Top 5 food mark-ups where restaurants make huge profits
There are logical answers to all of these questions, centered on one thing and one thing only: money. As you might expect, restaurants do not make the same amount from every single item they sell. Some items boast huge profit margins -- so logically, they will try to lure you to order the ones that rake in the most cash.
What follows is my list of the top "money makers" in the restaurant industry -- good information that might shed light on a few things the next time you dine out. The list provides a neat insider's view into how restaurants are run; for more applicable ways to save money, check out these other tips to save money while eating out, as well as great restaurant discount resources such as the Entertainment Book.
1. Non-Alcoholic Beverages
This would include all soft drinks, coffee, and tea. The cost for restaurants in this area is literally pennies on the dollar. This is why many restaurants and chains switched to "free refills" without worrying one bit about their bottom line. These items cost the restaurant between 5 cents and 20 cents per serving. Keep that in mind the next time you want to order a $2.50 Coke. Soda is so cheap that paper cups, when used, represent a bigger expense than the soda itself.
The markup on wine is astronomical, though it depends on the brand you drink and whether you order by the glass or bottle. Regardless, a very conservative estimate would land in the 200% range, while some put the markup at closer to 600% at higher-end restaurants.
This solves the mystery about why my servers always seemed obsessed with keeping my wine glass full. It also answers why some restaurants make ordering a bottle of wine into some sort of royal event of epic proportion. A few times, I thought the red carpet would roll out and the ticker tape would fall. Restaurants are trying to dress up this experience to make it more enticing. And if you want the royal treatment, expect to dish out like a king or queen.
This one should be easy to figure out. First, a history lesson: Pasta translates as "paste" from Italian and was the food the peasants ate, along with other now-trendy items such as polenta (corn meal mush) and tomato sauce. (The Italian gentry once thought tomatoes were poisonous.)
We've all bought pasta from the grocery store, so we know it is relatively inexpensive. And don't forget that we pay "retail" --whereas restaurants get it at wholesale prices.
It's impossible to assign a dollar figure to a category such as pasta because the markup depends on what it is topped with. But if you exclude pasta dishes with seafood or red meat, you can probably figure that your bowl costs the restaurant somewhere between $1 and $2.50. Consider that a high-end restaurant might charge $25 for a pasta meal (if it has some meat and vegetables in it), and you can easily see what a killing they make.
Do you know how you can tell that a particular item, food or drink, has a high markup? Because it's always on sale. When I think of things always on sale, two come to mind: pizza and mattresses. We'll save the mattress talk for later.
Think about the core ingredients that go into a pizza. First, there's dough. Do you know what goes into dough? Mostly it's water and flour. Let's see, water is basically free and flour costs pennies. Minimal amounts of yeast, salt and sugar and there you go. Next, pizza sauce. Even the most dressed-up, fresh homemade sauces are not that expensive; it's just tomatoes, water and spices. Cheese and toppings, while costlier, still add a substantial markup.
Some cursory research on the subject gave me these rough figures. A medium pizza from any one of The Big Three chains costs about $2.60 to make. That comes to 25 cents for the dough, $2 for the cheese, and 35 cents for the sauce. Even if you go all the way up to a large with everything, you're looking at a cost of about $4 to $4.50. Compare these to the retail pricing, and you're basically getting robbed!
5. "The Special"
The nightly special is typically one of the higher priced items on the menu (if not the highest) and as such, usually carries a high profit margin for the restaurant. By "discounting" the price, restaurants simply lower their absurdly high profit margins by a fraction.
When you get into the pecan-crusted and pan-seared high-end fish dishes and throw in a sautéed shrimp topping, a salad and side of asparagus, a restaurant can easily get away with charging $30 for this dish. This also goes for your 100% Angus Beef cooked on a wood-burning grill, topped with a mushroom basil Marsala wine sauce, and served with roasted garlic mashed potatoes. Your nightly special typically comes with a ton of "stuff" prepared in a unique fashion, and a spiel that each server is required to recite to suck you in.
Sure, they're tasty dishes. But they're also expensive and the restaurant usually makes a mint off of them.
The final dish...
As a consumer, I am really more concerned with how my food tastes and not how much it costs me. I am not much of a wine drinker and I never order soft drinks at a restaurant. One way to eat inexpensively is to eat healthy, which I'll explore in a later post. In the meantime, check out my advice on how to eat healthy on a budget, in part by by using awesome products such as E-mealz.
While I'm by no means telling you to avoid wine or pizza, It's nice to know exactly how your local eatery cashes in on these breadwinners. Now there's one thing your eager server will almost always avoid telling you.
David Bakke is a staff writer and frequent contributor for the popular personal finance blog, Money Crashers. In addition to his extensive experience in the restaurant and food industry, David specializes in writing about finance topics like frugality, investing for the future, retirement, and smart shopping.