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In a chain restaurant, will a unit that has skewed product sales towards higher food cost menu items have a higher food cost?

Yes, more sales of higher food cost items will yield a higher overall food cost. That doesn’t mean that it’s a bad thing though. A low food cost isn’t what makes you profitable. A high gross profit is, meaning that making $4 gross profit on a $7 sales is better than making $3 gross profit on a $4 sale, even though the food cost for the first instance is higher (43%) than the second instance (25%). No matter the food cost, making $4 is better than making $3. The only exception would be if that $7 item resulted in significantly higher expenses or labor that ate up that extra $1 in gross profit, which isn’t likely.

You CAN’T use food cost percentage as a factor in pricing out your menu, or deciding what items you’d like to sell. Food cost percentages are a management tool, not a pricing or strategic tool. You want a product sales mix that yields you the most gross profit, despite the food cost.

What food cost percentages ARE important for, are to help give you a first line of defense in stopping theft and waste, but to go along with your actual food costs, you have to have ideal food costs to compare them too. If you don’t figure what your food costs SHOULD have been, you have no idea if a high food cost is bad because of theft or waste, or good because your sales mix has changed to higher cost, higher gross profit menu items. High food costs alone don’t mean there is a a problem. They could mean just the opposite. Start a system for figuring ideal food costs, so you can compare your actuals to them to know if there is really a problem, or if your product sales mix has changed.

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Conversations about pricing by gross profit

The following are excerpts from discussions I had with restaurant owners in the Restaurantowner.com discussion forums regarding pricing by gross profit.

From “Pricing by gross profit” thread – RO.com

Posted Jul 30,2004 1:08 PM

brandon
I realized while typing a post in the bar pricing program thread, I might as well start a thread discussing pricing as a whole and explain how to price by gross profit for food too for those that don’t know how. Pricing by gross profit is really the only sure fire method I’ve found to price a profit into your sales items. Many operators have gotten by from having enough experience working with certain types of food to know if they price by a certain cost percentage and work with menu foods that have worked in their system in the past, they can control cost well enough to make a profit. I have done the same in the past and have made my operations money doing it, but it seemed every once in awhile, something did not calculate right and I would inexplicably lose money or make less in a month I could’ve swore was a good month. By pricing by gross profit, I’ve come to realize the most important factor in my profitability in congruency to how many items I sell, is which items I sell. The majority of our mentors in this business have preached “cost percentage, food cost, liquor cost”. While controlling cost percentages is a needed part of the equation of profitability, it is not the most important part. All too often operators build their marketing around their low cost menu items. While these items return them a great cost percentage, they most often don’t return the gross profit per item that higher cost items may.I would like to start with a question to managers and operators out there. How many of you currently structure your pricing off of a target cost percentage? How many of you already price based on a target gross profit per item? For those of you, likely the majority based on my experience, who price by cost percentage, has anyone ever shown you how to price by gross profit and explained the differences between the two systems?Reply
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Posted Jul 30,2004 8:39 PM Clemmons8085

Brandon
I am going to try your method and see how it works. How do you price your bar items beer, wine liquor?
Kyle

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Posted Jul 31,2004 6:06 AM VirginiaBeach717

I’ve been trying to use your pricing concept since 1980. I’m running a low food cost on most sandwiches and appetizers and a high food cost on dinner entrees. It just makes since that if you sell a dinner with a 45% food cost and make $9.00, that you’d want to sell more of those than a sandwich at 18% that you make $3.50 profit. I keep trying to jack up the sandwich prices to make it easier for the customer to “jump” up to a dinner entre. Over the last four years I’ve become much more aggressive in this marketing attempt. There has been a 2% increase in dinner entrees which is statistically insignificant. The good news that I’m making a lot more money on the low end of the menu. In June I increased prices on the biggest sellers in the sand and app category by as much as 10-15% (with some masking of certain items). There was nary a word said from the customers and I would know because we have a solid group of regulars, daily, weekly and bi-weekly and I talk to most of them. (Sales have continued to grow as well, not just from the price increases.) At that time I raised alcohol prices after 7PM by 10% and it virtually went unnoticed (again our regulars would have let me know and quite vocally at that). Sales taxes increase Sept. 1 and I plan to use this as an opportunity to raise prices for Happy Hour. Again I’ll use “masking” because instead of raising the price of drinks, I’m “lowering” the price two cents but adding the sales tax to the item instead of including it. I realize I have gotten off the original topic but I wanted to share this experience since Jim’s survey and some earlier threads about wholesale price increases and the need to raise retail prices. My advice: If you have a good operation, DON’T BE AFRAID.

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Posted Jul 31,2004 1:49 PM brandon
I think that was right on topic. You seem to be well ahead of the pack on your pricing structure. This obviously isn’t my original idea, many consultants have been trying to educate restaurant owners for years. I have just managed to use it to create my own personal structure and used the pricing method to drive customers toward higher cost, higher gross profit menu items. Congratulations on your forward thinking and resulting success.BrandonReply
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Posted Jul 31,2004 2:35 PM brandon

I’ll continue my explanation of pricing out bar items in the “Bar Pricing Program” thread Kyle. Maybe we can continue with food on this thread. Food is slightly more complicated, but your existing experience with pricing will keep it reasonably simple still.

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Posted Aug 03,2004 11:53 AM lemoyne

Well, i guess it starts with the basic thought of what you are here to do. Maximize profits or minimize costs. Basic economic theory states that the level of maximum profitability is when the marginal revenue meets the marginal profit meets marginal cost. In other words you are here to maximize profit and if by lowering your price outside your target range of food /liquor cost you can sell more then you should as long as the additional gross profit is greater than the reduction in price

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Posted Aug 11,2004 6:42 AM toms
Hi Brandon and everyone else,Brandon- I just joined RestaurantOwner.com based on your advice from another site’s discussion forum. Thanks for the advice. I really believe it’s going to pay off. I realize I need to think of myself as a marketer first and a restaurateur second if there is going to be any success here.Anyway, to your topic. About 4 months ago I changed my price structure from a food cost % pricing structure to a gross profit per item structure. I was tired of worrying about the percentages if we were selling a lot of high cost (%) items. I repriced to achieve about an $8 gross profit on all dinner entrees. Now I don’t have to worry about what we’re selling. It’s all good. And percentages have stay in line as well. From this point forward all menu categories will have an assured gross profit built into the pricing. I think it foolish to do it any other way.Reply
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Posted Aug 11,2004 3:15 PM brandon
Welcome Tom,Good to see you here. Maybe you can help explain pricing by gross profit for food while I’m still posting about beer, liquor and wine. I’m sure people would love to hear from another person who’s already adopted the technique.BrandonReply
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Posted Aug 12,2004 1:34 PM toms
1. Decide on what you want your gross profit in each category. Say on apps you want to achieve a $4.50 gross per item sold, entrees an $8.00 gross and desserts a $3.00 gross.2. Then cost out your menu item by item. Then add your target gross to each item cost to achieve your menu pricing. Of course you will have to raise or lower the prices to based on percieved value and prep times.Example: Spinach & Artichoke Dip with Toasted Ciabatta Bread
Cost: $2.13
Target Gross: $4.50
Total of Cost plus Gross: $6.63 or $6.95 Menu priceReply

 From “Bar pricing programs” thread – RO.com

Posted Jul 28,2004 11:14 AM

brandon
After posting with a couple other members in here, I am curious to see how many members have an actual plan for bar pricing. Do you use formulas? Do you attempt simply to price match with competitors? Do you try to keep your price changes to categories such as well, calls, premiums and super-premiums with liquor and make everything just fit into one or the other? Do you concentrate on selling the lower cost percentage items such as draft beer and well liquors, or do you concentrate on the high gross profit items such as wine and premium scotches or martinis?I think the majority of restaurants and bars price their drinks out on a simple cost percentage markup or maybe with no formula at all, just using their experience in selling alcohol for so long.What do you do?Reply
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Posted Jul 28,2004 10:00 PM Clemmons8085
We price based on cost and also what the market will pay. We also sell alot of martinis, in our town I have seen them anywhere from $5 to $10.
We charge $7.00 for house 5oz
$7.50 call Absolul, stoli, ketele
$8.00 for Goose, belvedere
Beers like Bud lt Bud, miller lt coors $2.75
Imports like Corona ect… $3.25
Draft pints $3.75 for everything from Ultra, New Castle, Sam Adams
How do you guys charge for rocks drinks and doubles. Are your doubles true doubles or long pours?
ThanksReply
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Posted Jul 29,2004 10:21 AM brandon
When you say, “price based on cost”, what type of formula do you use? Do you mark up to obtain a certain cost percentage?A big martini market helps the profitability a lot. The objective of selling martinis is to get the most money out of one drink as possible while still offering value, saving money on labor, glassware, condiments, garnishes, mixes, etc. You’re fortunate to have a big martini crowd.In your martini pricing and pouring, 5 oz. is a huge pour for any drink, but $7 is a good amount to get for it too. Maybe that is your draw. In your 5 oz martinis, are you stating the glass size, the amount of liquor, or the amount of liquor + vermouth? Or is it 5 oz when talking of martini cocktails in general, but less for the traditional martini? I ask because martinis vary so much regionally. In a certain area, people expect certain things.The tradition martini recipe found in many book call for 2 oz of gin or vodka mixed with 1/2 oz of dry vermouth. In my area, if you put more than a drop of vermouth in a martini, you’ll be strung up. Many operations here drizzle and swirl a small amount of vermouth in a glass or a shaker, pour the excess out, add ice, then add 2 1/4 oz gin or vodka. If the martini is on the rocks, you make it in a glass, garnish, then serve. If it is up, it’s made the same way in a mixing tin, swirled, then strained. In the finished product, most restaurants here only have around 2 1/2 oz of liquid in the drink. In my operations, I serve and price every martini simply as a double. Two 1 1/2 oz shots of gin or vodka, drop of vermouth. When served on the rocks, it fills a 10 oz rocks glass and results in quite a big martini, compared to what other restaurants are serving here. The exceptions are the martini cocktails popularized by martini bars. The amount of booze in these martinis are about the same as a traditional martini, but after adding ingredients like sour mix, grenadine and fruit juices, they come out to around 5 or 6 oz.That should give you a basis for information to compare to my pricing program. I’ll start a new post for that so this one doesn’t ramble on so much.BrandonReply

 

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Posted Jul 30,2004 12:47 PM brandon
PricingHere’s how I price out all my sales items.First thought in pricing is not what kind of percentage cost I want to sell items at, it’s how much gross profit I need to make per item to cover everything other than the product cost including profit. Gross profit figured by simply adding every cost in your restaurant, other than product cost, but including profit (yes, you should consider this a cost of doing business), then determine what proportion of that total cost should be used to cover the sale of a particular sales category.? Not as difficult as it sounds if you keep a good P&L. The easy way to figure this would be use your year end P&L from last year. Take your total expenses for the year. Subtract your product cost for the year. Add the dollar amount of profit you SHOULD have made for the year, maybe 15-20% of sales. Maybe more, maybe less. Your choice. This number equals your Accumulated Gross Profit for the year, meaning, your sales minus product cost (gross profit) should add up to equal your expenses plus profit minus product cost. It will be necessary to add an increase to last year’s expenses to cover costs other than product that may have risen in the last year. (Remember, product cost is not figured into gross profit). Usually a standard cost of living index increase will do, about 4% most years.Now that we’ve figured what we need to make in Accumulated Gross Profit, we need to break it down to figure how much gross profit we need to make in food, beer, liquor and wine separately. This is the reason it is important for operations to track these sales and these costs separately. Each has a different cost structure and requires a different pricing structure. To figure how much gross profit we need for each different area, we simply look at our sales mix from the previous year and determine what percentage of total sales was due to liquor, for example, then divide the Accumulated Gross Profit between each of the sales categories proportionate to their portion of last year’s total sales. These will then show you the Accumulated Gross Profit for Food, Accumulated Gross Profit for Beer, Accumulated Gross Profit for Liquor and Accumulated Gross Profit for Wine.From the Accumulated Gross Profit for each sales category, we need to determine a gross profit per item needed. This is the number that shapes the pricing structure. In order to figure gross profit per item, you need to have accurate sales counts in each of the sales categories. Item counts. This is where a POS system takes a huge load of work from you. Many operators do still track sales items by hand on a daily basis. Those that don’t track at all, there’s a good reason why you may not be making as much money as you could.

The Accumulated Gross Profit for each sales category is then divided by the total item count sold in that category. If you are figuring liquor, for example, each drink counts as one item. Doubles are only one item. Each individual sale counts as one. Food is the same way, if a food item is sold at a separate price, appetizers for example, that item counts as 1, if you charge extra for salads, that counts too. The focus is to get a needed average gross profit per item, no matter how big or small.

The gross profit per item we need is the basis for the pricing structure of every item we sell. If collect the proper gross profit per item, plus the cost we are paying for the product, we will achieve the profit we priced for. This is the only pricing method I know of that allows you to pick how much money you want to make and accurately budget for it.

I was intended to go into detail about liquor pricing in this post, but realized without explaining gross profit, it was pointless. I will continue in another post.

Brandon

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Posted Aug 01,2004 2:15 AM brandon
Pricing Beer by Gross ProfitI thought I’d start with beer since there are less variations in pricing in the beer category.From the “Pricing” post, we have already established a needed gross profit per item on beer from dividing our accumulated gross profit by the sales mix percentage for beer.Ex. -
Total Accumulated Gross Profit = Expenses + Needed Profit + Cost of Living Increase
Accumulated Gross Profit*Beer Sales Mix Percentage (% of total sales dollar volume attributed to beer) = Accumulated Gross Profit for BeerAccumulated Gross Profit for Beer/Total Units of Beer Sold = Gross Profit per Item on BeerThis number is what we need to average for every beer sold in order for our beer sales to hold up their end of our profitability program. For the purpose of this post, we’ll say that number came out to be $2.00 per item. That is the amount we need to average above our product cost in order to achieve the amount of profit we budgeted into our needed gross profit.

The first step to pricing based on gross profit is simply to add our needed gross profit per item to our product cost plus tax and waste. We will later adjust up or down from there based on a couple factors to influence our customer’s buying habits and increase our realized gross profit per item purchased.

Ex. -
Domestic draft 16oz – $76.55 after tax and waste / 150 pours per keg = $.51 per draft product cost. $2.00 needed gross profit per item + $.51 product cost = $2.51 needed per domestic draft

Premium draft 16oz – $153.10 after tax and waste (great beer) / 150 pours per keg = $1.02 per draft product cost. $2.00 needed gross profit per item + $1.02 product cost = $3.02 needed per premium draft

Domestic bottle – $.78 per bottle product cost after tax and waste + $2.00 needed gross profit per item = $2.78 needed per domestic bottle

Premium bottle – $1.19 per bottle product cost after tax and waste + $2.00 needed gross profit per item = $3.19 needed per premium bottle

The first thing you may notice when performing this first step in pricing by gross profit is that while lower priced items seem to be about what you are used to seeing, you don’t seem to need near as much for premium items as you were taught to believe. The main point at this stage of implementing this pricing structure is to figure a base price to adjust from that will allow us to obtain our profit margin we calculated into our gross profit. If we sold all of these items at the prices we determined with our gross profit per item markup, we will achieve that profit margin.

Now that we have a profitable formula, next we will try to manipulate it to exceed our profit goals as opposed to just realizing them. That will be our next post.

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Posted Aug 04,2004 7:48 AM VirginiaBeach717

WOW!!!What a concept. Is anyone reading this?? I’ve been waiting days to see if someone would respond. I’m not sure I buy into this concept; heck, I’m not even sure I understand it completely but here goes anyway. Say I want to make $50K more next year. If I follow what you say, then I need to break out my beer percentage sales. So I take 28.19%(beer sales) of $50K which gives me $14095 profit dollars for beer sales. I then divide that by 132,126 unit sales of beer which comes to ten cents per beer. Ten Cents!!! That’s all?? Of course, I’ve got to apply the same theory to all other items. But I just raised the price of beer .25 so I should enjoy a handsome $49,333 additional profit from the beer alone. (Mixed beverages went up a quarter and food prices caught with the increase in cost of goods.) I can see new golf clubs in my future. Am I understanding this correctly?
Which leads to a comment I wanted to make on a previous thread regarding purchasing new autos. I made the mistake of buying a nice boat. Even though the customers got to go fishing for free, it wasn’t enough. I remodeled the bar, new carpet, new dishes and decorations and I then heard from several people “We like how you’re spending our money” I guess it’s important to “share the wealth”.

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Posted Aug 04,2004 8:55 AM VirginiaBeach717

Don’t you hate interruptions? My profit with a twenty-five cent increase is $33031. Sorry about the math.

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Posted Aug 04,2004 8:39 PM Clemmons8085

Virginiabeach, I am with you,
I am trying to break it all down to fit my concept and see how the numbers come out. I hope for your sake that you will enjoy the increases!
Kyle
PS you might not need Roys system!

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Posted Aug 06,2004 3:22 PM brandon
>>>I’m not sure I buy into this concept; heck, I’m not even sure I understand it completely but here goes anyway. Say I want to make $50K more next year. If I follow what you say, then I need to break out my beer percentage sales. So I take 28.19%(beer sales) of $50K which gives me $14095 profit dollars for beer sales. I then divide that by 132,126 unit sales of beer which comes to ten cents per beer. Ten Cents!!! That’s all?? Of course, I’ve got to apply the same theory to all other items. But I just raised the price of beer .25 so I should enjoy a handsome $49,333 additional profit from the beer alone.<<<Not sure I follow your math, but you have the numbers necessary to figure out how to make more money next year. If you are trying to make $50,000 on your bottom line next year, you simply have to increase sales by $50,000 without increasing expenses. A price raise would accomplish this, but the math needs to be a little different. A $.10 price increase across 132,000 units, without a drop in # of items sold, would result in $13,200 straight to the bottom line, not $50,000. To reach $50,000 you divide $50,000 across 132,000 units sold to figure how much more you need per unit. It comes out to just under $.38 per unit in needed price increase without a drop in volume.BrandonReply
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Posted Aug 06,2004 3:23 PM brandon
>>>Don’t you hate interruptions? My profit with a twenty-five cent increase is $33031. Sorry about the math.<<<Sorry, didn’t realize you had already corrected your math.Reply
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Posted Aug 06,2004 4:16 PM brandon
Price StructuringNow that we have a profitable formula, next we will try to manipulate it to exceed our profit goals as opposed to just realizing them. That will be our next post.”We left off by determining a needed gross profit per item and adding it to our product cost to create a formula that will net us the profit we priced for. For many people, this is enough, but you will notice, while bottom prices are somewhat comparable and not necessarily a great bargain in comparison to other operations, the premium prices seem like a steal. This is where many operations run afowl and lose focus on the ultimate goal, increasing the average gross profit per item.By pricing by product cost, most operations come out with comparable prices on the low price items as they would in pricing by gross profit. Their prices on the premium items are usually well above the baseline price for pricing by gross profit though. Pricing by product cost encourages the idea that most people come in your restaurant/bar to drink what’s cheap, then you make up as much as possible on the premium drinks with the people who simply won’t sacrifice quality. We need to set up our pricing structure so it not only increases the perception of value, but encourages the sale of premium products through agressive pricing and results in an increase of gross profit per item through the increased sale volume of premium items. Our goal is to become “The Place” to drink premium drinks affordably.With our baseline pricing, currently we are making the same gross profit per item on premium beers as we are on domestic beers, but we left ourselves a lot of room to manuveur on the premium beer pricing and a little room to use added value on domestic beers to further draw in a crowd.Stated example for our baseline pricing from earlier:
“Ex. -
Domestic draft 16oz – $76.55 after tax and waste / 150 pours per keg = $.51 per draft product cost. $2.00 needed gross profit per item + $.51 product cost = $2.51 needed per domestic draft

Premium draft 16oz – $153.10 after tax and waste (great beer) / 150 pours per keg = $1.02 per draft product cost. $2.00 needed gross profit per item + $1.02 product cost = $3.02 needed per premium draft

Domestic bottle – $.78 per bottle product cost after tax and waste + $2.00 needed gross profit per item = $2.78 needed per domestic bottle

Premium bottle – $1.19 per bottle product cost after tax and waste + $2.00 needed gross profit per item = $3.19 needed per premium bottle”

Now we adjust the baseline pricing to 1) Still meet the average gross profit per item if our sales mix does not change, and 2) Increase our gross profit per item when value in premium beer is realized and sales mix shifts further toward premiums.

We do this by doing two things:
– Slightly decreasing the price of domestic beers to create value for the current bulk of our customers
– Increasing the price, from the gross profit baseline, of the premium products to realize a greater gross profit per item on premium sales, but keeping the price significantly below the competition.

Truthfully, on beer, there is not a lot of room to play with pricing because of the limited range of product sold in the beer category, but there still is some room.

First we set a minimum markup that will still allow us to sustain our average gross profit per item, then we set a maximum gross profit per item necessary. The minimum markup will apply to all items, no matter how little they cost us. The maximum markup will also apply to all items, no matter how much it costs us.

Given the example baseline prices we determined above, here is how I would structure them:

Domestic draft:
baseline price $2.51
structured price $2.25
markup $1.74
This price decrease helps create the perception of value

Premium draft:
baseline price $3.02
structured price $3.50
markup $2.48
This increase still keeps our premium draft well below most our competition, but raises our gross profit per item significantly.

Domestic bottle:
baseline price $2.78
structured price $2.75
markup $1.97
This decrease is very slight, but serves to keep us $.25 or more below most of the competition while still helping to maintain our average gross profit per item until our increased volume of premiums sold increases it.

Premium bottle:
baseline price $3.19
structured price $3.50
markup $2.31
This price is still fairly agressive for a premium bottle and will help us build volume in premium bottle sales.

Our established minimum markup for beer products is $1.74. Our established maximum markup is $2.31. No matter how much we pay for a 12 oz bottle of beer, the most we will mark it up is $2.31.

The focus now that the prices are set is to start marketing our premium beers. Increasing the selection of premium beers and focusing in house marketing, such as a monthly featured beer or beer suggestions with the specials, on the premium beers are going to help draw focus to our new agressive pricing. The low reasonably low prices on domestics in addition to very low prices on premiums serve to break down the resistance of our customers to trying new beers. They know they are always paying a good price, and the more expensive the beer, the better the value (remember, we never mark any beer up more than $2.31). The more you focus on beers that normally cost you too much to make a good product cost percentage on, the more your agressive pricing will be evident to your customers. Instead of having to charge $6 to make your percentage on an expensive imported beer that cost you $2, you now only have to charge $4.31, blowing out the competition.

The ending result is to try and make your place, “The Place” to go for a great beer for a great price not the place to go to drink cheap. People come in because they know everything is a bargain, not because Tuesdays are 2-4-1 drafts or beers are $1 from 4 to 6 on Happy Hour Wednesdays. Your customers focus should be on the special selection, not the deal that’s too good to pass up one day a week.

We started with beer because of the simplicity of the beer pricing. The basic premise of pricing by gross profit should be clear now. Next, we’ll focus on liquor, where the difference in pricing by gross profit and pricing by product cost are easier to realize.

Brandon

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Posted Aug 06,2004 4:20 PM brandon
After re-reading, I see I stated our maximum markup at $2.31 whereas we used $2.48 in the example.The maximum markup stated for any product should be $2.48, not $2.31.

 From “Liquor and Wine cost percentages for fine dining” thread – RO.com

Posted Jul 26,2004 1:21 PM

edfeakum
We are a fine dining restaurant (white table cloth only at dinner)located in the Pittsburgh area. Our Per Person Average is $30.33 (including lunch and dinner). I would like to see Liquor Cost Percent, Wine Cost Percent and Food Cost Percent for similar restaurants. Thank youEd Lewis
Bruschetta’s Restaurant
412-431-3535
edlewis@ifm-pgh.com Reply
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Posted Jul 26,2004 4:06 PM brandon
Percentages are really only useful after you have a profitable formula worked out to determine what your pricing should be in order to make a profit. Comparing your cost percentage to a different operation’s cost percentage could be very misleading. Another operation may have higher product cost percentages but make it up in saved labor, low rent or no advertising costs. Comparing your cost percentage really is not going to give you much useful information.That being said, I’ll still offer what I’ve done at some locations. My background includes quite a bit of time in Country Club settings. Overhead in those settings are completely different, but cost percentages are usually higher than in public settings so they may give you some sort of maximum guideline. With an 8-10% profit margin in a Country Club setting which included 4 ala carte dining rooms, 8 banquet rooms and 4 snack outlets, our year end costs would break down to something similar to this: 35% food cost including soft beverages (free snacks to members and employee meals expensed out), 24% liquor cost, 35% beer cost, 31% wine cost.Our overall alcoholic beverage cost for the year would be around 29.5%. That would be considered high in many restaurants, but the cost reflects a mixture of 60% of our alcoholic beverage sales being wine. 75% if I looked at ala carte exclusively. My beverage program was very, very profitable due to my high mixture of wine sales. My wine cost percentage was not indicative of my wine pricing structure either. I offered very aggressive pricing on wine that showed more value, the more expensive the wine cost was. My members flocked to the wines. Many people that were not habitual wine drinkers started drinking more wine because of the buzz created and the natural resistance that accompanies insecurity about their ability to choose wine. They knew they always received a great value. The increase in sales of our low, low cost, good quality house wines due to the break down of the resistance of fence sitting could-be wine drinkers drove our wine cost percentage down and our sales of all wines, especially the premium wines through the roof. All that despite the fact that outside of my house wines, I never marked a bottle up more than $25 over what I paid for it.1999 Chateau Lafite Rothschild (France)………………$230
Two restaurants down the street sold the same wine for $475 (40% cost)Members would notice my price on the most expensive wines were below the price they paid at the liquor store. The whole focus was to drive everyone toward bottles that returned me a $6.25 gross profit per glass instead of the $3.50 per glass I made on the house wines or the $2 per drink I made on beer. Pricing for liquor was equally aggressive on the high end liquors to push people toward drinks that return a higher profit dollar, not lower cost percentage.I would be more that willing to talk more about structuring your beverage program if you’re interested. I have reproduced my method, even in small towns, to success in every instance.Brandon

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Posted Jul 27,2004 8:11 AM jimlaube
Ed, according to the latest NRA Industry Operations Report for Restaurants with a PPA of $25 to $32.99, the median (half above and have below) is 31.3% for all alcoholic beverages combined. This is not broken down by category so I know it’s of limited value. Sales mix, pricing structure, etc. can have a major impact on beverage costs. From my experience in upper casual and fine dining restaurants, I’ve normally seen a straight liquor cost of 18%-20%, however, I have seen it as low as 14%. Once in a Mexican restaurant that sold LOTS of margaritas and at a high end restaurant in Vail (very high price points). Many restaurant break out bar consumables and reflect those items that includes garnishes, cocktail mixes, etc. in a separate account within the cost of sales category. Bar consumables normally runs 4%-5% of liquor sales.Personally, I like to see draft and bottled beer broken out both as sales and costs because the cost structure is very different. Draft normally runs 14% – 18% while bottled 24% – 28%. Selling a large share of imported or specialty beers can however push these percentages up.Wines cost, as Brandon alluded to, can be all over the board depending on bottled versus by the glass sales and the type of wine list you have. Obviously the more expensive the bottled wine the higher the cost but the greater the gross profit margin. I’ve seen wine sales in higher end restaurants run anywhere from the low 30’s to 40%.I think Brandon’s wine strategy is brilliant and I’ve seen a few restaurant operators take a similar approach in developing a “bargain” reputation on quality wine with much success.Let me know if you have any follow up questions or comments.JimReply

 

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