Much has been written about restaurant pricing over the last couple of years. It seems that the emergence of Avocado Toast was a big impetus for some diners to wonder why it costs so much when an avocado can be had for about $2 and toast is a relatively cheap commodity. But restaurant pricing is about much more than food cost. Food cost is certainly one of the drivers of pricing, but it is not the only one.
Most restaurants track something called Prime Cost. Prime Cost is the sum of the cost of food sold (i.e. food cost, beverage cost, and costs directly related to food & beverages) and the cost of labor. These two costs are chosen as Prime Cost because they represent the two largest costs to a restaurant and are also the two that are under the direct control of the management. Nationally, most successful restaurants maintain a prime cost between 55-60%. So more than half of each dollar that you spend when you eat out goes to pay for the food, the wages and the benefits (if any) of the people who prepare and serve your food. The rest goes toward paying utilities, rent, repairs and maintenance, manager salaries, taxes, licenses, and the rest. If there’s any left over, it’s profit. But understand that about 60% of restaurants fail within 3 years of opening (that is, they never learn how to make a profit) and the rest average 3-5% profit per year (just 3¢ for every $1 spent).
Naturally, when a restaurant sets its prices, food and labor costs are examined and prices set hoping to make a profit. Prices are then adjusted from time to time as necessary to keep things in alignment. As one might expect, suppliers, for reasons known only to themselves, like to raise prices, but often fail to inform us that they are doing so. Only by looking back at historical prices can we see that costs have gone up. When asked, the suppliers, inevitably and not surprisingly, cite increased costs on their end. While we do all we can to mitigate the impact of these increases, through things like minimizing waste and improving labor efficiency, they are unavoidably reflected in our menu pricing.
Labor costs will begin to rise for employers in St. Paul, as the city just passed it’s $15 per hour minimum wage last Wednesday. As owner of J. Selby’s, one of the non-negotiable costs of doing business for me is that we pay all of our workers a living wage. From day one we have paid a minimum of $15 per hour, not because a city mandates it, but because it’s the right thing to do. We don’t take tips because all workers deserve a living wage without having to depend upon the whims of tipping, so we account for that in our pricing.
Even with the new ordinance, J.Selby’s remains ahead of the curve on this as the city’s minimum wage phase-in period doesn’t begin until 2020, and even then the phase-in period will be dependent on business size, as determined by numbers of employees. For now, at least, our labor costs are significantly larger than most similar employers in St. Paul, but I expect this will change over the next couple of years as the $15 minimum becomes a reality.
Here’s the bottom line, about the bottom line: I want to provide our guests with delicious food made from the best ingredients available, prepared by caring, skilled professionals, who are paid fairly. Raising prices is not something we do casually or happily, but it is something we do openly. When we raise our prices it is apparent to everyone and we strive to be transparent as to how and why we price the way we do. The truth is that since we don’t do tipping, pay everyone a living wage, have generous paid time off, and provide health care benefits to our full-time workers, J. Selby’s labor costs are more than most restaurants and we have to adjust our prices to reflect that reality. I appreciate your business, and in doing so, you are helping us change the way the restaurant industry compensates its employees.