Where It Came From
Total Sales: 100 percent
Where It Went
Cost of food & beverage sales: 33 percent
Salaries & wages (including employee benefits): 33 percent
Restaurant occupancy costs: 6 percent
Corporate overhead: 3 percent
General & administrative expenses: 3 percent
Other: 18 percent
Income Before Taxes: 4 percent
Data: National Restaurant Association
Every week I get reports from readers, colleagues, and friends about restaurants. Inevitably, the price of the meal is mentioned, especially in fine dining, full-service restaurants. It usually goes something like this: “Thirty dollars for a steak?! What are they, nuts? I can buy the same piece of meat at Smith’s for $9. Whatta rip-off!”
So I frequently find myself in the position of being a restaurant apologist, a defender of high prices. Who’d have thunk it?
Yes, you can buy a nice supermarket steak for a third of the restaurant price and cook it yourself. But have you ever considered the real price of that steak dinner? There are hidden expenses even in the home-cooked steak. Transportation costs, for example. You probably drove to and from the store where you purchased the steak, so you need to figure gasoline costs into the price of your home-cooked meal. And since it’s a home-cooked meal, what about the percentage of rent or mortgage that pays for your kitchen? Oh, and in addition to expensive equipment like Viking stoves and grills, you’ll need energy to operate them, correct? So figure in a portion of your heat and electricity bill toward the cost of your steak dinner. Stoves don’t run on oxygen. Gonna serve that steak on something? Plates, silverware, wine glasses, coffee cups, salt and pepper shakers â€¦ they all cost money, for you and for restaurateurs. And what’s your time worth? Did you remember to figure in the prep and cooking time you spend in the kitchen preparing your steak? What about side dishes? You’ll need a minimum of an hour or so to bake a potato. Anyway, you get the idea. That $9 steak you bought to cook at home winds up costing substantially more than $9. Suddenly, that professionally cooked and served $30 restaurant steak doesn’t seem like a bad idea.
According to the latest figures from the National Restaurant Association, each restaurant industry dollar generated from a full-service restaurant'as opposed to fast-food eateries'can be broken down as follows. Remember, this is an average based on the operation of some 700 typical U.S. restaurants. The numbers may vary slightly from restaurant to restaurant. Log Haven’s food costs might be 34 percent while Martine’s could be 37 percent. At The New Yorker’s or Fleming’s, food costs might come in at a low 32 percent, thanks to the purchasing power of Gastronomy and the national Fleming’s organization.
An average, approximately $10, or 33 percent, of the $30 restaurant steak goes directly to food costs. In other words, it costs the restaurant $10 to put the steak, spuds, green beans, sauce and cute rosemary garnish on your plate. That’s just the raw (literally) cost of the uncooked food. You’d probably pay a little more than that $10 at the supermarket for the raw ingredients since you can’t buy your food at wholesale prices like restaurants do.
Another one-third of the meal price goes toward employees’ salaries and wages. So another $10 of the dinner price pays for everything from an executive chef’s salary and the pastry chef’s wages to the salary of the bookkeeper, special-event planner, line cooks, dishwashers, valets and servers, not to mention employee benefits like health care and 401Ks. It’s rarely the case that any of these people are getting rich. For every Emeril, there are thousands of chefs and other restaurant employees barely making ends meet.
Just like you and me, restaurateurs must pay for their digs. This could run into the millions to create an award-winning restaurant with a design like The Metropolitan, Tuscany or even a family-fun center such as The Mayan. And even the smallest full-service restaurant costs thousands per month in rent or mortgage payments. The national average is about 6 percent of operating costs, or about $2 of that $30 steak. Corporate overhead, along with general and administrative expenses, accounts for an additional 6 percent. So does another $2 if your expensive steak dinner goes toward costs of producing menus, paying the phone bills, utilities, accounting services, stationery and mailings, or hiring marketing and PR firms to produce slick ads. Factor in also costs keeping the restaurant clean and shipshape (someone gets paid to mow La Caille’s big lawns), in addition to management and owner salaries, and the like. Just imagine how much bathroom tissue, flowers and candles alone cost per month at Bill White’s Park City restaurants.
If you’re keeping score, we’ve now accounted for about 78 percent of the cost of a restaurant steak. Another 18 percent is taken up by miscellaneous expenses and expenditures such as janitorial services, linens, travel, music fees to organizations like BMI and ASCAP or to pay for live music, artwork, association dues, legal fees, employee bonuses and incentives, maintenance, pest control, insurance, interest, and a gazillion other niggling expenses like the “use” tax restaurants must pay the state for the “use” of their own silverware, plates and stemware'and that’s after they’ve already paid the 7 percent sales tax on those items when they were purchased. For one local restaurant alone, that use tax came to over $15,000 last year. That’s a lot of steaks!
This leaves the restaurateur with a whopping 4 percent income before taxes. That’s right. A $30 steak at a typical full-service restaurant generates about $1.20 in pre-tax profit. And that’s the best case scenario if everything goes right. Not to mention the wild-card possibility of an obnoxious restaurant critic coming in and blowing the restaurant out of the water.
Still think that $30 steak dinner is a rip-off? I think it’s a steal.