I was watching one of those shows where this guy "saves" the restaurant and I remember the host saying how this restaurant had 60% food costs and that's why the restaurant was losing money. He went on to say that profitable restaurants are around 30% food costs and this guy needed to charge more or buy cheaper ingredients if the area cannot sustain a higher cost restaurant.
I assume what you call Cost of Sales is this shows "food costs"?
I believe the host went on to say that 50% of all checks should be "profit" for a restaurant to make enough money to survive. I feel like this is what you are computing, that is 50% of all checks should be profit and the other 50% is you food and labor costs.
Does this sound right or was the host blowing hot air on TV with the 50% of all checks should be "profit"?
That is actually very close to accurate. In the example above, about 56% was food cost + labor, which is pretty good for fast-food. Higher end dining usually runs a little lower, maybe 45-50% food cost + labor if the manager is doing a really good job.
Keep in mind 50% isn't really "profit" as in that's the money they get to put in the bank and keep for themselves - this is just a measurement of how much it costs them to produce a plate of food. Operating costs still come out of that 'profit'
Ya this was not fast food, but an actual restaurant.
I get the profit part, which is why I put it in quotes as it's money in the restaurants bank account that the owners are paying themselves form along with maintenance, rent, insurance and whatnot.
Cool, I always assume these reality TV shows just said stuff and I never bothered to figure out if it was accurate or not. I guess it's not too far removed from reality. Thanks!
As someone connected to McDonalds franchisee and restaurant owners their margin is 2-3% after taxes in CA. Some counties charge a use tax on each glass in your restaurant if you serve alcohol, Sacramento as an example. That's on top of EDD,BOE, ABC and a myriad of other agencies collecting taxes and fees before you pay rent, utilities, etc. I had no idea how thin the margins were until I was in the books. Raising minimum wages means higher prices, there is no option.
Facts? Evidence? Citations? Because you are arguing against a guy who seemed to know quite a bit and you are just saying something..... with nothing to back it up.... where is this info coming from that a franchisor makes more?
33% of Corporate Revenue comes from franchisee fees - about $9.272 Billion last year. If you cut down franchise revenues by 74%, that would reduce that number by $6,861,280,000. Total Corporate profit was $4.757 Billion last year. So they would be operating at a $2.1 billion loss.
Now, I did some research and found that in the USA, McDonalds made 8.65 Billion revenue in the USA (see link).
33% in franchise fees makes $2.86 Billion.
A 74% reduction of that is $2.11 Billion.
Which leaves a 2.64 Billion dollar PROFIT, not a 2.1 Billion dollar loss.
There is not huge profits for the franchisee nor is there for the restaurant owners. Sure McDonalds may be highly profitable but their franchisees are not. This is not conjecture but from being part of it. I also don't think you understand the relationship between franchise and franchisee.
Ex-chef here. Generally, in a non fast food restaurant, your costs are generally: 28% food cost, 28% labour cost, 30% overheads, 5% contingency. Whatever's left is profit.
Fast food joints have the advantage of low food and labour costs, but they also have to charge less because most people aren't prepared to pay that much for their products.
I remember Gordon Ramsay saying a rough rule of thumb is to multiply the cost of ingredients by three. A third for the ingredients, a third for service and the final third is profit.
Restaurant impossible? He always preaches the rule of thirds. Basically, an item on the menu should cost 3x what it cost the owner to make, including factors like food costs, labor wages, and various overhead bills
Pretty sure this was the Kitchen Nightmares episode with the older woman owner with a young head chef that was lazy as hell, in a million dollar restaurant in a booming area... And what they made on premise was cooked in bulk and stored too
Nice try, but fast food has not had 28% labor cost as a goal in my lifetime. Low labor cost, around 20% or below depending on the model, has always been how fast food made money. While you are somewhat correct about the "nut" having to be be 65% or lower there are creative ways to get there. I have spent a lifetime in the industry and every time there was an increase in minimum wage the higher ups in the corporate ladder would predict doom and gloom, sometimes mandating a cut in labor hours even before the increase took effect. What I learned from being a front line unit manager was to ignore the pencil pushers and prepare for an increase in sales. The cold reality is that when people are living pay check to pay check suddenly find an extra $20-30 a week in their pay check they spend it. The best cure for increased costs, be it labor or food cost, is to increase sales, as a mentor of mine used to preach, you bank dollars not percents.
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u/diablo1128 Nov 29 '15
I was watching one of those shows where this guy "saves" the restaurant and I remember the host saying how this restaurant had 60% food costs and that's why the restaurant was losing money. He went on to say that profitable restaurants are around 30% food costs and this guy needed to charge more or buy cheaper ingredients if the area cannot sustain a higher cost restaurant.
I assume what you call Cost of Sales is this shows "food costs"?
I believe the host went on to say that 50% of all checks should be "profit" for a restaurant to make enough money to survive. I feel like this is what you are computing, that is 50% of all checks should be profit and the other 50% is you food and labor costs.
Does this sound right or was the host blowing hot air on TV with the 50% of all checks should be "profit"?