How much in sales does a low cost (meals about $5) restaurant or fast food restaurant need to make in order to pay all the expenses of running the business (salaries, lease, utilities, taxes, food materials, repairs, etc)?
I drove by a fast food restaurant, saw no one there and was wondering how their business model works. I’m sure it varies from business to business, plus varies on what is sold. I have heard fast food restaurants barely make money (or make a loss) on selling meat but make huge profits on fries and drinks.
What kind of expenses does the average fast food restuarant face, and what kinds of sales do they need to break even? About how many customers a day does it take for them to break even?
It’s impossible to say because it depends on so many factors. Profit = revenue less expenses.
The higher your expenses, the less your potential profit. The higher your sales, the higher your potential profit.
If they’re in a high rent district, they’ll have to serve more. If they use all organic food, they’ll have to serve more. If they pay their waitstaff benefits, they have to sell more.
Agreed it’s impossible to say without exact figures. I’ve worked in hotels my whole life and I’ve dealt with this.
First realize food IS cheap. Well most of it. You make your profit on things like Coke and French fries. You can lose money on expensive meat by offsetting it on fries.
Resturaunts use revenue management to maximize profits. This is why you have early bird specials. If your resturant is empty that’s a potential loss. If 150 people want to eat at 6pm and you only have room for 100, you’re going to lose 50 people unless you get those 50 in early when the tables are empty anyway. How to do this? An early bird special whichis a “food sale”
I can say in the last hotel I worked for a glass of soda costs us about 7¢ and 4¢ was for the cup and straw. It was even cheaper if they had a glass.
The book “Fast Food Nation,” describes in detail the business model of fast food type resturaunts. It’s a great read.
But the OP had the idea, you find cheap stuff to make/sell and that makes up for the more expensive things. You don’t have to make a profit on each item sold
Just one, but they have to tip really big.
Yeah, probably the question you’re looking to ask is what is the usual markup in restaurants for various food items.
I don’t know, but the answer would get you closer to the information you’re looking to obtain.
Or charge more.
This is an important reason why food is so expensive at airport restaurants. An airport is one expensive piece of infrastructure. Airlines pay a lot to be there, but so do all of the businesses renting space in the terminal. They need to charge more to stay alive.
This is one of the reasons why most midrange restaurants offer huge portions. They can charge more for each meal, and the customer thinks it’s a good deal because of all the food. However, the increase in the cost of the additional food is more than regained from the higher price.
In our local airports, companies have to bid for the concessions, too…so it’s not just rent, but the cost of the bid (plus kickbacks, too, probably).
Sometimes a restaurant has a very low rent, either because it’s in a bad part of town or because it’s a long term lease or for some other reason. I know a few restaurants in my area which can serve fairly low cost meals because they’re in a bad part of town. And some of them are only open for lunch, or breakfast and lunch, because the area becomes much more dangerous at night, so their workers would be in peril, and most people avoid the area at night.
At one time (15-20 years ago), Wendy’s were only put into markets where they could expect at least $1 million/yr sales for a typical size restaurant.
The owner would go into a market and do surveys and traffic counts to see if he thought his store would hit the million dollar mark.
They were testing smaller restaurants that could operate in $500,000/yr markets to compete with the McD’s that were going into gas stations, malls, etc.
Expected pbit was 10%. If you were 10-15% you were a doing good. Above 15%, you were a GOD. And yes, the big profit margins were on drinks. I seem to recall that syrup was around $30 for a 5-gallon bag in a box (before that they were Figals). It was mixed at a 5:1 ratio water:syrup (you do the rest of the math). Diet soda is 5.5:1. Calibrated with a Brix cup.
I seem to recall start up costs were somewhere around $150,000 (this could be way off) not including the cost to build the building.
I have no idea how this applies to Wendy’s across the board; this was for franchise I worked at. But I have a feeling it was pretty typical for similar style franchise restaurants.
Scale from there. I would imagine Dairy Queen’s at $150-200,000 annual sales, Burger King, Hardees, etc would be similar. I would guess Ruby Tuesdays, Applebees, etc needing $2-3 million/yr (but I would bet I’m low). And I would also bet the profit margin is similar for these restaurants.
I also am pretty sure that is why you see some franchises grouped together (e.g. Taco Bell / KFC in the same building). They can attract enough customers to allow them to operate in smaller markets.