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Old 10-05-2019, 06:26 AM
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When a meal is "comped on the house", who pays for it?


Inspired by the thread about famous people getting their meals comped on the house, I'm curious who exactly pays for it and what part of the budget it comes out of.

I understand for a family owned business it would be the owner of the store eating the cost in exchange for publicity, but I've seen stories of massive franchises like McDonalds and Denny's comping people's lunches. So when the shift manager of a Denny's gives Ty Bentli a free meal on the house, who pays for it? The shift manager himself, the owner of the franchise, it somehow winds itself going up to a Denny's corporate advertising budget?
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Old 10-05-2019, 07:30 AM
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No one pays for it, other than buying the ingredients, but that's done in bulk and not as a separate item.

Managers are allowed to comp food as necessary, even in chains. Unless it's done to the point where the restaurant is failing, it resides no issues.

It's essentially no different from when they get the order wrong and replace or comp the meal because if it. A certain amount of this is built into their budget calculations.
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Old 10-05-2019, 07:32 AM
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I would think that a free meal at a Denny’s, McDonald’s, etc. is probably too small to even account for. There is probably far more waste lost on an ongoing basis. For more expensive meals that do need to be accounted for, it could be any of the examples you gave. For example, the free meals and hotel rooms given by hosts at casinos are part of their marketing/entertainment budget. In the case of a mom-and-pop type place, it would be out of the owners’ pocket. So I the real answer is: all of the above.
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Old 10-05-2019, 07:57 AM
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Whether it's a single, family owned location, a franchise or a chain, ultimately it's going to be the owner or whoever would otherwise profit from it.
Regardless of where comped meals land in the budget or how much money the business takes in, it still counts for something, however small.

RealityChuck mentioned that no one pays for it since it's only the COGS that are being lost, but it's still money.
As an example, a $100 steak dinner costs a restaurant about $35 in ingredients (COGS), about $15 will trickle down to the bottom line (profit) and the rest is overhead (wages, taxes, insurance, electricity etc). Ignoring the overhead, since that stays the same whether or not they make the dinner...if I sell a steak dinner, someone, somewhere puts $15 in their pocket, right. If give away a steak dinner, that person is going to pay $35.

Yes, in a multi-billion dollar chain, it's not really going to be noticed either way but to say it doesn't cost anyone anything is like saying it's okay to shoplift from Walmart since they're so huge they're not going to notice the loss.
Furthermore, regardless of how the budget/financials are set up, if a comped meal is figured into one of the lines or it just disappears as a loss, anytime a business buys something, but doesn't sell it, it makes the bottom line smaller.
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Old 10-05-2019, 08:20 AM
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The money comes out of labor and materials accounts, which are the same accounts that every other meal comes from. When someone is comped, the restaurant just doesn't book any revenue in the transaction. Just like every other sale, the owners of the restaurant pay the expenses and collect the revenue, which here just happens to be zero. No, the shift manager doesn't pay for it out of pocket (although I won't say this has never happened-it's a big world). No, the franchisor doesn't reimburse the restaurant.
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Old 10-05-2019, 10:08 AM
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There's so much waste in restuarant kitchens. If you're getting a free meal you've just prevented it from being trashed.
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Old 10-05-2019, 11:16 AM
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Originally Posted by Tired and Cranky View Post
No, the franchisor doesn't reimburse the restaurant.
It depends what you mean by "comped". I remember my wife's restaurant chain had a franchise-wide promotion where they were giving out cards "good for a free XYZ". Then she was able to claim a portion of that lost revenue back from franchise HQ.
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Old 10-05-2019, 11:57 AM
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It depends what you mean by "comped". I remember my wife's restaurant chain had a franchise-wide promotion where they were giving out cards "good for a free XYZ". Then she was able to claim a portion of that lost revenue back from franchise HQ.
It probably doesn't matter in this case, similar to when a place like McDonald's has coupon or other promo, but it should be noted that there's a difference between a chain and a franchise.
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Old 10-08-2019, 10:18 PM
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What about the server? Is the "compee" still expected to leave a tip?
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Old 10-08-2019, 10:31 PM
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What about the server? Is the "compee" still expected to leave a tip?
There’s not really a GQ answer, I think. If the manager comes out to apologize that your steak was overcooked and lets you know they’re cooking a new one , well, that’s not the fault of the server. If the server is outside the restaurant on their phone having a fight with their girlfriend/boyfriend for 30 minutes, then that would be different.
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Old 10-08-2019, 11:48 PM
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(Since the following post answered OP's question, off-topic conversation is now permitted under the rules IIUC.)
Quote:
Originally Posted by RealityChuck View Post
... Unless it's done to the point where the restaurant is failing, it resides no issues.
Was 'presents' intended where 'resides' appears? Was this a typo, or spelling correction?

Or is this the weird typing aphasia I suffer from? (I've typed 'Himself' where the almost-rhyming 'Instead' was intended, and several other weirdnesses.)



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Originally Posted by What the .... ?!?! View Post
What about the server? Is the "compee" still expected to leave a tip?
Most but not all persons successful enough to be comped are good tippers. Start a new thread for the name(s) of exception(s).
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Old 10-09-2019, 03:23 AM
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Was 'presents' intended where 'resides' appears? Was this a typo, or spelling correction?
Possibly "raises"?
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Old 10-09-2019, 08:20 AM
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It is lost profit, or a loss, depending on how well things go for the restaurant.
If you buy 100 watermelons for a buck each from farmer Will, to sell in a roadside stand for 5 bucks, each melon sold contributes to profit. Assuming no other costs, at 20 melons you break even. If after a week your last 10 melons are clearly not sellable because rotten, your total profit would be 350 bucks. If you ate two of the sellable ones yourself, total profit is 340. While you could (and some overly zealous management accounting adherents would insist on) create line items to cover cases of spoilage and watermelon cravings to have more detailed info on how your profit is made, they don’t change the outcome, and the detail level doesn’t add much info. I believe the same is true for restaurants: they may track the number of meals comped, many may not, but it still just means a reduction in profit.
Now, for a bar, tracking comped, spilled or otherwise disappeared liquor or beer is critical, as for a number of bars they can mean the difference between being profitable or not: they are material

Last edited by Isosleepy; 10-09-2019 at 08:20 AM.
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Old 10-09-2019, 08:21 AM
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If I was a restaurant owner I'd want to know the value of the comped meals and any other giveaways just to make sure I know where the money is going. It doesn't sound like many do that though. If it's "just part of the marketing budget" don't you still need to put it on that ledger to track it? You don't want to blow your marketing budget without knowing why. Even if it's built in to the overall cost structure, don't you want to know if you're exceeding the norms? At the very least, would a restaurant not record a credit on their books for the value of the meal, instead of just not ringing it up? Basically treat it like the customer paid up front but were then refunded. The net result is still $0 but it should show up as an expense rather than just a lack of revenue. I'm no accountant so I'm not sure how that should work.
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Old 10-09-2019, 08:45 AM
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Originally Posted by Joey P View Post
RealityChuck mentioned that no one pays for it since it's only the COGS that are being lost, but it's still money.
What is lost is opportunity cost, which is a real economic cost. You have given away a meal for free, and you could have sold that same meal for $x. So it costs you $x in real foregone opportunity. I do not think opportunity costs are recorded on the books but if I were the restaurant owner I sure as hell would want a record of what I'm giving away. What is to prevent servers from giving away free meals to their friends?

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Originally Posted by Beckdawrek View Post
There's so much waste in restuarant kitchens. If you're getting a free meal you've just prevented it from being trashed.
You cannot take a pile of expired dairy, spoiled vegetables, and burned meat and serve it to a customer. Plus that free meal requires a lot of labor to make and serve it.

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Originally Posted by Isosleepy View Post
It is lost profit, or a loss, depending on how well things go for the restaurant.
If you buy 100 watermelons for a buck each from farmer Will, to sell in a roadside stand for 5 bucks, each melon sold contributes to profit. Assuming no other costs, at 20 melons you break even. If after a week your last 10 melons are clearly not sellable because rotten, your total profit would be 350 bucks. If you ate two of the sellable ones yourself, total profit is 340. While you could (and some overly zealous management accounting adherents would insist on) create line items to cover cases of spoilage and watermelon cravings to have more detailed info on how your profit is made, they don’t change the outcome, and the detail level doesn’t add much info.
The detail would tell you to buy only 90 watermelons next time because 10 went unsold and so spoiled. That would add $10 to your profit. Seems useful to me.

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I believe the same is true for restaurants: they may track the number of meals comped, many may not, but it still just means a reduction in profit.
Now, for a bar, tracking comped, spilled or otherwise disappeared liquor or beer is critical, as for a number of bars they can mean the difference between being profitable or not: they are material
Why does a bar care more than a restaurant if they are comping customers (or otherwise losing their stock)?
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Old 10-09-2019, 09:13 AM
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The detail would tell you to buy only 90 watermelons next time because 10 went unsold and so spoiled. That would add $10 to your profit. Seems useful to me.
If I read it correctly, the point was that throwing away watermelon is the same as not selling (ie giving them away or eating them yourself) watermelon. It doesn't matter why no money comes back for them, anything not sold eats into the profit. To get back to the OP, the person that ends up paying for it is the person that takes home the profit.

Quote:
Why does a bar care more than a restaurant if they are comping customers (or otherwise losing their stock)?
Bars are a whole different animal. I've seen multiple bars go out of business because the owner didn't realize that the bartenders were stealing. Either outright walking out with the booze or giving away enough free drinks (because they can, because it's not tracked) to drive the business into the red.
It's the reason that running a bar can mean practically living at the bar trying to stay on top of things. It's the reason a system exists to portion out liquor only after it's entered into the register.

Now, just because it's tracked, doesn't mean people can't steal. But if you suspect they are, tracking comped drinks makes it easier to narrow down. It also helps the GM know if their employees are comping too many drinks.

And, yes, this could easily all apply to a regular restaurant as well, I think it's just a bigger problem with bars.
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Old 10-09-2019, 09:49 AM
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It depends what you mean by "comped". I remember my wife's restaurant chain had a franchise-wide promotion where they were giving out cards "good for a free XYZ". Then she was able to claim a portion of that lost revenue back from franchise HQ.
The OP's question was, "So when the shift manager of a Denny's gives Ty Bentli a free meal on the house, who pays for it?" I mean, sure, maybe the OP was implying, but forgot to ask his real question, "So when the shift manager of a Denny's gives Ty Bentli a free meal on the house, because the franchisor is running a promotion where they gave out millions of free meal cards in the local newspaper, and, pursuant to their franchise agreement, franchisees must honor those free meal coupons and obtain reimbursement from the franchisor and Ty Bentli is a newspaper subscriber who saw the coupon, clipped it out and presented it to the shift manager whence the shift manager gave him a free meal, who pays for it?"

But really, do you think that's the scenario the OP was asking about?
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Old 10-09-2019, 09:50 AM
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The detail would tell you to buy only 90 watermelons next time because 10 went unsold and so spoiled. That would add $10 to your profit. Seems useful to me.
I could go on for an hour as to why you may want to buy those watermelons anyway because the potential gain from the opportunity to sell is smaller than the potential loss of a minor amount of spoilage. You would need to look at the history of watermelon sales and the COGS vs. variations in sales within the salable time frame of watermelons. For one time period, you would be correct. Over months or years of watermelon sales you might sell those extra 10 more often than throw them away, making the loss worthwhile.
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Old 10-09-2019, 10:05 AM
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If I was a restaurant owner I'd want to know the value of the comped meals and any other giveaways just to make sure I know where the money is going. It doesn't sound like many do that though. If it's "just part of the marketing budget" don't you still need to put it on that ledger to track it? You don't want to blow your marketing budget without knowing why. Even if it's built in to the overall cost structure, don't you want to know if you're exceeding the norms? At the very least, would a restaurant not record a credit on their books for the value of the meal, instead of just not ringing it up? Basically treat it like the customer paid up front but were then refunded. The net result is still $0 but it should show up as an expense rather than just a lack of revenue. I'm no accountant so I'm not sure how that should work.
Years ago I worked at McDonald's. Senior citizens were entitled to a free coffee with each visit, and we (as cashiers) always recorded it on the register, but you'd push the "promo" button to zero out the price. Same thing if someone was given free food for any reason (e.g. customer complaint): it was always entered on the register. Official coupon promotions that offered free or discounted food were handled with separate register programming.

Back in those days (1980s) McDonald's restaurants kept a supply of ready-to-eat hot food in the "bin", with timers so the bin manager knew when to discard old food. They'd always record how much food went in the trash. Bottom line, McDonald's was pretty fastidious about keeping track of how much food they were giving away or throwing away. I think maybe the only losses they didn't keep track of were when food items were accidentally dropped on the floor (before or after being prepped).
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Old 10-09-2019, 10:08 AM
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I could go on for an hour as to why you may want to buy those watermelons anyway because the potential gain from the opportunity to sell is smaller than the potential loss of a minor amount of spoilage. You would need to look at the history of watermelon sales and the COGS vs. variations in sales within the salable time frame of watermelons. For one time period, you would be correct. Over months or years of watermelon sales you might sell those extra 10 more often than throw them away, making the loss worthwhile.
That's a big part of buying/selling. Anytime you run out of something, you have to ask yourself how many sales you missed.

In the watermelon example, what they should be doing is buying 100 watermelons and figuring the price as if they bought 88 (to account for 12 not being sold based on historical data). So instead of saying that they each cost $1.00, you figure they each cost $1.15 and sell them for $5.75 instead of $5.00.
Doing that brings the profit to $406. In the original example with the original prices, the profit would have been $400 if all 100 were sold.
Now, with our new prices, if we sell the rest it's an extra $70 on top of everything else.
Of course, this doesn't take into consideration that you'll lose some sales to the other farmer that's selling them for $4.00.
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Old 10-09-2019, 10:14 AM
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Like every other comp'ed meal, it is accounted for ultimately in the the pricing of the meals. More so in the big chains, since a comping a meal sometimes is good overall for business, it's accounted for in the pricing model. For the consumer it's a wash, as they will get some meals comped, and pay for some which includes a amount extra to account for the comps they receive.
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Old 10-09-2019, 10:25 AM
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Why does a bar care more than a restaurant if they are comping customers (or otherwise losing their stock)?
Liquor is regulated by the state (at least it is in Pennsylvania). By law, a bar cannot comp beer/wine/liquor in excess of one standard drink per 24 hour period.

Pennsylvania is absolutely anal about alcohol. A bar-owning friend of mine was fined by the state for posting on Facebook "Mix-six pack; buy five the sixth is free". He had previously been fine with "Mix-six pack; buy five the sixth is a penny". He can sell a beer for a penny, but giving it away for free is a big no-no.
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Old 10-09-2019, 10:30 AM
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(Since the following post answered OP's question, off-topic conversation is now permitted under the rules IIUC.)

Was 'presents' intended where 'resides' appears? Was this a typo, or spelling correction?
Tyop. Sometimes my thoughts go faster than my fingers.
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Old 10-09-2019, 10:45 AM
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Originally Posted by drachillix View Post
I could go on for an hour as to why you may want to buy those watermelons anyway because the potential gain from the opportunity to sell is smaller than the potential loss of a minor amount of spoilage. You would need to look at the history of watermelon sales and the COGS vs. variations in sales within the salable time frame of watermelons. For one time period, you would be correct. Over months or years of watermelon sales you might sell those extra 10 more often than throw them away, making the loss worthwhile.
Oh, I agree. I said "Just buy 90 next time" as an example but my point was that it is worth recording what happens to your stock just so you can make the kind of analysis you are describing.
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Old 10-09-2019, 07:56 PM
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There’s not really a GQ answer, I think. If the manager comes out to apologize that your steak was overcooked and lets you know they’re cooking a new one , well, that’s not the fault of the server. If the server is outside the restaurant on their phone having a fight with their girlfriend/boyfriend for 30 minutes, then that would be different.
Maybe GQ answer. How involved in the waiter/ress? I've had this happen to me twice, overcooked steak, in the same restaurant, on two different occasions. Although I left a good tip by USA standards (and this was in Canada) both times, I could have justified discriminating. The first time, having shown the waitress, she agreed, "oh, yeah, that's not medium rare" and took care of the situation. The second time, she either didn't quite believe me, or didn't know what to do, and had to call her manager to help out. I didn't fault her for this in the tip, but it left a bad impression, to the point that I remember it today. Based on the first experience, I knew that she was obviously empowered and had some degree of ownership over the situation, so defaulting to her boss was weak.

Oddly, on the first one, they took care of it, and gave me a new steak, making me happy and satisfied. For the second one, they tried to comp me new steak. I actually refused, because that was stupid; just make me whole. In the end, it was my birthday, so I requested a dessert instead of the comp'd steak, and that was to make them happy and not me.

This the "The Keg," a kind of regional chain in Ontario.
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Old 10-09-2019, 09:01 PM
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Quote:
Originally Posted by Joey P View Post
RealityChuck mentioned that no one pays for it since it's only the COGS that are being lost, but it's still money.
As an example, a $100 steak dinner costs a restaurant about $35 in ingredients (COGS), about $15 will trickle down to the bottom line (profit) and the rest is overhead (wages, taxes, insurance, electricity etc). Ignoring the overhead, since that stays the same whether or not they make the dinner...if I sell a steak dinner, someone, somewhere puts $15 in their pocket, right. If give away a steak dinner, that person is going to pay $35.
COGS?

Did I miss where you spelled out what that is? If so, sorry about that. If not, why didn't you say what it means?
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Old 10-09-2019, 09:04 PM
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COGS?

Did I miss where you spelled out what that is? If so, sorry about that. If not, why didn't you say what it means?
Cost of goods sold
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Old 10-10-2019, 10:10 AM
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COGS?

Did I miss where you spelled out what that is? If so, sorry about that. If not, why didn't you say what it means?
It is an accounting initialism for Cost of Goods Sold, which is a category of all of the costs that go into a...good that is sold. It includes materials (food, in this case) and direct labor (the cooks and servers) that go directly to making the good. It does not include overhead, like paying the electric bill.

It's an Accounting 101 term so Joey P may be so familiar with it that it didn't occur to him that others might not be.
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Old 10-10-2019, 10:48 AM
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Yes, when my wife managed a restaurant, she could "comp" meals for goodwill - complaints, errors, etc. She would even comp part of the meal (without telling the customer) to reduce the amount of the bill because certain ethnic groups were noted for not tipping and with a big group, the server deserved a tip. (Being fair and keeping staff happy is as important as happy customers)

Who pays for that? As others note, the restaurant has accumulated the expense of the COGS (components of the meal) and the labour and other overhead to prepare and serve it, and received no money for it. So those costs are essentially paid out of reducing the total the profits, which are made from other meals. If the restaurant screws up you meal and apologizes and tries to give you a replacement, done right, for free, you are more likely to keep coming back than if they tell you "It's still a steak. Quit complaining." fixing problems is a cost of doing business, like the inevitable waste. The management or owner may comp meals for friends or celebrities - if the owner does, that's him giving away his profits. If the manager does, it's theft unless the owner says they can. One problem, especially with fast food is employees giving stuff to their friends. Celebrities can be good for a restaurant... "Let's eat there. May we'll see Snookie from Housewives…"

As for alcohol, the problem is that some people will try any trick in the book to get free booze because it's an addiction. Plus, there's a lot of money flowing for limited effort, so an incentive to steal or cheat. (It's a lot easier and less noticeable to pour an extra shot than prepare a full course steak meal).

(Also note that with McD's - my wife worked where they instituted a rule that all leftover food at closing goes in the trash. This was necessary when she saw that if the staff could take home the precooked but unsold food, they would be incentivised to make too many mcNuggets or burgers close to closing time... abusing a privilege. Cooked but unsold food is waste, which also cuts total profits.)
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