. Given it's Portland, that's probably not as remarkable as it would be in other restaurant/bars around the country.
  - deleted 9y ago
    [deleted]
nunez 9y ago
Does that mean that the reason for steakhouses charging $55 for a porterhouse are doing so to justify $300 bottles of wine?
- dkrich 9y ago
  To a large extent, yes. Fresh steak and seafood are among the most expensive items to obtain and prepare. The markup on a prime cut of steak will be much smaller than alcohol. Not zero, but definitely less than alcohol. Anecdotally, I recently went to one of the top steakhouses in my city with my girlfriend for her birthday. We ordered a filet, some crab legs, some prawns, and a few sides. With the meal we had two martinis each. The four martinis accounted for about 20% of the bill but six ounces of Ketel One probably accounted for a few dollars of costs to the restaurant plus some Olive Juice so those drinks were nearly all profit in terms of variable costs. I'm sure there was a healthy profit on the food, but far less than the drinks. To put it another way, most restaurants that serve alcohol would not be able to survive without alcohol sales with their current food prices.
pdimitar 9y ago
Without having any experience in the area or knowing owners, this has been my exact assumption. In a restaurant me and my girlfriend frequent, the main dishes are actually VERY affordable -- I'd even say cheap -- for what they offer. And many people flock to the restaurant in lunch breaks, but they are very careful to only order a beer plus a main dish. Why? Because that restaurant's every single drink -- alcoholic or not -- is grossly overpriced. Desserts cost an arm and a leg. Salads are mostly okay but they most likely sell them for 3x the price of the ingredients as well. The way I see modern restaurants is exactly like you said: food is just a bait so you can get in and buy the things that go with it, and they are the real profit makers. I am perfectly okay with it. It was just an interesting revelation and I decided to chime in and thank you for confirming my observations.

by dkrich 9y ago

nathan_f77 9y ago

It's a strange concept to have loss-leaders in a restaurant. If I were starting a restaurant, I would probably just want to sell everything at a profit. I don't have a burning desire to pay people to eat my food.

mhb 9y ago
It's no stranger than paying them with the use of your room, utensils, plates, tables, etc. to eat your food. The different menu items are fungible just like all the other costs.
dkrich 9y ago
It seems counterintuitive to me too, but when you think about it it makes sense. If you sell burgers, the food costs are pretty high. After all, good hamburger meat, cheese, and whatever else you are going to put in it is pretty expensive. If you charge your costs plus some fixed percentage to ensure profitability on every item, but your customers are used to buying burgers at similar places that charge for the food at cost and make their profits on french fries and drinks, you will quickly earn the reputation of being overpriced. If you can earn some sort of adoration that drives people to your place regardless of price, like Shake Shack or In N' Out, then you have the luxury of charging a bit more, but that's hard to achieve.
- marak830 9y ago
  Side note: burgers are actually quite cheap to make (even top of the line burgers: eg waygu pattie, day fresh iceberg lettuce, Roma tomatoes and a good in-house made sauce will have a cost of less than $4 unless you are screwing up your ordering), it's the incidentals that will actually cost most of the income. (I have a post lower explaining more, but basically food should never cost more than 25% of your total sales price) Adoration of customers is a nice theory. Never holds up in reality though. Those customrs go there because they know the quality and quantity for the price, and know that every time it will match that. If you have any doubt in that point, watch what happens to any chain that begins to serve lower quality or inconsistent quality food. There is customer comfort from repition, but even a moss covered stone can be moved for a good reason. Customers arnt moss covered stones though, they will try something new and if the price/quality point is better, they will move.
  - dkrich 9y ago
    Customer adoration is earned through consistency and branding. Not sure we're disagreeing. If Chick fil a suddenly started selling low grade meat they would surely lose their adoration but it's also true that there isn't a years long waiting list to open a Chick fil a franchise just because they're consistent.
    - marak830 9y ago
      I do agree with you, I just want to point out that it is a lot more ficle than tech. One bad service can ruin your reputation. No one forgets a bad meal, and a whole table with bad meals is a death knell
  - NaOH 9y ago
    >...food should never cost more than 25% of your total sales price) I'm in the food industry, and this pervasive food-cost mentality is one of the things I think people often do unwisely. Here's a simple example with made-up numbers: The burger ingredients are $2.50 and the burger sells for $10. There's a 25% food cost. The filet of beef tenderloin costs $10 and sells for $25. The food cost is 40%. Focusing on food cost means the burger is a better item for the restaurant. But I'd take the 40% food cost instead of the 25% food cost and then net $15 instead of $7.50. A percentage means nothing compared to cash in hand. That's nothing groundbreaking to say, but that discrepancy is often lost on food-industry people because they focus too much on the food-cost percentage.
nunez 9y ago
It kind of does. Most people come for the food and stay for the drinks, and it’s a lot easier to charge “a lot” for a drink (liquor, not beer) than it is for food because the number is smaller and people like small numbers.

joezydeco 9y ago

...he basically makes no profit on food and that the food is just a way to get people in to sell alcohol which is where the majority of his profit is made... Swap "alcohol" for "soft drinks" and you're pretty much describing the entire fast-food industry.

jorvi 9y ago
No way that McDonalds is selling Big Macs or French fries at cost. Do you really think it costs McDonalds nearly €2 to serve you an order of fries? Or nearly €4 for a Big Mac.
- joezydeco 9y ago
  Given labor costs, packaging/disposables, energy (freezer, grill, holding cabinet, environmental, ventilation), franchise percentages, real estate lease, shrinkage/waste, promotional discounts/combo meals...yes. It comes very close.
- dkrich 9y ago
  McDonalds operates at a larger scale than any other restaurant in the world and by a very large margin. What works for McDonalds won't work for restaurants that must order supplies on a much smaller scale. Also, in McDonalds' early days they didn't have the leverage over suppliers that they wield now, so its food costs have come down by orders of magnitude. This reminds me of something my cost accounting professor told me- to get to large scale businesses have to price items as if they are already at large scale. If you buy a stamping machine that cost $1 million capable of maximum output of 100,000 units, but currently only have sales of 5,000 units, do you price each unit at 1,000,000/5,000 or 1,000,000/100,000? If you opt for the former, you'll never get to maximum output because customers won't be able to afford your prices.

kazinator 9y ago

You have to be a very clever restaurateur to get away with $29+ entrees. This is not something you just plunge into on a whim. They should just have made darned turkey sandwiches or something. Charge 25 cents less than similar ones in a two mile radius. If everyone is asking $7, make yours $6.75. Have an espresso machine and great coffee. Don't hire any outsiders until business outpaces your sandwich-fu. Encourage take-out and phone-in orders (or online). Take-out people don't take up seats and you don't have to do dishes after them or clean the table.

philippoi 9y ago
Don't know what coffee roaster(s) they were getting their beans from, but pictures show a Synesso espresso machine. Given it's Portland, that's probably not as remarkable as it would be in other restaurant/bars around the country.
- deleted 9y ago
  [deleted]

nunez 9y ago

Does that mean that the reason for steakhouses charging $55 for a porterhouse are doing so to justify $300 bottles of wine?

dkrich 9y ago
To a large extent, yes. Fresh steak and seafood are among the most expensive items to obtain and prepare. The markup on a prime cut of steak will be much smaller than alcohol. Not zero, but definitely less than alcohol. Anecdotally, I recently went to one of the top steakhouses in my city with my girlfriend for her birthday. We ordered a filet, some crab legs, some prawns, and a few sides. With the meal we had two martinis each. The four martinis accounted for about 20% of the bill but six ounces of Ketel One probably accounted for a few dollars of costs to the restaurant plus some Olive Juice so those drinks were nearly all profit in terms of variable costs. I'm sure there was a healthy profit on the food, but far less than the drinks. To put it another way, most restaurants that serve alcohol would not be able to survive without alcohol sales with their current food prices.

pdimitar 9y ago

Without having any experience in the area or knowing owners, this has been my exact assumption. In a restaurant me and my girlfriend frequent, the main dishes are actually VERY affordable -- I'd even say cheap -- for what they offer. And many people flock to the restaurant in lunch breaks, but they are very careful to only order a beer plus a main dish. Why? Because that restaurant's every single drink -- alcoholic or not -- is grossly overpriced. Desserts cost an arm and a leg. Salads are mostly okay but they most likely sell them for 3x the price of the ingredients as well. The way I see modern restaurants is exactly like you said: food is just a bait so you can get in and buy the things that go with it, and they are the real profit makers. I am perfectly okay with it. It was just an interesting revelation and I decided to chime in and thank you for confirming my observations.