Can’t recall if this was posted and discussed! This is a sobering article. For every dollar Botanica took in they paid out $1.05. Their restaurants profit margin was 1.5% and only because they rented the restaurant out on days they were closed for commercial photography shoots, the actual restaurant itself lost money on $3 mm of revenue.
Is this sobering? They’re choosing to run a model that is inefficient as it relates to their bottom line. The model and ethos reads as a non profit and that’s reflected in their P&L.
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Well it also says that the profit margins on restaurants nationwide is between 3-5%. That is consistent with most restaurants I know. The only way to do better is high volume casual.
Are you trying to say it is easy to make money in the restaurant business? I know you did not say that but what is your inference?
I imagine that 3-5% industry standard is without renting out space to prop up the margin, so their margin is even lower if they operated within a strict sense of what they innately are. My inference is they seem to be making it harder on themselves, what they do appears noble, but in the end it’s a business and it feels a bit like they want their cake and they want to eat it too.
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"And if we were to pass the costs on to our customers, we’d be compromising the vision and values that make us what we are. "
“Sales, on the other hand, have grown only 2.3% .” [in 7 years!]
Yeah, I don’t get it either. It sounds like they basically haven’t raised prices in 7 years?.
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We can debate the finer details of the article but I talk to restauranteurs regularly and it is the same everywhere, especially in big cities. I have a close friend who has one of the most lauded restaurants on the planet, it is full every night and the team are some of the best operators I know. They did 7 million in revenue last year with $500k of profit. Now here is the kicker that is before she took a salary and paid investors and she is the head chef!
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Anyone who invests in a fine dining restaurant ought to know by now that it is a vanity investment with little likelihood of any return, let alone a market rate of return. As the saying goes, if you want to make a small fortune in the restaurant business, start with a large fortune. I don’t see how stand alone, high priced, high service, high rent, high operating costs restaurants are ever a good investment.
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I agree, I say no every time I am asked. I would only consider a high volume, low cost pizzeria type place.
I think ultimately we need to change how we view restaurants, they can’t be viewed through the lens of traditional economics because they’re just inefficient by nature and the math will never make sense as profit maximizing enterprises. I think if we really want to evaluate restaurants they should be viewed as a public good and should be subsidized because I am of the belief they offer more than their espoused products for their respective neighborhoods.
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I’m down with that. No sales tax, no tax on tips, liquor tax exemption or rebate
Is that too much or too little?
Interesting idea and I would be all for that.
I think a more practical answer is restaurants need to find additional ways of making money. I like what David Chang and Rene Redzepi are doing with their home line of products. And I think every restaurant should be able to sell wine to go or at retail.
I wouldn’t have a clue where to start, I know it would be deeply unpopular at first with the free market folks, but those folks don’t seem to have any issue with subsidizing farmers for the greater good. I find that restaurants have a net positive societal impact in terms community building.
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That’s an incredibly crowded space, you’d have to have a brand as big as Momofuku and that’s just not realistic. The wine sales are not as impactful as you think, they’re allowed down here in GA, but almost no one capitalizes on it.
The real upside, if one can pull it off, is to leverage a successful restaurant/chef name into fast casual and grocery store product lines. Puck has done a great job of this, for example, and we all know that Danny Meyer is very wealthy because of Shake Shack, not so much his fine dining restaurants.
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Agreed.
yes but restaurants do not think in terms of profit margin. If 2 people dine and spend $200 and your profit margin is 5% that is $10. If you sell them a $30 bottle of wine to go with 33% profit margin you have just increased your profit on that table by 100%
And food should not be the same price on Friday night at 8 p.m. as it is on Monday night at 10.
A friend who has had wildly successful restaurant for 15 years told me he has a database of well over 100 emails of guest who have dined with them. That is an email list of a perfect target market to sell home goods to and is worth its weight in gold.
I could go on and on. The majority of restaurants just don’t think enough about profit margin, profit per table, profit per customer incremental ways of earning revenue etc.
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I’d eat at that pizzeria if you were the one curating the wine list! 
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Surge-pricing ultra-popular restaurants is actually quite brilliant. Cheap-asses like me could eat on days when it would otherwise be empty for much less than Friday or Sat at 7pm when everyone else wants to go.
I am going to San Francisco next week for the JP Morgan Healthcare conference, business class flights $10,000 a $250 hotel room is $1500. Eating out every night and doing two major events - same pricing as always.
I think you nailed the problem, I genuinely do not think most operators are savvy business professionals, They are not profit maximizing, at least on the beverage side they only ever seem to think about margin and rarely about profit, they’d rather sell a bottle of wine at 20% cost then a bottle that’s 50% cost but 4x the revenue.