Dining Out: Where Does That Money Go?!

At Slice, we have a lot of small business owners who want to see their money go far. Perhaps one of the most unique industries in the world is the restaurant industry. It’s one of the most common industries in the world—a business model that has supported families since the 18th century at the very least. 

Dining out is increasingly expensive for the typical person. Competition is high. Wages are often low but leveraged by tips. And yet, profit margins remain fairly low. Where is all that money going? 

The Breakdown Of Restaurant Costs

Cost of Goods Sold (COGS) (28-35%): Raw food ingredients, beverages, and packaging constitute the largest expense category. And let’s face it: getting that food is going to be pricier these days. If you can’t afford to cover the food, your restaurant won’t be open for long.

Labor (25-35%): This percentage encompasses all personnel costs, including wages, salaries, benefits packages, payroll taxes, and Workers’ Compensation. This category faces ongoing pressure from minimum wage legislation and competitive hiring environments. This is why so many companies are using Slice’s merchant services to help lower costs while improving tips.

Rent/Occupancy (6-10%): Covers all property-related expenses, including rent/mortgage payments, property taxes, decorations, and facility maintenance. Location significantly impacts this category, with prime urban locations commanding premium rates. In areas like New York City, you might see rent become a much higher percentage of a restaurant’s bills.

Operating Expenses (10-15%): Encompasses diverse costs including utilities, marketing efforts, insurance policies, cleaning supplies, equipment maintenance, and administrative overhead.

Profit (3-10%): The restaurant’s remaining revenue after accounting for all expenses. This is what the restaurant (and at times, the restaurant owner) earns.

What Will Happen In A Tariff War World?

In recent weeks, there have been talks about tariff wars that could potentially put many businesses out of business. The economy has been shaky recently, but the truth is that we still don’t know how it could shake out. 

Some sectors, such as fine dining and luxury dining, might be harder hit than others. After all, those sectors often rely on fancy food items and being able to draw a discerning client base in the area.

Unfortunately, there’s no crystal ball to use here. We don’t know what the future holds. For all we know, the tariffs might end up being a nonissue as our country changes course. This would make it business as usual, at least for now.

However, that doesn’t mean it’s good to rest on your laurels or make an assumption that it’ll always be that way. It’s often best to prepare. 

Preparing For Tariffs To Hit The Restaurant Industry

There are only so many ways you can prepare in such uncertain times. Much of it deals with lowering costs and possibly raising prices. If you can raise prices before tariffs take effect, you might be able to create a financial buffer in case things go awry. 

As of right now, many restaurants are working on menus that rely primarily on US-based foods and farms. This can help lower the costs of basic food items, keep menu prices low, and also encourage better relationships with companies that are also affected by recent events. 

It’s a good backup plan to have, to say the least.