The price of eating out: Why that steamed rice costs a bomb

Republished from MumbaiBoss.com At a restaurant, the price of the dish may reflect the cost of the ingredients, but those costs make up only a small fraction of the price. We know that we also contribute towards the restaurant’s many direct and indirect costs, including real estate, electricity, labour, licence fees, décor and more. In restaurant budgeting terms, the portion that food takes up in the cost of running a restaurant is quite simply called “food cost”. High food cost is something that chefs flaunt. I have seen a chef beam while saying, “My restaurant’s food cost is 40 percent.” Which means that his customers, on average, pay 40 percent for food, and the rest for the experience of eating there. As food costs go, that is a very high proportion for a fine dining restaurant and could mean great food but also low profitability (or cheap rent!). Restaurateurs I spoke to said most restaurants’ food cost should ideally top out at 30 percent for profitability. In fast-service restaurants, such as Udupis, because the labour costs are lower, the food cost can be higher. If the eatery is a hole-in-the-wall, no frills place, which is mostly about the food, food cost can be the largest component. Street food, for example, has a very high food cost. [caption id=“attachment_169950” align=“alignleft” width=“380” caption=“A night which has 20 orders for potato and leek soup, and one of lobster is unprofitable because the total revenue for the evening is low. Getty Images”] [/caption] When restaurateurs know that the average food cost of the eatery is, say, 30 percent, they do not apply a fixed percentage mark-up on each dish based on food cost because then some dishes, say lobster, would then be priced too high. One chef I spoke to about this topic said, “I cannot charge Rs 2,500 for black cod and then on the same menu charge Rs 80 for fries.” The idea is to encourage diners to order a balance of dishes in terms of food cost and margins, to keep the restaurant in business. A night which has 20 orders for potato and leek soup, and one of lobster is unprofitable because the total revenue for the evening is low. But so is a night where there are five orders for the soup and 15 for the lobster, because the lobster is a high-food-cost item. So even though the revenue is high for the evening, the profit is low. Each dish in the menu is priced to maximise sales and profitability. High-margin-high-moving dishes are promoted by the restaurant, and low-margin-low-moving dishes are eventually taken off the menu. For example, a pricey popular carpaccio might stay, but a cheap and unloved watermelon salad may get knocked off. Then there are “loss leader” dishes, high cost, but priced low. They are priced to break even, or sometimes even lower, because they draw people in, demonstrate the chef’s skill, or are a matter of pride for the restaurant. So this means that for some dishes we order, the food cost is as low as five percent (steamed rice, for example), while for others it is as high as 50 percent (lobster). While it may seem like highway robbery to charge Rs 200 for a bottle of water or Rs 350 for a small bowl of steamed rice, these low-food-cost dishes are necessary to keep the restaurant running. If these low-food-cost-high-priced items were not around, steak or morels on the same menu would cost as much as three times more, and would have no takers. Some restaurants use this pricing strategy to good effect, making customers feel like they are getting value for money. For example, a place that provides a bread basket and olive oil before the meal, and a side of mash and grilled veggies with a steak. Others exploit it, serving a hulking, exorbitant bowl of Thai curry with a tiny serving of rice, compelling diners to order more rice for a few hundred rupees per serving. Food that subsidises the fancier stuff on the menu runs the gamut from papad, naan and raita, to scrambled eggs and garlic bread. As diners, we keep our favourite restaurants afloat by ordering dishes like low food-cost penne arabiatta, canned tuna sandwiches, and house salad. Restaurant menu pricing is thus based on our need to have a well-rounded meal, including both high and low food-cost dishes. This article by Roshni Bajaj Sanghvi is republished from MumbaiBoss .