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?
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.
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.
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.
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.
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.
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.
(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?
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.)
Most but not all persons successful enough to be comped are good tippers. Start a new thread for the name(s) of exception(s).
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
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.
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?
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.
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.
Why does a bar care more than a restaurant if they are comping customers (or otherwise losing their stock)?
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.
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.
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?
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.
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).
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.