Ultimate Guide to Restaurant Markups

Lunch/Dinner Restaurant Markups

The markups associated with lunch and dinner vary wildly. Rumors fly about the markups associated with different kinds of ethnic foods, but some restaurants featuring ethnic cuisine aim for and operate at the standard 300 percent rate (that is, three times the food's cost) we've seen elsewhere [source: More Business].

However, you will see a higher markup for some Italian food. Why? Pasta's cheap. It has endured for years because it's versatile, hearty peasant fare. What defines a pasta dish is what's on top of it. The noodles themselves cost a restaurant only a few cents [source: Bockelman]. Pizza, likewise, doesn't cost much to make, can be topped with whatever leftovers are on hand -- yes, chefs struggle with leftovers too -- and is almost universally popular with consumers. In some restaurants, pizza returns a 100 percent profit [source: All Business].

In general, look at the food tradition to get a sense of the markup. Tex-Mex food relies heavily on low-cost beans and rice. French cuisine uses butter, liqueurs, fine cheeses, stock, filet mignon -- you know where the costs are coming from.

What about chain restaurants as compared to local eateries? There's an obvious difference between the burger you get at a drive-through and the burger you get at the gastropub down the street. The one at the drive-through probably costs half as much -- and it's not because of the size of the patty. It's because you have no choice about how the meat is cooked, and only a limited range of options for toppings [source: Walker]. It's also related to shear purchasing power. Fast-food restaurants feed more people and therefore buy more ingredients. So they can broker better prices, with large suppliers. Alternately, local eateries might choose to offer local foods. Purchasing organic produce and grass-fed beef from a local farmer is going to cost more, plain and simple.

Furthermore, fast food is fast and cheap because it standardizes food production, allowing owners to spend less time on kitchen training, vendor selection, and other administrative tasks. (It's a substantial savings; chain restaurants typically net twice the percentage of sales that independents do [source: Marvin].) In a restaurant, you're paying for variety. It's easy to understand in retail terms: You'd expect to pay less for a standard T-shirt off the rack at Target than for a shirt on which a local artist screen-prints a design just for you and a few dozen friends.

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