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Old 01.02.2006, 19:53
Jack Jack is offline
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restaurant prices...

I decided to begin a new thread about food, and place it in the general category, which is perhaps a bit more appropriate...

I was a bit surprised to read the comments in the previous thread, and I must admit, I was happy to discover that people are still passionate about their food. Perhaps the global food giants of the world (Nestle, McDonalds, Starbucks..) won’t succeed in controlling and dominating our dietary instincts in spite of their best efforts....hmm...

Before tackling that issue, I would like to make an attempt at sharing a bit of knowledge I have picked up from my experiences within the Swiss world of gastronomy – or more directly how restaurants function here, and what their economic climate is like.

I am often confronted with comments regarding restaurant prices in Switzerland – almost always from the Expat community. Mostly, the comments begin on a negative note regarding prices, and then deteriorate from there. Quite frankly, most Expats believe restaurant prices in Switzerland are way too high. As for me...well...I...

One way to begin looking at the situation is to view the economics of a restaurant in Switzerland, which is surprisingly similar to restaurant operations in the US, UK, Australia, Germany, etc. (I haven’t looked into the Asian world).

As a first step, I only looked at average percentages. Another clarification I need to make is with the term ‘economics.’ I am only looking at average income statements, and not balance sheets and cash flow. From this point and perspective, it becomes easier to discuss how the numbers get managed...and that will be by far the more interesting discussion...

Ok...before I ramble too much, here is the typical breakdown of a restaurant in Switzerland (restaurant is defined as 20+ seats, with table service...the numbers do not include take-away, fast food, street food, etc.). All averages are based on results up to and including 2004.

Revenue
Food Revenue 57%
Beverage Revenue 43%
Total Sales 100%

Cost of Sales
Cost of Food 30%
Cost of Beverages 25.5%
Total Cost of Sales 28%

Gross Profit 72%

Operating Expenses
Labor & Benefits 44.1%
Direct Operating Expenses 11.7%
Occupancy and Finance 14.6%

Profit (Loss) Before Taxes 1.6%

I will go into a bit more detail in future posts regarding the details of each category, and how the different revenue and cost sides are managed. But for now, I think it is easy to say...there ain’t a lot of play room in these numbers! The other point I want to make is that when compared to other countries, the percentages are quite similar....Gross Profit is almost always between 65% and 72%...Operating Expenses are almost always around 65%...Before Tax profits are usually between 2% and 3%.

With these numbers, it is simple to figure out menu prices... The chef is usually tasked with this responsibility, and in fact his/her pay is tied to actual performance. In other words, the chef will have a performance objective of say 28% food cost (this leaves a bit of play room), which is tied to an end of year bonus. Thus, when making out a menu, the chef will look at the cost of producing a particular plate... Typically, the protein item represents the highest cost (and in most cases the only part that is managed). So, let’s say that protein cost is CHF 8. The chef will now add an amount (typically CHF 3) for the vegetable, starch and sauce. That means the plate cost is CHF 11. To achieve the 28% objective, the chef divides the CHF 11 by a lesser percentage...say 25% (that’s a bit of insurance), and the menu price for the dish is CHF 44... At the end of the day, other factors like waste and theft, go into the figure and the final food cost usually ends up around 30% (and no one gets a bonus). Clearly, the major factor in figuring a menu price in this manner rests on the cost of protein...and in Switzerland, that is high (about 78% higher than EU countries the last time I looked).

The beverages are also interesting in how they are managed, as are the general operating expenses...but I will go into that in a future posting...

(hmmmm...I guess a vegetarian restaurant with equally high prices, would mean higher margins ) ...

Jack
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