If anything, I want to help people in the business because it’s a business I’m passionate about. I’m always trying to help my restaurateur friends with their books, marketing and basic analytics. I suspect many/most on this site are in a similar boat and would want the good food in as many cities as possible trend to be sustainable!
Tenant improvements are another big cost, these aren’t vanilla boxes. You need a lot of turnover, 2 turns a night but most places aren’t NYC, etc with the density and the business/tourist business.
Very interesting. A couple of initial thoughts.
There was reference to hollowing out of the middle. This seems to be a common theme in retail generally and maybe other areas. I suspect there’s many factors driving that … increased inequality generating larger numbers of ultra-rich supporting top end, and a combination of low-cost culture and ready availability of information ratings etc driving the low end.
With hourly wages increasing, (some) introduction of health benefits, should that lead to a lowering of the norm for tips? And hence give room for the restaurant to raise prices. I’ve often wondered in North America who the waiter is actually working for.
Finally, are restaurants in the food business or the liquor business? With wine prices 3x retail or more it seems to me they under charge for the food and over charge for the wine. So the the customer brings their own. I’m curious as to what the business model is here.
PS. A question, Is Chicago in the same situation? My impression is of a more vibrant scene there based on a recent visit and on line research beforehand. (Oriole dinner probably in our top three or four ever).
Richard, I don’t know about other cities but this math is pretty typical for Portland. Most place lose money before alcohol. scroll to the bottom.
(Wine markups). Yes i agree it’s common, I’m curious as to how it arose. At the low end it’s probably reasonable. Also for cocktails, the mixologists skill etc is worth something. But at the higher end of a wine list, one has to wonder. And if the business model counts on it, and if people start to BYOB…
The numbers are interesting, I haven’t seen them set out like that before. After allocating overhead looks like they made around 10% on revenue (mental arithmetic sorry). So that’s a good day?
I notice they sold 2 bottles and 23 glasses of wine which is interesting. Is it a small plates place?
Looks more like a bar
Great, great article that shows just how hard it is to make money in the Restaurant business.
Great discussion. Read the article and think it was as others have said, a good prompt, rather than a “good article”. The labor part aside from the pure hourly cost is one thing the author touched on but didn’t go much deeper on. Having worked in half a dozen restaurants in my younger years I can attest that it is 1) back breaking work 2) attracts some of the most “colorful” people on earth (which is a nice way of saying unreliable/transient/substance abuse prone/generally crazy).
In the big cities like LA/NYC/SF small start-ups are going to be seen as a stepping stone for the line crew/sous type crowd who might have some formal culinary education. Further down the line in prep/dishwasher/front of house world there are a lot of places that can probably out-pay the small start-up or be more attractive in other ways.
At the end of the day it’s a business about people, those that eat the food and those that make it. Keeping both in harmony is a bitch and a small spot is going to have to really luck out on that front to keep things humming. So many issues I’ve seen in my time in the kitchens that have cost/wasted money were due to poor ordering, process, training and management.
Interesting article. As the discussion suggests there are many reasons why restaurants start and close. I do see younger folks(young families) with less money and time on their hands looking for value and convenience more often. They also occasionally enjoy local “happening places” to meet and socialize. In my low population area, which increases significantly in summer tourist population, we see restaurants “feast” in the summer and hit “famine” in the winter. In recent years the number of restaurants opening has been astronomical so that the competition for summer customers is intense and restaurants are making less. Without a competitive edge many restaurants struggle more in the winter and a significant number do cut their open days way back or do close. That being said there are a number of inventive proprietors who either shift/enhance their current businesses or close a “project” restaurant to open another “project” restaurant. In many ways I see the special occasion restaurants decreasing with people gravitating to good food with good value restaurants.
Makes me want to go there, plus there is Heater-Allen!
Tom, Richard. As I say, this is pretty typical for Portland. Visiting friends often comment how weird it is to see people drinking at lunch on a Tuesday. It’s just a town built around casual drinking. Many places have the small plates with a couple big plates approach so people don’t have to spend a bunch if they just want the social experience of going out. A couple appetizers and a drink and you can get out at $20 a head, similar to going to a movie, except more social.
Lemme know when Glenn!
Sounds very convivial.
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Still curious about how the business model (with 3-4 x liquor markups) evolved and wether it really works; also whether tips should/ will adjust to allow food price increases in higher hourly wage cities.
3x on liquor, wine and beer is pretty common.
btg is typically higher for wine, usually 4x. The thinking there is if you buy a bottle wholesale for $12 and charge $12 a pour for 1/4 to 1/5 the glass, you don’t lose money if the bottle goes bad before you can pour the rest.
4x (25%) on cocktails is pretty typical too, but the labor cost is higher there too.
over on the face book, nick kokonas agrees this article is kinda BS and is planning on writing about it. psyched to read it.
paul - one of the problems is in fact those “common” markups. they don’t achieve the desired result and the downside is an insane amount of inefficiency.
paul - one of the problems is in fact those “common” markups. they don’t achieve the desired result and the downside is an insane amount of inefficiency.
My perception is that in Europe (well England and France) food prices are higher and wine lower - can anyone confirm.
Id like to know the proportion of BYOB in mid higher level restaurants, and what their assumption is.
Or put another way … in a typical business case what % of revenue is expected to come from markups on higher priced bottles. And are there any contrarians (higher food lower wine prices) and how are they doing? I realise this is a bit fuzzy in terms of definition, but it seems to me that the current model leaves restaurants vulnerable. You can bring your own wine (and so pay $50 corkage on a $50 retail bottle say versus $100 markup) but not your own steak (afik!).
Care to explain further? I’ve had a similar mindset with certain aspects of the restaurant business but haven’t been able to quantify it really.
One thing I think restaurants are a bit late to is catching on to the trend of the consumer always wanting to feel like they are getting some sort of “deal” either in volume or price. For fine dining this doesn’t really translate but I’ve seen some smaller, casual restaurants do really well with rolling promotions that again give the impression that the diner is getting a “deal” on something.
Indeed. One local resto has all wines half price on Mondays. The also have an interesting list. So for the same $ we get to try some different, quality, wines that aren’t actually in my cellar. A “$150” wine for $75. They are full on Mondays, making some money off the wine list - seems like a no-brainer to me. 50% of 3x seems like a fair markup to me for good wine service.
it’s a big part of what my startup is doing, but super top level, most things including beverages are managed by keeping costs at a certain level. that’s as good as it goes, but it’s a very incomplete picture. margin is obviously important, but in a business reality where there are very different market effects depending on the week and the fact that 1/3 of your business is a packaged goods business (beverages; infinite selection, fairly opaque market) and the other 2/3 is processing ingredients, it gets very complicated very quickly. and the common rules of thumb are woefully inadequate. all the literature backs this up as well - there’s an infinite amount of analysis done on this stuff. the big disconnect is that, historically, a typical SMB restaurant didn’t have any resources to see what they weren’t seeing. so, for them, it’s simple, manage the beverage business by keeping it at 25% COGS. And keep in mind, in the universe of a restaurant being 99 problems, buying something for $30 and selling it for $90, isn’t seen as one of those problems. but the more sophisticated operators are seeing this now, and there’s a real desire to manage more efficiently. and yes, most of that desire is a result of increasing challenges from rent, demo changes, consumer expectations, etc.
Do you mean consumer prices? My perception is they tend to be lower for both in Europe both at the mid tier and the top. Osteria Francescana is about half what French Laundry costs, for example, especially when you factor in taxes and gratuity. There are lots of causes but rent and labor can be cheaper in Europe. The family might own the building in Europe (less common in the US), and they may have more stagiaires. Less turns though, so there’s that headwind.
I got an interesting lesson in wine pricing recently while in Germany. There are essentially Restaurant/Hotel brands where there’s very little direct to consumer sales for an $60 bottle. Instead, they sell to the restaurant or hotel at $30, who marks it up to $90 for you (see, still 3x). So it doesn’t look terrible to you but you also wouldn’t be buying the wine direct from the winery either because you can get a similar wine for $30 from the neighboring winemaker. That winemaker selling a $30 wine direct to consumer can’t afford to sell his wine at 50% off to the hotel ($15). So you get DTC brands and B2B brands. I’ve left names off here but you can probably easily think of a GG producer that might be working off this model.
What? You’re joking, right? I drop $100 p.p. minimum for any good restaurant in NYC, well before we get to Michelin stars, unless I am eating Chinese, Indian or some other ethnic food. I made a nice dinner for the family two weeks ago with home made cream of mushroom soup with morrels, porcini and smoked portabellos, smoked slow-cooked roast prime rib, grilled cauliflower, salad, potato pancakes, home made Naan with melted brie for those who did not have enough cholesterol, and home made chocolate cake. All in, the entire meal for five adults cost less than $100, maybe $125. AND I got to drink Colgin, Schrader and Aubert without corkage.