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I work as an independent consultant and one of my recent projects was a study on the fast-casual restaurant industry on behalf of a long/short investor. It's a
by leroy_masochist 8y ago
I work as an independent consultant and one of my recent projects was a study on the fast-casual restaurant industry on behalf of a long/short investor. It's a fascinating industry, and a bit depressing to learn about in depth (kind of like reading this article).
The basic business model of all franchised restaurants with fixed menus and nationalized marketing budgets is getting people in the doors with something appealing (e.g. a value meal) and then get them to buy high-margin products (i.e. coffee, soft drinks, french fries, and food items that don't contain vegetables or meat).
One thing I think most people don't realize is how much the house loses money when you go in there and buy the healthy stuff. At QSRs from McDonald's to Panera the cost of delivering a salad to the customer exceeds the salad's price. If you're a starving entrepreneur and you can be disciplined about shopping for value, the healthy stuff at QSRs might be your best bet on a daily basis.
- danans 8y ago> the cost of delivering a salad to the customer exceeds the salad's price. Is this mostly due to the higher cost of fresh ingredients, or the additional labor required to assemble them?
- Domenic_S 8y agoI'd bet it's due to waste. You can buy a lot of things in bulk and refrigerate/freeze them, but salads don't keep very well.
- TeMPOraL 8y agoMaybe the low $/m³ value?
- leroy_masochist 8y ago> Is this mostly due to the higher cost of fresh ingredients, or the additional labor required to assemble them? Both. On ingredient cost alone, restaurants will analyze across multiple dimensions: the per-unit pure cost (e.g., the wholesale price of a head of lettuce), transportation cost, storage cost, and spoilage rate (lots of interesting volatility modeling done on this).
- danans 8y agoThere must be a price point where it starts to turn a profit, and it must be less than, say, $25 for a salad. There are plenty of places that turn a profit mostly selling healthy stuff and a moderate (but not cheap) price point. Admittedly, these places tend to attract people who can and will pay a higher price for healthier options.
- leroy_masochist 8y agoSalads are profitable for QSRs in a broader sense -- they're loss leaders. QSRs are happy when the customer comes in to buy a $5.59 salad that costs them $5.85 to make, because the customer also usually buys another product that has great margin, e.g., a $1.79 drink that costs the restaurant $0.20.
- pasbesoin 8y agoThis matched my anecdotal experience. I find a Chipotle burrito bowl, the way I "construct" it (1), to be fairly healthy and a relative bargain. I order it with a glass of water (into which I can squeeze a "free" lime wedge, if I choose). I guess I'm being subsidized particularly by all the families whose kids insist on sodas. -- 1) And as I understand it, this is another popular aspect of modern dining: The ability to "construct" the order you "want". I think I've read that, although I don't know all of the financial ramifications, from the industry's perspective.
- ggg9990 8y agoThe “construction” is a cost optimization pioneered by Benihana. Instead of having 12 menu items based on 12 different ingredients, which would end up with more wastage at the end of the day (or running out of product if you kept smaller inventories), you provide 12 menu items by combining one of 3 choices with one of 4 choices. Boom, you’re only inventorying 7 items now.
- leroy_masochist 8y ago> I guess I'm being subsidized particularly by all the families whose kids insist on sodas. Bingo