I grew up around amazing food. My mother went to culinary school in France, so I adore souffles, pastries and a ton of other dishes I can’t pronounce.
In America, these delectable items aren’t a norm, though. And going out to enjoy a five-star meal isn’t something the average person can do on a regular basis. So, I’m mostly left daydreaming (and drooling).
But I recently read an article on Plate IQ explaining restaurant markups, and it came to some surprising conclusions: Eating at that fancy shmancy restaurant that comes with a pricy bill might be a better value than grabbing a burger at a fast-casual restaurant.
Does this mean I should make my dreams of luxury food a reality?
Let’s take a look.
Restaurant Markups: What are They?
Restaurant markups are, basically, the difference between the restaurant’s costs for ingredients and the price you see on the menu.
As businesses, restaurants have employees to pay and lights to keep on. They want to make a little profit, too.
Typically, a restaurant spends 30% of its revenue on labor costs, 30% on general overhead and 30-33% on ingredients.
To earn a profit of 3-5%, a restaurant usually needs to mark up items by at least 300%.
But this article brings an interesting point to light: Upscale restaurants typically apply a lower markup percentage to their menu items than cheaper restaurants.
Plate IQ analyzed five popular menu items — hamburgers, burritos, pizza, omelettes and Cobb salads — based on West Coast ingredient prices.
The article used the example of a burger at a fast-casual restaurant that costs $1.86 worth of raw ingredients to make. (That doesn’t include labor and other overhead costs.) If the restaurant were to sell the burger at this price, it would make precisely $0. Once overhead and labor costs come into play, the establishment would lose money selling you that burger.
That standard, fast-casual burger has a 384% markup, putting its menu price at $9.
Now, take the example of an upscale burger priced at $14 described in the article: It features a brioche bun (fancy), egg (yes please), arugula, grass-fed beef and a few high-end toppings (ever heard of heirloom tomatoes?).
This high-end burger costs the restaurant nearly double what the standard burger costs, but the markup is lower — 355%, according to the article.
This same held true for burritos and salads — when you go with the cheaper-to-make menu items, markups skyrocket.
It’s dirt cheap to make a pizza, and markups on pizza are way higher than the typical 300%. The article uses meat and Margherita pizzas as examples, which have average raw ingredient costs of $1.90 and $1.77, respectively. On average, restaurants mark up the meat pizza by 636% and the Margherita pizza by 580%, putting the menu prices at $14 and $12.
The article also compared two omelettes that cost just $1.35 and $1.40 for ingredients. The omelettes were priced at $9 and $8, respectively, meaning they were marked up by 566% and 471%.
The examples given show that the simpler the menu item, the more of a toll it’ll take on your dollar.
Does This Mean You Should Indulge a Little?
So, what does this mean? Should you ditch fast-casual joints and head to your nearest Michelin-starred restaurant?
You might be getting a better value for that escargot in terms of markup percentage, but with higher raw ingredient costs, upscale restaurants are sure to pull more dollar bills from your pocket than a fast-casual spot. And those extra dollars go straight toward what you’re really paying for when you go out to eat: Ambiance. Service. Location. Name.
If you’re looking for something low-key, quick and close to you, you’re not going to bother with an upscale establishment. Instead, you probably care more about convenience than getting the best value for your food.
There are trade-offs when it comes to choosing convenience over quality.
But if you’re willing to sacrifice the convenience of regular fast-casual dining to save for the occasional splurge, rest assured that at least you’re getting a deal.
Kelly Smith is a junior writer and engagement specialist at The Penny Hoarder. Catch her on Twitter at @keywordkelly.
This was originally published on The Penny Hoarder, one of the largest personal finance websites. We help millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. In 2016, Inc. 500 ranked The Penny Hoarder as the No. 1 fastest-growing private media company in the U.S.
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