Hospitality expert Cyrus Batchan discusses operational costs for the restaurant industry

SHERMAN OAKS, Calif. - Feb. 15, 2019 - PRLog -- Consultant for the restaurant industry Cyrus Leon Batchan, in his newest industry comment, reviews operational and food cost factors and how they affect hospitality endeavors. The article is available on the blog for restaurant entrepreneurs of Cyrus Batchan at https://cyrusbatchan.blogspot.com/

A common measure of profitability is sales per square foot, which is calculated by dividing annual sales by square footage of the restaurant.  What is considered a good sales per square foot depends on the type of restaurant.  A full-service restaurant will typically look for above $250 sales per square foot to start turning a profit.  Anything above $350 sales per square foot will likely result in a high profit operation.  Perhaps a bit counter-intuitively, limited service restaurants will typically need higher sales per square foot, due to usually higher per foot occupancy costs and lower per customer sales.  A good sales per square foot for a limited service restaurant will be about $50 higher per square foot compared to a full-service restaurant.

One of the most important decision in running a restaurant is setting the menu prices, which will be heavily influenced by the food and beverage costs.  As a general rule of thumb, food costs make up about 30% of the food sales in both full-service and limited service restaurants.  Food costs, however, is highly variable depending on the type of food the restaurant serves.  For example, it is not unusual to see restaurants specializing in higher cost items to have food costs close to 40%.  This will typically result in higher food prices, which gives room for the restaurant to recoup the margin lost to high food costs elsewhere by lowering the margin from overhead or staff.  Certain foods, such as pizza, can also have much lower food costs.

Another big component of a restaurant profitability are beverages, both alcoholic and non-alcoholic.  You may see liquor or beer costs around 15 to 20 percent of the beverage sales while wines may hit much higher percentage at 30 or even 40 percent.  Coffee can have costs around the same as liquor or beer, but it will obviously depend on the type and quality of coffee used by the restaurant.  Soft drinks and iced tea have much lower costs, around 10 percent, which explains the typical free refill for those items.

Operating a successful restaurant can be as much science as art and operational calculations are often broken down into minutiae.  In a highly competitive industry with often razor thin margins, each cost and pricing decision requires careful deliberation and calculation, notes Cyrus Batchan.

*** Cyrus Leon Batchan is a business consultant in Sherman Oaks, California. He has significant "hands on" experience with hospitality businesses.
https://cyrusbatchan.us
https://cyrusbatchan.blogspot.com/