Swap "alcohol" for "soft drinks" and you're pretty much describing the entire fast-food industry.
Also, in McDonalds' early days they didn't have the leverage over suppliers that they wield now, so its food costs have come down by orders of magnitude. This reminds me of something my cost accounting professor told me- to get to large scale businesses have to price items as if they are already at large scale. If you buy a stamping machine that cost $1 million capable of maximum output of 100,000 units, but currently only have sales of 5,000 units, do you price each unit at 1,000,000/5,000 or 1,000,000/100,000? If you opt for the former, you'll never get to maximum output because customers won't be able to afford your prices.
They should just have made darned turkey sandwiches or something. Charge 25 cents less than similar ones in a two mile radius. If everyone is asking $7, make yours $6.75.
Have an espresso machine and great coffee.
Don't hire any outsiders until business outpaces your sandwich-fu.
Encourage take-out and phone-in orders (or online). Take-out people don't take up seats and you don't have to do dishes after them or clean the table.
In a restaurant me and my girlfriend frequent, the main dishes are actually VERY affordable -- I'd even say cheap -- for what they offer. And many people flock to the restaurant in lunch breaks, but they are very careful to only order a beer plus a main dish.
Why? Because that restaurant's every single drink -- alcoholic or not -- is grossly overpriced. Desserts cost an arm and a leg. Salads are mostly okay but they most likely sell them for 3x the price of the ingredients as well.
The way I see modern restaurants is exactly like you said: food is just a bait so you can get in and buy the things that go with it, and they are the real profit makers.
I am perfectly okay with it. It was just an interesting revelation and I decided to chime in and thank you for confirming my observations.
If you sell burgers, the food costs are pretty high. After all, good hamburger meat, cheese, and whatever else you are going to put in it is pretty expensive. If you charge your costs plus some fixed percentage to ensure profitability on every item, but your customers are used to buying burgers at similar places that charge for the food at cost and make their profits on french fries and drinks, you will quickly earn the reputation of being overpriced. If you can earn some sort of adoration that drives people to your place regardless of price, like Shake Shack or In N' Out, then you have the luxury of charging a bit more, but that's hard to achieve.
Adoration of customers is a nice theory. Never holds up in reality though. Those customrs go there because they know the quality and quantity for the price, and know that every time it will match that. If you have any doubt in that point, watch what happens to any chain that begins to serve lower quality or inconsistent quality food.
There is customer comfort from repition, but even a moss covered stone can be moved for a good reason. Customers arnt moss covered stones though, they will try something new and if the price/quality point is better, they will move.
I'm in the food industry, and this pervasive food-cost mentality is one of the things I think people often do unwisely.
Here's a simple example with made-up numbers: The burger ingredients are $2.50 and the burger sells for $10. There's a 25% food cost. The filet of beef tenderloin costs $10 and sells for $25. The food cost is 40%.
Focusing on food cost means the burger is a better item for the restaurant. But I'd take the 40% food cost instead of the 25% food cost and then net $15 instead of $7.50. A percentage means nothing compared to cash in hand. That's nothing groundbreaking to say, but that discrepancy is often lost on food-industry people because they focus too much on the food-cost percentage.
Look the basic principle is: 25% to each: food, staff, facility, profit. Now all experienced managers know that profit is a variable.
The point being, never sell for under, unless you can guarantee an over. Which is difficult to say the least. Yes, if you have gaming section and can rip off your customers from there, go ahead (nb: this is why I never working in venues with gaming facilities). If you have an amazing wine selection or just plain know your clients are going to order great pricepoint wine? Well, just be careful.
Otherwise, you better be selling a lot of overpriced stock with low staffing rates, otherwise son, your going to come undone(as was put to me during training).
Look, all rules are made to be broken, but there are reasons why there are general rules of thumb. At %40, how are your staff doing, with all that running. Is the service good enough? Is your kitchen overstressed? Maybe no, if so - I'm happy for you, but do you think every place can run at %40?
Focusing on costs is the main thing. If you don't, you will find yourself in water deeper than you can handle one day. I'm happy that you can run at %40, I just hope it doesn't go over your head before you realise.
Great products
Even better customer service
Safety
Sanitation
Organization
I've set our rates so that staff can focus on those listed areas instead of sweating every cent, a common industry behavior which I think inhibits the customer experience and leads to lower-quality products. Certainly, costs matter (to me and to employees), but I want their focus to be on what they make and servicing our customers, and I'll do the bulk of the the economics. So far, for my food business as a wholesaler, that's worked.
I was talking from a cost management point of view. If you would like to talk more about this(we're almost at the end of hn's threads haha), check my profile for my email :-) I'm guessing you're in the us(most hners are), so I can't exactly visit your place, but I would if I could :-)
Anecdotally, I recently went to one of the top steakhouses in my city with my girlfriend for her birthday. We ordered a filet, some crab legs, some prawns, and a few sides. With the meal we had two martinis each. The four martinis accounted for about 20% of the bill but six ounces of Ketel One probably accounted for a few dollars of costs to the restaurant plus some Olive Juice so those drinks were nearly all profit in terms of variable costs. I'm sure there was a healthy profit on the food, but far less than the drinks.
To put it another way, most restaurants that serve alcohol would not be able to survive without alcohol sales with their current food prices.
That chicken is a confit (with duck fat, aka $$), then served with a stock/stew that takes days (of labor dollars) to prepare, plus cost of employees to serve, stuff to serve it on and rent to pay, not to mention the utilities (the water bills on that cursed grease trap were the opposite of "the gift that keeps on giving"). That damned chicken should be $40! But people won't pay $40 for chicken, so it's $29.
This seems to suggest that the author (who I sympathize with very much) doesn't have much understanding of cost accounting, and therefore pricing, which is near the top of mistakes inexperienced business owners make. The cost of the chicken is variable. The costs of rent, labor, and utilities are fixed on a per plate basis.
I'm friends with the owner of a very large and very successful restaurant and he once told me that he basically makes no profit on food and that the food is just a way to get people in to sell alcohol which is where the majority of his profit is made. It's also true that some foods are necessarily more profitable than others. People won't pay your costs for the chicken confit and you lose a few bucks on every one that goes out? Fine, add a few dollars to your pasta dish that costs far less to make and if you sell the same number you're even. Or, if the chicken isn't profitable and you aren't selling many of them, just accept that people don't want it and take it off the menu.