Last night I ate at one of those all-you-can-eat Chinese buffets. I love those places. They usually come and go quicker than the seasons. My friends will tell you that it’s my fault. Could be true. There’s no way in the world they made a profit charging me $9 for two large plates of crab legs, the accompanying butter, six chicken wings, (with hot sauce), six spare ribs, (with duck sauce and mustard), four clams on the half shell, (with cocktail sauce and lemon wedges), one bowl of wonton soup, one skewer of chicken teriyaki, and one bowl of ice cream. Throw in the free tea and water and I’m almost guilty of robbery.
Ever dine with someone who said: “$20 for a steak? I could buy it at Shoprite for $8. Throw in the vegetables and salad and this cost them $10 at most. They must be making a killing.” They reinforce their “restaurants make a bundle” argument by pointing out that servers only get paid a little over two dollars an hour. (Their below minimum wage rate is legal because it is supplemented by tips). What our unsavvy dinner guest is failing to consider is the unbelievable number of unseen costs in the restaurant business.
Restaurants have enormous initial expenditures. A building and liquor license alone can cost a million a more. Renting a building is not much better of an option. It’s a huge monthly overhead with no equity. And unless it’s brand new there may be some renovations needed. And if you forgo the multiple hundred thousand excised to procure a liquor license, you are concomitantly eliminating a major source of revenue. But the building and the legal right to sell alcohol is only the beginning.
Professional restaurant equipment is very expensive. Stoves, grills, deep fryers, dishwashers, freezers, refrigerators, all cost in the thousands. A restaurant size ice cream machine is five to ten thousand alone. And can you imagine the amount of electricity, gas and water it takes to run all this stuff? Then there are the countless other items like small appliances, gadgets and tools. And how about the dining room furnishings: tables, chairs, plates, silverware, glasses, tablecloths, decorations, menus, etc.
Food costs are huge. For every $20 dollar steak being served, there’s something being thrown out because it was cooked improperly, has gone bad, was spilled, didn’t sell, or being given away to some disgruntled customer.
Most restaurants also provide their staff with a “family meal” before or after the dinner rush. Plus there are all the little free amenities like the extra lemon in your ice tea, the extra butter on your baked potato, the seven sugars Mr. Sweet Tooth puts in his coffee, the additional basket of bread, etc., that are not charged for. You might be scoffing at those extra sugar packets but multiply all these seemingly miniscule trivialities by a month’s worth of dinner guests and you’ll have the equivalent of a mortgage payment. It’s like Ford having to replace a fifty cent part on all it’s Lincolns in one year.
Servers may earn two bucks an hour but there are many of them. As well as the bartenders, bus boys, cooks, dishwashers, hostesses, the executive chef, and one or more managers. Every businessman knows that staff cost much more than just their salary. Figure in social security taxes, benefits, the cost of hiring and training employees, (restaurants have very high staff turnover), and the accoutrements you must supply them.
But wait, there’s many more demons lurking behind the scenes ready to eat up the “big profit” on the prime rib. Consider insurance, advertising, repair and maintenance, cleaning supplies, office supplies, the telephone bill, waste removal, pest control, and many other nickel and dime items that insidiously accumulate. Oh, and don’t forget Uncle Sam’s cut.
According to a study by Ohio State University, 26% of new restaurants will fail within the first year. Nineteen percent will fail within the second year and 14% will go belly up by their third year. Thus, 59% of new restaurants will be out of business within three years.
Competition in the restaurant business is fierce. Customer loyalty is fickle and that elusive repeat business is the lifeblood of any restaurant. Many other options exist if a particular establishment miffs you with inferior service or cooks your medium rare steak well done.
A good restaurant manager and executive chef are worth their weight in gold. It takes noteworthy skill and incessant diligence to maintain consistent quality in a restaurant. You’re constantly adjusting to fluctuating product quality and availability, varying food trends, and staff that come and go quicker than restaurants do. And when quality drops for any length of time, you’re pretty much dead in the water. How often do you go back to an inferior place in the hopes that they finally got their you-know-what together?
Twenty bucks for a steak dinner? I’d say it’s a bargain.
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