Opening a restaurant often starts as a labor of love. But a labor of love won’t pay the bills, and at some point, a restaurant needs to be making enough money to keep operating. There are numerous reasons restaurants fail, including a bad location or bad Internet reviews. But if you’re a budding restaurateur, you have to do more than study why restaurants go under. You also need to study what restaurants do to stay profitable. You can learn something from both fast food restaurants and high-end steakhouses. Here are three ways restaurants turn a profit.
The menu design
Restaurants use specific psychological tricks to lure diners into consuming more and paying more than they might have otherwise. For instance, if you notice a lot of food categories have seven items, that’s because seven is seen as a number that gives you some choices without overwhelming you. Believe it or not, having too many choices can cause us to feel anxious and confused. Restaurants don’t want you to be anxious; they want you to be relaxed and ready to order expensive food.
However, they don’t necessarily want you to order the most expensive item on the menu. If you see a $100 steak on the menu, that might be a decoy designed to trick you into thinking the other items are much better bargains in comparison. A $50 pasta dish won’t seem as crazy when the alternative is paying $100 for a piece of meat. Because you’re not ordering the most expensive item, you get to feel like you’re somehow being reasonable with your budget.
However, there’s a balance that must be struck as well. Consumers can be suspicious of an item that’s too cheap. They like value, but a $1 burger might be seen as less desirable than a burger that costs $4. Things like portion size and the ingredients also matter, of course, but restaurants spend a lot of time trying to organize and price their menu in a way that gets people to fork over more money without feeling like they’re being ripped off.
If a regular person needs a bottle of ketchup, they’ll go to the local grocery store and grab a bottle of ketchup. They might get a 6-pack of ketchup if they have a Costco membership, but they’re not going to fill a warehouse full of ketchup.
But restaurants need a lot more ketchup than you and me. That’s why ordering wholesale restaurant supplies makes sense for most dining establishments. Buying wholesale allows restaurants to buy more but pay less per unit. If you go through 1,000 plastic forks a week, it makes sense to order 4,000 or 5,000 forks and has enough to last at least a month.
With perishable items, it doesn’t always make sense to order a lot of product that you can’t use before it goes bad. If you’re a coffee shop that goes through a lot of milk every day, you’ll need to arrange for regular deliveries from the milk truck.
Lowering labour costs
Frontline restaurant workers aren’t going to get rich flipping burgers. They perform a valuable service, but they don’t get paid much to do it. The problem is especially noticeable at fast food restaurants where most workers start at or near the local minimum wage. These workers are spending long hours on their feet. They’re getting complaints from angry customers, some of whom don’t even try to act polite.
When a state raises the minimum wage, a couple of things can happen. Some restaurant owners will welcome the change and try to operate more or less like normal. Other restaurant owners will start slashing hours and scheduling fewer people per shift. That, in turn, may lead to longer lines and wait times the next time you go to your local greasy spoon diner. Restaurants want to provide quality service, but not if it costs them too much in overhead costs, money matters to them.