Margins of Error in the Restaurant Business

Dave Chang, the great chef who changed the way people eat and think about food, had a really interesting interview this week somewhere on the web in which he noted that margins of profit in restaurants are slim.  He’s right, of course, and that’s why the industry is increasingly vulnerable to economic forces that know how to create profit.

Great chefs and restauranteurs are teaming up with hedge funds and private capital–NOMA, Shake Shack, the Vetri Group, etc.–so that the survival and growth of their restaurants might be assured.  Prices go up, more is spent on marketing, a huge number of P.R. people are hired, and memorabilia–cups, plates, hats, clothing–is sold to make up for losses.  Food items are also pushed that cost less: Offal, pork, etc.  Anything fried sells.  You’ll see more pizza: Nothing is more profitable.  And a huge push on beverages.

Then, too, even for folks who promote more humane changes in animal husbandry, sustainability, and the environmental impact of agriculture–When you eat in restaurants that sell poultry, fish, and meat that are commercially produced, there is a disconnect between wanting to make things better and what you’re eating.  This is especially true at inexpensive restaurants: The stuff is cheap because it is cheap.

It’s going to be interesting to see how the challenges of running a restaurant with thin margins are met in this increasingly monetized economy.  More than likely, you’ll see more places closing and those that survive either teaming up with the money guys or serving cheap food.

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