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I think restaurateurs are erred in the way they think about food cost
Posted on 10/15/16 at 1:08 pm
Posted on 10/15/16 at 1:08 pm
I see all this % of price theory and they aren't looking at it instead as margin per dish.
Say someone wants to run at 25% food cost
$10=$2.50
But if someone wanted to run at $7.50 per dish they could better provide value.
A simple example of this is the old Movie Concessions case study
1. Movies bought a normal sized bag of M&M's for $0.25 and charged $1.25, for a bag that people normally would have paid $0.50 for at the gas station
2. Hardly anyone bought M&Ms at that outrageous price
3. It took years, but one theater tried selling "Boxes of m&m's" .These boxes were double the size of the normal pack, and cost $0.50 wholesale versus $0.25.
4. They could have used the % method, which states if we charge $1.25 for a $0.25 product , we must charge $2.50 for a $0.50 product, but they did not.
5. Instead they said, we'd like to make $1 from each sale, so charge $1.50 for that $0.50 product.
6. overnight concession sale increased 400%, because it tipped the "rip-off" threshold and went to value.
What is the cost of a single egg? Maybe $0.15 each?
If you charge $9.00 for a 2 egg omlet, or $9.25 for a 3 egg omlette....which is a better value and more likely a more satisfied customer?
I'm not in the restaurant business, can someone explain what the concern would be to add a 1 for 1 value/cost boost to dishes?
Say someone wants to run at 25% food cost
$10=$2.50
But if someone wanted to run at $7.50 per dish they could better provide value.
A simple example of this is the old Movie Concessions case study
1. Movies bought a normal sized bag of M&M's for $0.25 and charged $1.25, for a bag that people normally would have paid $0.50 for at the gas station
2. Hardly anyone bought M&Ms at that outrageous price
3. It took years, but one theater tried selling "Boxes of m&m's" .These boxes were double the size of the normal pack, and cost $0.50 wholesale versus $0.25.
4. They could have used the % method, which states if we charge $1.25 for a $0.25 product , we must charge $2.50 for a $0.50 product, but they did not.
5. Instead they said, we'd like to make $1 from each sale, so charge $1.50 for that $0.50 product.
6. overnight concession sale increased 400%, because it tipped the "rip-off" threshold and went to value.
What is the cost of a single egg? Maybe $0.15 each?
If you charge $9.00 for a 2 egg omlet, or $9.25 for a 3 egg omlette....which is a better value and more likely a more satisfied customer?
I'm not in the restaurant business, can someone explain what the concern would be to add a 1 for 1 value/cost boost to dishes?
This post was edited on 10/15/16 at 1:16 pm
9
Posted on 10/15/16 at 1:11 pm to Kujo
what makes you think that business owners haven't thought of this yet?
every sale is part of a larger sale
every sale is part of a larger sale
Posted on 10/15/16 at 1:12 pm to cgrand
quote:
what makes you think that business owners haven't thought of this yet?
every sale is part of a larger sale
The tiny arse omlette I just ate
Also a sinach salad I had a couple nights ago that served in a soup bowl for $12.00 at this hipster place. "frick, charge me $13 and put another $1 of spinach so it at least looks like a "big salad"
This post was edited on 10/15/16 at 1:19 pm
Posted on 10/15/16 at 1:44 pm to Kujo
You are forgetting to account for other variable costs associated with food cost percentage.
The M&M box vs bag example is inapplicable because in this retail scenario the cost associated with providing a different product changes but the net revenue is still $1.00 per box.
Restaurants account for multiple factors when calculating food cost including but not limited to; labor(prep,final cooking) storage(refrigeration), waste, utilities(water,gas,lights).
Ultimately movie theaters are in business to provide entertainment. The concessions stand is a secondary revenue generator. Restaurants provide food & booze. Comparing how the two operate and questioning the rationale behind how they price their consumables is incomparable.
The M&M box vs bag example is inapplicable because in this retail scenario the cost associated with providing a different product changes but the net revenue is still $1.00 per box.
Restaurants account for multiple factors when calculating food cost including but not limited to; labor(prep,final cooking) storage(refrigeration), waste, utilities(water,gas,lights).
Ultimately movie theaters are in business to provide entertainment. The concessions stand is a secondary revenue generator. Restaurants provide food & booze. Comparing how the two operate and questioning the rationale behind how they price their consumables is incomparable.
Posted on 10/15/16 at 1:47 pm to Kujo
2 egg omelets piss me off.
Posted on 10/15/16 at 1:59 pm to Kujo
What if recipes are involved . Then you have a theoretical food cost . Then you have to take waste and spoilage into consideration . And how about a buffet . If you don't prep some food items you can not keep up .
Posted on 10/15/16 at 2:21 pm to robins08
quote:
What if recipes are involved
The theory is determine acceptable margin, then elevate cost to a subjectively detrmeined "value"
Similar to taste " does this taste good to you"...value "is this a good deal for the amount and quality your received?"
$2.50(recipe) for a $10 dish, making it a $3.00(recipe) for a $10.50 dish is an increase of 20% in customer's received value for 5% increase in total cost.
Maybe it's but if I ever feel like I got "ripped off" I don't go back.
There's basically two mind-sets after a customer engages in business:
1. How much can we get him to buy this one time?
2. How can we make it enjoyable enough for him to want to come back another time?
Greed/Narrow vision seems to favor the first. That's why so many restaurants fail after their initial "newness"
This post was edited on 10/15/16 at 2:32 pm
Posted on 10/15/16 at 2:30 pm to Kujo
quote:This. It's not just the egg, it's the lease, payroll, electricity, phone bill, insurance, condiments for your dish, etc. There is heat involved to cook your egg (gas bill), and also a pan, flat top grill or other hardware. Suddenly an egg is no longer just 15 cents.
What is the cost of a single egg? Maybe $0.15 each? I'm not in the restaurant business
ETA: I just saw what BigDropper said. Pretty much the same thing.
This post was edited on 10/15/16 at 2:37 pm
Posted on 10/15/16 at 2:48 pm to Degas
quote:
This. It's not just the egg, it's the lease, payroll, electricity, phone bill insurance, condiments for your dish, etc. Suddenly an egg is no longer just 15 cents.
you are looking at it as a whole vs the change.
You are already operating, the lease, payroll, electricty, etc will not change.
It's like the old let's make a deal scenerio ( LINK)
All the probability of success goes into the other option.
It's esientually asking for a corkage fee, they pay for the raw value of the product they want and you get the margin you want to have them drink it in your establishment.
If someone brought their own bottle, do you ask how much the bottle was and multiply by a factor? "Oh, that's a $20 bottle, then corkage is $20, if it were a $10 bottle, I'd only charge you $10 corkage"....versus we have a $10 corkage for all wines or entrees.
Posted on 10/15/16 at 4:18 pm to Kujo
quote:
If someone brought their own bottle, do you ask how much the bottle was and multiply by a factor? "Oh, that's a $20 bottle, then corkage is $20, if it were a $10 bottle, I'd only charge you $10 corkage"....versus we have a $10 corkage for all wines or entrees.
Customers DO NOT bring their own food to a restaurant. Trying to compare a corkage fee to the price of food is ridiculous.
Posted on 10/15/16 at 4:50 pm to BigDropper
quote:
Customers DO NOT bring their own food to a restaurant. Trying to compare a corkage fee to the price of food is ridiculous.
It's just a fixed profit margin to make per Item, Instead of looking at the marginal cost multiplier.
kitchen vs seating area
one operates on a cost basis(food costs+ labor, rent etc), the other operates as a service margin
$4 per app
$10 per entree
$4 per dessert
App 1 costs us: $4 to make, we charge $8
App 2 costs us $1 to make(basic salad), we charge $5
Ent 1 costs us: $7 to make, we charge $17
Ent 2 costs us: $10 to make, we charge $20
now the check on this is:
Question: is $5 for this salad worth it?
answer: not really
Okay, let's double it's size for $1.00
Cost is now $2.00 we charge $6.00 for the salad
Question: Is $6.00 for this salad worth it?
Answer: Yeah, that's a respectable salad, I'd be impressed.
Before I get the expected "But they will order less"
What's better, they serving a shite salad for $5 and having an "optimal cost ratio" to be pruod of, and then losing the custome or serving a $6 respectable salad that they will crave and tell their friends about?
Posted on 10/15/16 at 5:37 pm to Kujo
It's also total volume, or maximum guest count.
In your scenario, you could shell out 500 boxes of M&m's in an hour.. less profit margin but higher profit in sales..
A restaurant has you sitting for a minimum of 45 minutes.. so, not really a good turnover rate..
Fast food can sell for cheaper due to in and out costumer base
So, restaurateurs are forced to put in the price of ambiance and service... but trust me, on a busy night, they are just fine with flipping more tables to increase sales, even if you are just getting an app and a beer..
In your scenario, you could shell out 500 boxes of M&m's in an hour.. less profit margin but higher profit in sales..
A restaurant has you sitting for a minimum of 45 minutes.. so, not really a good turnover rate..
Fast food can sell for cheaper due to in and out costumer base
So, restaurateurs are forced to put in the price of ambiance and service... but trust me, on a busy night, they are just fine with flipping more tables to increase sales, even if you are just getting an app and a beer..
Posted on 10/15/16 at 10:02 pm to Kujo
quote:
What's better, they serving a shite salad for $5 and having an "optimal cost ratio" to be pruod of, and then losing the custome or serving a $6 respectable salad that they will crave and tell their friends about?
If I buy a shite salad for $5, how does a doubled-in-size shite salad become worth $6? It's still a shite salad! There's just more of it.
My advice to you is to stop spending your hard-earned money on shitty salads & make better fiscally responsible decisions in life.
Posted on 10/16/16 at 12:03 am to Kujo
All this thread tells me is you shouldn't open up a restaurant
Posted on 10/16/16 at 2:50 am to Jones
It's not all about % or $, it's a healthy mix.
Would you rather sell your .20 brownie for a buck or make $20 on a $30 dollar steak?
While the brownie % looks better, the steak makes you $20 and has a 66% food cost.
I'd rather have a sky high food % cost and a great bottom line any day of the week
Would you rather sell your .20 brownie for a buck or make $20 on a $30 dollar steak?
While the brownie % looks better, the steak makes you $20 and has a 66% food cost.
I'd rather have a sky high food % cost and a great bottom line any day of the week
Posted on 10/16/16 at 8:49 am to Jambo
One thing you didn't put into play, is that many times if your dish is "huge" people will split it. So now, instead of selling two 2 egg omelettes, you are selling 1 3 egg omelette to two people.
There are times when I like to go out and have some leftovers, but most of the time I'd rather pay for only what I plan to eat at that meal. I'd rather save $3 per dish to get the 2 eggs because that's all I need.
There are times when I like to go out and have some leftovers, but most of the time I'd rather pay for only what I plan to eat at that meal. I'd rather save $3 per dish to get the 2 eggs because that's all I need.
Posted on 10/16/16 at 10:32 am to Kujo
1. Its a good discussion.
2. Correctly pricing items is a critical part of any business, and constantly needs to be reviewed/adjusted by the manager/owner... but often isn't.
3. In the restaurant biz, I'd think having to reprint a menu is a deterrent to adjustments also.
4. I like the way you number your thoughts.
2. Correctly pricing items is a critical part of any business, and constantly needs to be reviewed/adjusted by the manager/owner... but often isn't.
3. In the restaurant biz, I'd think having to reprint a menu is a deterrent to adjustments also.
4. I like the way you number your thoughts.
Posted on 10/16/16 at 8:13 pm to Kujo
There are many answers in this thread that are on point and none completely off.
The point about food cost vs. contribution to bottom line is something many restaurants contend with. Some on an item by item basis, some on complete menu outlook.
It depends on what your menu is and your menu mix ends up being.
I won't divulge all of my practices so that they are not misconstrued.
I sell a prime 12oz bone in filet from Linz Meats outside of Chicago. Not cheap. $29.99/lb - my cost.
That's $22.50 on the plate.
If I were to try to hit a 33% food cost on that it'd be almost $70.
Nobody would buy it.
I sell it for $40. 60% cost.
That's offset by selling tons of gnocchi and French fries in generous portions to create a sense of value.
That's what it's all about, a sense of value
Who here is willing to pay $8-10 for company burger, I am. High quality and sides and drinks are cheap.
It's all about customer perception.
I think some restaurateurs get it, some don't.
The point about food cost vs. contribution to bottom line is something many restaurants contend with. Some on an item by item basis, some on complete menu outlook.
It depends on what your menu is and your menu mix ends up being.
I won't divulge all of my practices so that they are not misconstrued.
I sell a prime 12oz bone in filet from Linz Meats outside of Chicago. Not cheap. $29.99/lb - my cost.
That's $22.50 on the plate.
If I were to try to hit a 33% food cost on that it'd be almost $70.
Nobody would buy it.
I sell it for $40. 60% cost.
That's offset by selling tons of gnocchi and French fries in generous portions to create a sense of value.
That's what it's all about, a sense of value
Who here is willing to pay $8-10 for company burger, I am. High quality and sides and drinks are cheap.
It's all about customer perception.
I think some restaurateurs get it, some don't.
Posted on 10/16/16 at 8:28 pm to Kujo
The Atlanta Falcons have tried something similar this year with their concessions prices. I would really like to see how that works out for them. I have been arguing for years that they would make more money with more reasonable prices because rather than people making plans to avoid eating at the game, they will plan to eat at the game.
For example, my HS football games sell bowls of really good jambalaya for $6 and drinks for $2.50-3.00. Those prices aren't unreasonable, so I plan to eat a bowl of jambalaya and drink a soda at the game.
At an LSU game, that bowl of practically inedible jambalaya is $9 and drinks are $4.50-6.00. The food is mostly terrible, so it's viewed as a ripoff, and I do whatever possible to avoid buying food there.
Put a quality product at a price that's not that much higher than it would be outside of the stadium, and people will eat it.
For example, my HS football games sell bowls of really good jambalaya for $6 and drinks for $2.50-3.00. Those prices aren't unreasonable, so I plan to eat a bowl of jambalaya and drink a soda at the game.
At an LSU game, that bowl of practically inedible jambalaya is $9 and drinks are $4.50-6.00. The food is mostly terrible, so it's viewed as a ripoff, and I do whatever possible to avoid buying food there.
Put a quality product at a price that's not that much higher than it would be outside of the stadium, and people will eat it.
This post was edited on 10/16/16 at 8:32 pm
Posted on 10/16/16 at 8:55 pm to BocaJared
quote:
There are many answers in this thread that are on point and none completely off.
The point about food cost vs. contribution to bottom line is something many restaurants contend with. Some on an item by item basis, some on complete menu outlook.
It depends on what your menu is and your menu mix ends up being.
I won't divulge all of my practices so that they are not misconstrued.
I sell a prime 12oz bone in filet from Linz Meats outside of Chicago. Not cheap. $29.99/lb - my cost.
That's $22.50 on the plate.
If I were to try to hit a 33% food cost on that it'd be almost $70.
Nobody would buy it.
I sell it for $40. 60% cost.
That's offset by selling tons of gnocchi and French fries in generous portions to create a sense of value.
That's what it's all about, a sense of value
Who here is willing to pay $8-10 for company burger, I am. High quality and sides and drinks are cheap.
It's all about customer perception.
I think some restaurateurs get it, some don't.
This guy gets it. I hate to see people complain about the cost of a soda to the guest when it is a cheap item. It allows us to lower the price of other items and sell more of it. Price elasticity is important.
quote:
At an LSU game, that bowl of practically inedible jambalaya is $9 and drinks are $4.50-6.00. The food is mostly terrible, so it's viewed as a ripoff, and I do whatever possible to avoid buying food there.
Something to note, if food is provided by an outside group they have to give 40% per unit to LSU. That's why prices are high so the group can maintain their margins.
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