Chef/Owner, or Academic

No restaurant is making $0.61 on every dollar of food sold. Remember - your 39% represents only food cost. If you want to keep it to food to food comparison only, out of that plate sold comes an amortized portion of direct labor, management salary, and other fixed and variable expenses - typically, chewing up another $0.44 to $0.48, leaving you $0.13 to $0.17 to pay everything else - rent, insurance, taxes, yearly liquor fees, marketing, etc. F & B sales are the only income you have in a restaurant, and with so much more bleeding going on than in most other industries, it's a tough game.

 

Yeah I do understand that, but you are starting with a larger portion that what a retail store starts with (61 cents as opposed to 50 cents or less). Maybe its the # of people that are required to make that 61 cents (cooks, servers, managers, a more expensive location) that makes it less tenable. I think I answered my own question as to why they go under.

 

I think we're in agreement...A retail store simply chews far less of the remainder. Given the risk, and the incredibly hard work (I was pulling 17 hour days, 7 days a week), it ain't punching out software cd's!

 

go cheffin is my choice

 

On the complete flip side, isn't microsoft the company with the best cogs? I read one time where MS makes 85 cents on every dollar sold for MS Office. Its a huge money maker for them.

 

Yeah, that was why I brought up software as a counterexample - after R & D, it costs nothing to punch out CD's. I've often rued that I don't have a programmer's mind. Strictly in terms of return, seems to me the ideal biz. If one could set up not only production, but distribution on an automated basis, it wouldn't be the worst thing to be diving Tahiti while money rolls in....

 

yfs... the BOGO (buy one get one free) is indeed hinged on the cost of the drink. It used to be that you could figure this around a penny an ounce, but especially with all the 'serve your own' models around that cost has gone way up to about 35 cents per 22 oz..

Northpoint - my experience in managing fine dining restaurants has been in NYC and Los Angeles. I am currently in one of the most famous restaurant cities in the world. I will also pull out facts and figures regarding COGS but I do not have time right now. I will say this, however, COG's do not stand for the Cost of Food - but rather Cost of Goods, as you know, and liquor cannot be removed from the equation and will always lower the overall COG.

The most famous COG model of thumb has always been the 33 percent rule 1/3 COG, 1/3 Labor, 1/3 profit. IN practicality however this model fell flat. Labor in fine dining should hover around 28%, COG's for fine dining around the same but NEVER to exceed 30% (that's on a yearly average), and location expense 20% to 30% depending on your lease, CAMS etc. This is the recipe for success I am familiar with and it has worked very well for me. Whether you are serving scallops with black truffles and bacon or a bologna sandwich the model holds true.

If you are in the mid-west and you have to pay an arm and a leg for say, Chilean Seabass, but you cannot charge appropriately, I would say don't buy and serve Chilean Seabass.

North, I have also worked with some of the most famous hotel restaurants in the world - they would shake their head in wonder at your contention that a COG of 39% is acceptable. It is just not real world. It may be in some book somewhere, but it ain't real world, bro. You will not maintain your restaurant or, someone elses restaurant, with those kind of numbers.

I once ran a restaurant 58th and 3rd in Manhattan, we were the first of it's ilk to receive two michelins. If memory serves me I took over and brought the food cost all the way to down to 26%. I had one war after the other with the chef, but we did it. I left one year later and the restaurant closed two years after that.

There is artistry in food, but it's still 99% perspiration. Presentation notwithstanding. You've got to work the numbers just like any other business.

One more thing. You say you'd rather have 5% of a hundred thousand net than 10% of fifty thousand. Well, on the face of it who wouldn't? But you are mixing apples and oranges. On the one hand you wish to use a multi-unit international restaurant, Outback, for an example, and on the other you wish to use a single unit owner/operator venue as an example. You cannot, the same rules do not apply. 5% of a unit, with an owner operator equation may work, or just barely survive more likely, but Outback's bellweather is different. With some, hundreds of venues, (I'm guessing) stock options, etc., 5% net goes very far with such margins especially inasmuch as the owners of such types of corporations typically are stock holders and measure their successes in pennies per share.

You'd be at the poorhouse in no time with such margins.

IN Christ

 

Deadcorn -

First, we are likely close in agreement that COGS should be as low as you can get, without killing the heart of your trade. Rereading Lorien's original post, I can see the confusion - Although he later clarified, he did originally say 39% COGS. I simply read his original post as 39% for food, which, judging by his later thread, he apparently meant. If you'll reread mine, I maintained that a food cost of 39% is reasonable, with liquor pulling COGS down. It is "reasonable" because I have known numerous kitchens that worked with close to (often, exceeding) this figure, and the op (including mine, in prior ventures) was a profitable, stable business.

Second, I can tell you are sincere, and I appreciate your taking the time and effort to post your thoughts. However, you are making a host of presumptions, and we are engaging in a pissing match. I can't know, but I would hazard a guess that I might have been doing this longer than you've been alive. The thrust of my thought, at least from the "real world" I come from, which constitutes decades of experience in Los Angeles, the Bay area, and the Eastern Seaboard, "never" simply doesn't apply. In other words, quite simply, my experience differs from yours.

One quick example, from your quote above: you do take a dive on Chilean Sea Bass if it is a menu leader, gets butts in the seat, and you can make up the margin on another menu item so that your total food cost stays reasonable. Such was the case with our lobster - whole, with a mascarpone risotto, caramelized fennel and sauce américaine. At $37, we got positively hosed (not a material loss, but certainly a lousy margin). But it sold. We made it up on another leader, braised lamb shoulder, chevre risotto, garlic and tomato confits; $27 - high volume, high profit plate. Or you take a dive on total food (as most high end places that I know, do), and make it up on a killer bar trade (the COGS of our discussion stays within bounds).

Another example: in a wine mix with several moderate wines, and some high-ends, you may not be able to "charge appropriately" for the high-ends by some markup formula - say, $230, when the rest of your cellar runs $32-58. But having the wine is important for those who know and want it. So you take a dive (in terms of lower margin) on that wine in order to bring butts to your seat, and try to make it up on lower cost point leaders.

Another, an interesting example, from a conversation just the other day, with my cousin (a California winemaker): an acquaintance of his, with a bistro running a standing policy of $6 over retail for all wine. Crazy, by any "textbook" wine pricing. But the owner is slammed, several years now, running. Lower margin, higher COGS (I guarantee you he well exceeds your "never exceed" rule of 30%), and making bank, literally, from what my cousin tells me.

Money is money. Whatever any of us call it, if you take more of it to the bank, that is a good thing. What you do to accomplish that is a mix of strategies, some that come from textbooks, some that come from learned experience, some that just happen to hit. You say that you have managed several places, and have gleaned from that a rule to go by. I am glad this has worked for you. I didn't hear you say you have ever owned something. I have, several; and while none of them made me rich, they did well.

Waterstone failed for a host of reasons, none of them related to COGS. We blew it on the due diligence respecting our erstwhile partner, and the seasonal volatility of this market. We depended on a BIDCO with stellar credentials but useless consultancy on the ground. Finally, It was too debt leveraged and as vulnerable as this made us, the several exogenous shocks that hit our economy over summer 2004-summer 2005 hit us especially hard, as it did many others - most report revenues off by at least $30-50,000, and many, sadly, have folded over the last stretch of time.

Lessons learned. Nevertheless, what I have walked away with over the years is a different conclusion from yours - namely, that no rule applies, universally.

 

North... lol@pissing match. I prefer to think of this as two old hands sitting around a nice single barrel (or malt, if you prefer) and shooting the shit.

I have been in this business for thirty eight years, by the way. You can't be THAT old, now, can you?

Also, as I understood your original post, you were in some fairly podunk mid-western town. $239.00 for a bottle of wine???? There?????? You know, one year I was head hunted to go run a place in Des Moines... A very hip city in its way (hey, rocky marciano died flying to a party there)... but selling a bottle like that!!!??? (what was it - Barolo, Opus? Margaux (first growth albeit, lol) that would be a dire rarity. Nothing you could bank on. Now you're trading San Fran for 30 below zero with the wind-chill. Well, heck, if we're talking San Fran (i know you guys hate that, BTW, but anytime I can abbreviate I do) I say BRING ON THE SEA BASS!!! Pour some Batard Montrachet, finish it off with some Grappa (now there's a funny one, they made the shit so us poor folk could make some booze of the twigs) and nail EVERYONE.

Hey, wanna laugh - I ate last month at Fleur d Lys in Vegas. One of our party of four was a vegan... they charged her $89.00 for a plate of garlic sauteed broccoli!!!). But check this out, North - they CHARGED US ACCORDINGLY. ACCORDING TO THE RENT, ACCORDING TO THE CAMS. and I guarantee you the cost of food was not 39%. Not even with that french sea salt all over it and over our shoulders

Besides... all you chefs couldn't make one good marechiara to save your lives. I have the secret. It was handed down to me.

Also, did you ever notice that the soup is always "the first to go?"

I also have a recipe for salmon, dry rubbed, fondled actually, that is magnificent.

But nothing comes close to my Saffron and Lime shrimp. Yep - I said it - MINE!!! The one damn thing, besides my five kids, I can call my own.

Nobody, North, runs a better restaurant than me. Sorry, but that's the fact. Keep your combined COG at 30% and don't buy into the bullshit, nobody really cares anyway... serve whatever you can, wherever you can at 30% - period.

IN Christ, and incidentally, enjoy the discourse... I currently rent a room to a guy who is moving back to SF in March. Great waiter. Worked some good joints up there.

Oh, and, as for your bit about owning a restaurant, North, forgive me but no I have not. I do, however, as a rule require equity in those I SAVE

But whether you agree or not, the simple fact is more restaurants fail every year in this country than any other business. Here's one for you, according to the National Restaurant Association, no matter how you slice it - the restaurant business enjoys a 100% failure rate. Being an owner in this business is about as high a recommendation as having Richard Branson fly one of his planes for you.

 

Oh, and I think your cousins idea is GREAT!!! 6 bucks on top of cost is a good gimmick. It's a new twist on an old trick, actually...

They call it BYO. You charge 5 or 10 for the set-up, realize the same amount and tie nothing up in inventory. New Jersey is famous for it where a liquor license is a high commodity going for about 300k to half a mil.

Then they become successful, move the venue to a town where there is a liquor license available and, right away - the soup goes

IN Christ

 

North, from an entirely objective, outside-looking-in perspective, I think you would be wasting your time, talent and energy, not to mention money, chasing the high-end restaurant.

Eating out is the first luxury to get ditched whenever there is a jitter in the markets, taxes rise or the price of gas goes up. You can bet your backside that gas prices will rise, taxes will be applied to appease environmentalists and the market will wobble. It always happens.

 

Hahahah - OK, fair enough. You've got me by a few years. I think I was thrown off the "2 old hands" bit by

, etc.

But, enjoying the discourse. My bottom line measure is value - if a customer finds value in what you do - at whatever price point - they will come back (and I am not talking low price - I am talking - "that was worth the price I just paid"). I would bet your vegan friend won't be returning to the Fleur de Lys anytime soon, non? That is obscene, in my book. Make it up elsewhere.....Oh, and I would never commit sacrilege and toss fleur de sel over my shoulder. And, Opus is a gimmick, and Margaux, I wish. Actually, unless it's Margaux or its ilk, I tend to stick to Burgundies, Loire Valley, Rhones when I'm eating. Give me flinty mineral, or baked fruit and pepper anytime - at $20, it marries with my cooking quite well. I tend to stick to California, Oregon and Long Island other times.

Our license cost us $80,000. Yes, $80,000. Then despite the local commission rep indicating, prior to our purchase, that there would be no issue on selling at whatever market price could be obtained, when it came time to do so, the state wanted to tell me it wanted no profiteering on licenses, so we couldn't sell it for any more than $80,000. I argued with the Commish that if it didn't want profiteering, take licenses out of the realm of private property (and where the hell where they when we bought ours). This lone commission has more power than any other state entity, much to my disgust. We prevailed, but only after a huge fight - we sold for $90,000, and the Commish declared it could go for no more than that. And, as I understand it, we are the last. They are putting the lid on buying and selling licenses. Though they are still keeping them in the realm of private property. Never in Michigan again.

Oh, and grappa is the drink of the cursed, even the now "heirloom" varieties. Drink Armagnac, the country cousin to its uppity kin.

I have seen studies that point to a much lower failure rate, analagous to most businesses. But there is no denying that failure is a real probability, and, if not, the profit sucks. With a net 4% typical, it is not the game to make money. Few would work so hard to net 4%. The Few. The Proud. The Meunieres. (sorry, that was abysmal).


Deadcorn and McFox, thanks for the excellent commentary. Much appreciated.

 

McFox, apt, as usual, and agreed. This certainly rose to bite us in the keester. If I am reading you right, though - you are predicting a secular economic downturn, and a consequent move away from haute cuisine patronage? My problem is that this is what I know - since 12, when I catered my first event (20 people - at that time, didn't know that the grand marnier was simply warmed for crepes suzette; the sideshow was my singed brow, my instant "Frankenstein" hairdo...!). On the other hand, I prefer to eat cuisine bourgeois, with broken bread and stew for 4. Likely, should I go this way again, my hope would be to fill a need for a good country inn serving good country food.

 

Yep, but this isn't corkage. This is on maintained inventory. And this is policy, now, several years running; I'm sure they carved a niche based on this, and don't know how well it would fly elsewhere. (Oh, and to clarify - my cousin makes the stuff, this isn't his concept but rather that of an acquaintance). As always, I think we would agree, only adopt a policy if the market cares. His market is wine-crazy, and he gets them in droves - though his nut is smaller on each bottle.

A side note - you may know this. In the State of Michigan, there is no BYOB allowed. Absent a liquor license, wine may not be served, period - wine may not be served from bottles bought off premises. Thus, the tactic of getting butts in the seat while waiting for the powers that be to get off their cans and finalize the license transfer - a tactic I saw all the time in Chicago - is simply not legal in our State.

 

North writes: "And, Opus is a gimmick, and Margaux, I wish."

LOLOLOL... right on there!!!

Hey, remind me one day to tell you aboutmy experience with a case of 55 Margaux, which led to one single bottle of 1912 Lafitte Rothschilds (recorked twice at the Chateau).

Very enjoyable conversation.

IN Christ

 

If you were all over a case of Margaux, I'd bet it was a very enjoyable conversation. (Oh, you were referring to this one).

 

Thought this was quite pertinent to this thread. It's from the BBC - G7 likely to discuss US slowdown

 

Do what makes you happy. You only have one shot at life.

 

McFox, thanks, great link. Your original post on this subject has gotten me thinking on the elasticity of haute cuisine. I would venture it is lower than presumed, as the target audience is generally impervious to downturns.

My vision doesn't tend to shoot that high (although my wife claims it does), but it would be interesting to do a longitudinal study on the Auberges and haute houses and regress their trade with economic cycles.

 

Agreed, thanks for the post. And it starts to hit home at some point.