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Yes, this to me was the most telling part:

That chicken is a confit (with duck fat, aka $$), then served with a stock/stew that takes days (of labor dollars) to prepare, plus cost of employees to serve, stuff to serve it on and rent to pay, not to mention the utilities (the water bills on that cursed grease trap were the opposite of "the gift that keeps on giving"). That damned chicken should be $40! But people won't pay $40 for chicken, so it's $29.

This seems to suggest that the author (who I sympathize with very much) doesn't have much understanding of cost accounting, and therefore pricing, which is near the top of mistakes inexperienced business owners make. The cost of the chicken is variable. The costs of rent, labor, and utilities are fixed on a per plate basis.

I'm friends with the owner of a very large and very successful restaurant and he once told me that he basically makes no profit on food and that the food is just a way to get people in to sell alcohol which is where the majority of his profit is made. It's also true that some foods are necessarily more profitable than others. People won't pay your costs for the chicken confit and you lose a few bucks on every one that goes out? Fine, add a few dollars to your pasta dish that costs far less to make and if you sell the same number you're even. Or, if the chicken isn't profitable and you aren't selling many of them, just accept that people don't want it and take it off the menu.

...he basically makes no profit on food and that the food is just a way to get people in to sell alcohol which is where the majority of his profit is made...

Swap "alcohol" for "soft drinks" and you're pretty much describing the entire fast-food industry.

No way that McDonalds is selling Big Macs or French fries at cost. Do you really think it costs McDonalds nearly €2 to serve you an order of fries? Or nearly €4 for a Big Mac.

McDonalds operates at a larger scale than any other restaurant in the world and by a very large margin. What works for McDonalds won't work for restaurants that must order supplies on a much smaller scale.

Also, in McDonalds' early days they didn't have the leverage over suppliers that they wield now, so its food costs have come down by orders of magnitude. This reminds me of something my cost accounting professor told me- to get to large scale businesses have to price items as if they are already at large scale. If you buy a stamping machine that cost $1 million capable of maximum output of 100,000 units, but currently only have sales of 5,000 units, do you price each unit at 1,000,000/5,000 or 1,000,000/100,000? If you opt for the former, you'll never get to maximum output because customers won't be able to afford your prices.

Given labor costs, packaging/disposables, energy (freezer, grill, holding cabinet, environmental, ventilation), franchise percentages, real estate lease, shrinkage/waste, promotional discounts/combo meals...yes. It comes very close.

You have to be a very clever restaurateur to get away with $29+ entrees. This is not something you just plunge into on a whim.

They should just have made darned turkey sandwiches or something. Charge 25 cents less than similar ones in a two mile radius. If everyone is asking $7, make yours $6.75.

Have an espresso machine and great coffee.

Don't hire any outsiders until business outpaces your sandwich-fu.

Encourage take-out and phone-in orders (or online). Take-out people don't take up seats and you don't have to do dishes after them or clean the table.

Don't know what coffee roaster(s) they were getting their beans from, but pictures show a Synesso espresso machine. Given it's Portland, that's probably not as remarkable as it would be in other restaurant/bars around the country.

Without having any experience in the area or knowing owners, this has been my exact assumption.

In a restaurant me and my girlfriend frequent, the main dishes are actually VERY affordable -- I'd even say cheap -- for what they offer. And many people flock to the restaurant in lunch breaks, but they are very careful to only order a beer plus a main dish.

Why? Because that restaurant's every single drink -- alcoholic or not -- is grossly overpriced. Desserts cost an arm and a leg. Salads are mostly okay but they most likely sell them for 3x the price of the ingredients as well.

The way I see modern restaurants is exactly like you said: food is just a bait so you can get in and buy the things that go with it, and they are the real profit makers.

I am perfectly okay with it. It was just an interesting revelation and I decided to chime in and thank you for confirming my observations.

It's a strange concept to have loss-leaders in a restaurant. If I were starting a restaurant, I would probably just want to sell everything at a profit. I don't have a burning desire to pay people to eat my food.

It seems counterintuitive to me too, but when you think about it it makes sense.

If you sell burgers, the food costs are pretty high. After all, good hamburger meat, cheese, and whatever else you are going to put in it is pretty expensive. If you charge your costs plus some fixed percentage to ensure profitability on every item, but your customers are used to buying burgers at similar places that charge for the food at cost and make their profits on french fries and drinks, you will quickly earn the reputation of being overpriced. If you can earn some sort of adoration that drives people to your place regardless of price, like Shake Shack or In N' Out, then you have the luxury of charging a bit more, but that's hard to achieve.

Side note: burgers are actually quite cheap to make (even top of the line burgers: eg waygu pattie, day fresh iceberg lettuce, Roma tomatoes and a good in-house made sauce will have a cost of less than $4 unless you are screwing up your ordering), it's the incidentals that will actually cost most of the income. (I have a post lower explaining more, but basically food should never cost more than 25% of your total sales price)

Adoration of customers is a nice theory. Never holds up in reality though. Those customrs go there because they know the quality and quantity for the price, and know that every time it will match that. If you have any doubt in that point, watch what happens to any chain that begins to serve lower quality or inconsistent quality food.

There is customer comfort from repition, but even a moss covered stone can be moved for a good reason. Customers arnt moss covered stones though, they will try something new and if the price/quality point is better, they will move.

>...food should never cost more than 25% of your total sales price)

I'm in the food industry, and this pervasive food-cost mentality is one of the things I think people often do unwisely.

Here's a simple example with made-up numbers: The burger ingredients are $2.50 and the burger sells for $10. There's a 25% food cost. The filet of beef tenderloin costs $10 and sells for $25. The food cost is 40%.

Focusing on food cost means the burger is a better item for the restaurant. But I'd take the 40% food cost instead of the 25% food cost and then net $15 instead of $7.50. A percentage means nothing compared to cash in hand. That's nothing groundbreaking to say, but that discrepancy is often lost on food-industry people because they focus too much on the food-cost percentage.

Side note: if your paying that much for beef for a burger portion, your getting ripped off.

Look the basic principle is: 25% to each: food, staff, facility, profit. Now all experienced managers know that profit is a variable.

The point being, never sell for under, unless you can guarantee an over. Which is difficult to say the least. Yes, if you have gaming section and can rip off your customers from there, go ahead (nb: this is why I never working in venues with gaming facilities). If you have an amazing wine selection or just plain know your clients are going to order great pricepoint wine? Well, just be careful.

Otherwise, you better be selling a lot of overpriced stock with low staffing rates, otherwise son, your going to come undone(as was put to me during training).

Look, all rules are made to be broken, but there are reasons why there are general rules of thumb. At %40, how are your staff doing, with all that running. Is the service good enough? Is your kitchen overstressed? Maybe no, if so - I'm happy for you, but do you think every place can run at %40?

Focusing on costs is the main thing. If you don't, you will find yourself in water deeper than you can handle one day. I'm happy that you can run at %40, I just hope it doesn't go over your head before you realise.

I think we disagree that focusing on costs is the main thing. Figuring out what to charge is something I find easy—it's largely a one-time exercise for items—but executing on product excellence and even better service is where I put much more of my time and energy. More specifically, I simplify my employees' work down to five categories:

Great products

Even better customer service

Safety

Sanitation

Organization

I've set our rates so that staff can focus on those listed areas instead of sweating every cent, a common industry behavior which I think inhibits the customer experience and leads to lower-quality products. Certainly, costs matter (to me and to employees), but I want their focus to be on what they make and servicing our customers, and I'll do the bulk of the the economics. So far, for my food business as a wholesaler, that's worked.

I don't actually disagree with anything you have said there.

I was talking from a cost management point of view. If you would like to talk more about this(we're almost at the end of hn's threads haha), check my profile for my email :-) I'm guessing you're in the us(most hners are), so I can't exactly visit your place, but I would if I could :-)

Customer adoration is earned through consistency and branding. Not sure we're disagreeing. If Chick fil a suddenly started selling low grade meat they would surely lose their adoration but it's also true that there isn't a years long waiting list to open a Chick fil a franchise just because they're consistent.

I do agree with you, I just want to point out that it is a lot more ficle than tech. One bad service can ruin your reputation. No one forgets a bad meal, and a whole table with bad meals is a death knell

It kind of does. Most people come for the food and stay for the drinks, and it’s a lot easier to charge “a lot” for a drink (liquor, not beer) than it is for food because the number is smaller and people like small numbers.

It's no stranger than paying them with the use of your room, utensils, plates, tables, etc. to eat your food. The different menu items are fungible just like all the other costs.

Does that mean that the reason for steakhouses charging $55 for a porterhouse are doing so to justify $300 bottles of wine?

To a large extent, yes. Fresh steak and seafood are among the most expensive items to obtain and prepare. The markup on a prime cut of steak will be much smaller than alcohol. Not zero, but definitely less than alcohol.

Anecdotally, I recently went to one of the top steakhouses in my city with my girlfriend for her birthday. We ordered a filet, some crab legs, some prawns, and a few sides. With the meal we had two martinis each. The four martinis accounted for about 20% of the bill but six ounces of Ketel One probably accounted for a few dollars of costs to the restaurant plus some Olive Juice so those drinks were nearly all profit in terms of variable costs. I'm sure there was a healthy profit on the food, but far less than the drinks.

To put it another way, most restaurants that serve alcohol would not be able to survive without alcohol sales with their current food prices.

So is a random business guy hiring a chef to run his restaurant kinda the startup equivalent of a business guy hiring a dev to build his startup?

Both seem in a similar boat. A restaurant is nothing without a good chef. A programming startup is nothing without a good developer. Both have cases where the chef/developer starts their own companies.. and many more cases where an outside guy with some money comes in and tries to make it happen.

You can succeed in both paths, but it sure as heck seems a lot harder! I cannot image funding a software startup if each MVP I wanted took say 30k to make (instead of a few hours of time). It seems reasonable that cooking is similar..

One difference is that you can be a decent food critic without being a chef. So I think it's theoretically more feasible to start a restaurant as Joe-rando business guy.

That said, I think in both cases the business guy needs to bring domain knowledge (or an insane amount of hustle) to the table. Figuring out the type, location, and marketing of a restaurant is just as much of a make-or-break proposition as having the right chef. Similarly, on the software side you need either pitching/fundraising or some kind of go-to-market skills, whether it be enterprise sales or consumer marketing. Entrepreneurial chefs and developers at the top of their game enough to offer something compelling may be able to do this themselves, but in most cases a partnership with the right business person will have a multiplicative effect on the results.

Depends on the critic.

Infact I'd go as far as to say that a critic has no place running a restaurant. (Caveats below).

Someone who knows the industry and understands what the local population wants? Good chance, most critics (imho) don't, they want the best possible food and service for the (generally) lowesat price. (There is nothing wrong with that). A good critic doesn't make a good restaurant owner though.

Akin as a good blogger about tech wouldn't necessarily be the best person to run your startup.

A chef does far more than just create and execute a menu.

You can be a great cook but a terrible chef. A chef is an experienced cook who can also manage a kitchen. Management ability without cooking skill is what you get at fast food franchises and meal manufacturers like Sysco. Being a foodie is a negative hiring signal in those contexts.

Actually it's a little more in-depth(well it useto be, I'll explain that lower).

When I started out it was:

cook: two years training(while on the job), basics of most styles of cooking.

Chef: 4 years training (most of the time, on the job), with a day of University each week. Learnt basic cooking skills. Plus how and why of ingredients, how to cost and manage a kitchen, basic logistics(to understand how distance effects produce and the best ways to minimise the effects to ensure top quality ingredients), and a whole assortment of similarly unthought of information (put it in way most techs would understand: backend coding).

Recently most chef's qualifications have been reduced to 2 years, But that's a whole 'nother story :-p

To sum up, a chef isn't an experienced cook who can manage a kitchen - they are someone with the training to manage the staff, costings, health and safety checks, menus, discover and cater to local and new tastes, research upcoming trends, minimise risk(be it personnel, upcoming laws, basic food and hygene, ingury management and mitigation etc), as well as prepare and cook every dish on the menu (in a timely and cost controlled fashion).

While some cooks can manage and run a kitchen, (and I have met some amazing ones over the years), to say they are eanywhere near chef's in general, is akin to saying a student programmer is a full stack dev

Agree completely - sorry for my lack of clarity. I meant 'manage' to include everything on the operational side of the business, vs the financial/investment aspect that an accountant or tax lawyer would be concerned with, without regard to the fact of it being a restaurant.

My apologies I do actually agree with your point, I just wanted to expand upon it with my own experience :-)

I would say yes. It's akin to running a successful port or delivery system, you can't just buy one and hope for the best, you need to actually either a) have experience and know what your doing or b) hire someone with that knowledge.

Hospitality is a little more difficult as the margins are so tight though, hence the most successful are owner/operators.

What I take from this article? An unexperienced person tried to build a new business in an industry that didn't have the experience in.

Few things wind me up more than people who've never worked in a kitchen/restaurant deciding to open one because it's their dream. They think they can do it better, or just that it will be fun and rewarding.

Over here it tends to be people buying a pub, because they like the idea of hanging out behind the bar serving the odd drink whilst the money rolls in. How hard can it be?

It's infuriating and I have zero sympathy

Being experienced is no guarantee either. I had a neighbor who was operating multiple successful restaurants at the Mall of America when he decided to quit and open his own place closer to home. He poured his heart and soul into that project, completely remodeling the space into something 100% better than what had been there before. I think it was the debt that did him in - the restaurant closed in 9 months, and he lost his house too.

Running a successful restaurant is -hard-. There are so many things going in, such a complex system with variables that change - sometimes within days - that sometimes I'm unsure how anyone actually runs a successful restaurant.

Otherdays, when I go visit a few friends places and see how things are organised, it's amazing how smoothly things operate.

But those same people, I know from being there with them, are constantly under stress, and have broken down to me after a few drinks after hours.

  tricking business

Is that supposed to be "trucking business" or is there some other business like souping up automobiles, referred to in a regional dialect I'm unfamiliar with?

EDIT: ...probably one of the anticipated phone typos, fat fingering 'i' instead of the 'u' key.

Yeah it was, sorry I'm stuck using a smartphone and I type faster than I correct :-)

> That chicken is a confit [...] plus cost of employees to serve

Is that really a thing in the US? Honest question, I'm confused. The justification for requiring 20% tips (and considering you "nasty" if you leave any less) is that the waiters in the US are not even paid minimum wage, they rely on the customer tips to make a living. So, which one is it? If they rely on the tips, surely they don't cost the restaurant owners any significant amount of $$, do they?

Indeed, this could generalize to any industry:

  Domain expertise (cooking, coding, whatever) - slow for one client
  Logistic expertise - fast for large numbers of customers, not clients
  Business expertise - becoming a legal and financial client
  Financial expertise - pure cashflow and accounting with little regard for the specific business model

The skills applied in labor-intensive work are not automatically transferable to capital-intensive work as you move down the list. That's why the CEO of McDonalds trained as an accountant, and has probably never worked a grill in his life; for the job he does managing a global corporation, learning to cook would have been a waste of his time.

ISTM that a key difference in left/right political philosophy is that the left thinks its more ethical to start at the bottom and work up, whereas the right feels it's OK to leapfrog as far ahead as you're able. A libertarian economist would argue that this maximizes both individual freedom and value across the economy as a whole, whereas a Marxian economist would argue that such maximization strategies exacerbate boom and bust cycles, like a car with an accelerator but no brakes.

I'll be a bit pedantic here, but Fred Turner, CEO of McDonald's from 1974-1987, started at the company as a grill operator.

I wanted to cite him too for that very reason, but since he departed 30 years ago the corporate culture has probably changed significantly.