I have always been impressed by those that provide meals to our society. Overall, I don’t think they charge enough, but that is just my opinion. It also comes out in the numbers. I have reviewed the books for over 40 different types of food service operations. From franchise based to the hot dog cart, from those that serve quality food to those that buy their food supplies at the local Sam’s Club/Wal-Mart, I have had the privilege of finding out how their business operates.
To me, this is one of the toughest industries to generate a profit. What I mean by a real profit is at year end, essentially, the capital costs are covered and the owner walks away with no less than $100,000. So let’s walk through a simple transaction. Assume we own a sub shop and we sell our sub for $6.00 and the customer buys his soda for $1.50. Total sale is $7.50. Typically if you use average quality food and you pay your labor appropriately, you are looking at a 45% margin. So the store makes $3.00 (($7.50 X (1 – costs of 55%)). From this we have to pay for rent, utilities, insurance, facilities, office operations, and of course those dreaded taxes. So for the sake of argument, let’s assume that this costs $2.00 (in reality it is more like $4.00, I’ll explain in the future). So we make $1.00 for this sub. That means that to cover costs of capital and make a real income, we’ll have to serve more than 100,000 subs per year.
So, let’s break this down. Assume that you are closed for 4 days a year – Christmas, New Years, Thanksgiving, and your birthday; so we have a 360 day year to sell 100,000 subs. To give you an idea, it is 278 subs a day! Let’s take this to the next level. Nobody is going to eat a submarine sandwich at 9 in the morning. So you’re limited from 11 AM to around 8 PM each day to sell your 278 subs. Wow, 31 submarine sandwiches an hour; or one every two minutes. So how many subs are you going to sell from 2 PM to 5 PM? I would venture close to 10 and I’m assuming your restaurant is the best sub shop in town. So the reality is that you have to sell 268 (278 less the 10 you sell between 2 and 5) subs in 6 hours. Now you are talking about 45 subs an hour. To do this you would have to have a line 12 people deep all day long! I don’t think so.
So how do you make real money in this business? Over the next several articles (blogs) I’ll explain how you do this. I further explain how to not only make this a lifetime passion, but how you don’t have to kill yourself working 360 days a year to become a successful restaurateur. Act on Knowledge.
If you have any comments or questions, e-mail me at dave (insert the usual ‘at’ symbol) businessecon.org. I would love to hear from you. If interested in my help as an accountant or consultant, contact me through the ‘My Services’ page in the footer.