So You Want To Be A Waiter

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Daily Archives: June 16, 2009

Refills, food costs and ignorance about how the restaurant business works

Over at the forum at (a forum that has some problems with connectivity at the moment, so you pays yer money and you takes yer chances), there’s a discussion about soda refills and how some people feel that just the act of buying a soda makes them feel like they’re “overcharged”, much less not being able to order a Coke and get free coffee at the end of the meal, or not get free refills of a stated beverage. There’s also a basic lack of knowledge about what food costs are all about. I’m going to take some selected quotes:

“I fully admit I have no experience whatsoever with restaurant budgets. However I do buy two liters of pop. I know what they cost. I know how many glasses of pop you can get out of a two-liter. I know that fountain drinks cost even less. There is no way that restaurants aren’t making a ton of money on drinks”.

Well, yes. Food costs a lot less on your grocery shelves than it does on a menu. That quarter pound hamburger patty on that $7 burger will only cost you about .75 on the shelf. Add another $1.50 for the fries, bun and condiments and you’re sitting about a 32% food cost.  However, that prime  160z New York strip that costs you $45 in a nice steakhouse costs the restaurant close to $20 a piece right now. So, this item has a food cost of about 45%. Yes, soft drinks have a much lower cost. It’s been a while since I’ve had to monitor that sort of thing, but it’s something in the order of 8 – 12% food costs (anyone currently running a restaurant is free to correct me).

But here’s the thing. A kitchen needs to have a certain food cost on average in order to maintain profitability. Even though a kitchen will try to hit 30 – 35% in most cases, this doesn’t mean that you can use a 32% food cost for all of your products (or charge 3 times your raw cost for everything). Some products have a very high food cost and some have a lower food cost. Some products have a lot of waste (like fresh produce or, in a way, the expense of someone who drinks 5 refills of soda) and you have to factor this in as well. Things like soft drinks subsidize the more expensive food cost items like steaks. It aslo tends to smooth out spikes in the food costs. The average restaurant goer doesn’t know this but kitchens buy most fresh products, even steaks and lettuce mixes, at market price, which fluctuate from week to week. The menu has to stay stable from 6 months to a year at a time, but the prices will fluctuate wildly. A product like Coke will keep its price for quite a while. It doesn’t jump all over the board so it’s a constant that restaurants can use to keep their prices in line and not have to change the menu everytime corn futures go up, driving the price of beef up as well.

“Since soda, coffee, tea and juice fall under ‘Food Cost’, the restaurant tries to run a 30% food cost, meaning if I buy 100 percent of my products, I should sell 70% or more.

Food costs include employee meals, lost product, and PR comps (buying food for VIP or service issues)

I’m not sure what you are saying here. Are you trying to say that food cost should be no more than 30% of your total costs, or that 30% gets wasted? Do you mean that 30% gets given way for various reasons”?

See above for simplified explanation of food costs. Simply put, food costs is a ratio, expressed as a percentage of the cost of the product divided by sales price. If something costs me a dollar and I sell it for three, my food costs are 30%.

“If a restaurant is charging 2.25 for a soda, but the customer is allowed to drink soda, tea and coffee, then food cost increases. This is not how a restaurant likes to run. But, let’s be honest, most people drink tea OR soda and then most people will finish the meal off with a coffee. So your saying, everyone should receive a free cup of coffee if they buy a soda or tea?

Yes, that is what I am saying”.

This is like saying, “If I order a hamburger, I should get a free hot dog” (it’s meat on a bun, right?). Or, “If I buy this dress, I should get this blouse”. That’s fine. Some stores might run a “buy a dress and get a blouse free” special. Or they might say, “Buy a hamburger, get a free hot dog”. But they do this as a planned hit against expenses. Each menu item on a restaurant’s menu is discrete (unless they offer a bundled dinner plan of some sort). You don’t get to say, “It’s a drink, so I should be able to get any number of different drinks for the price of one drink”. Many places have free refills for a certain drink, and that’s fine. However, each drink is a separate line item in inventory and it has to be accounted for. If refills are offered, that’s part of the food costing and they are priced accordingly. Some restaurants don’t do free refils at all, and that’s part of their pricing strategy as well. It allows them to sell that 16oz New York Strip for $45 instead of $55 and get away with running a 45% food cost on that single item without busting the kitchen’s “budget”.

There’s also a lot of talk on that forum about budgets and how people budget and it’s wrong to ask them to pay even an extra dollar or two for a tip because they might have a set budget of X dollars and even spending X+2 dollars will screw up their budgets. Well, restaurants have budgets as well. It’s the same principle. Once you’ve established what it takes for a specific restaurant in a specific location with a specific menu and a specific payroll, food costs become critical. If it’s established that you need to be running a 32% food cost and you end up running 36%, this is serious budget breaking money. Just as some guests say, “You shouldn’t ask me to break my budget”, you can expect the restaurant to reply, “Well, don’t ask me to break mine either”.

“What about the people who are spending 100.00 for a bottle of wine? Don’t you think they will demand a free cup of coffee for the money they are spending on a bottle of wine?

Yes, I do. I also think that anyone that would nickle and dime a customer that just spent $100.00 on a bottle of wine is being very short-sighted”

Total lack of knowledge about business and economics. Is a grocery store “nickle and diming” someone who’s spent $300 on groceries by charging them for that 2 liter bottle of Coke? Of course not. And a restaurant isn’t doing that either. This brings up the fact that wine is also on a sliding scale of costs. That $6 glass of white zinfandel that you enjoy has a “wine cost” of 40%  15% (oops, sorry ’bout that) .  That bottle, which costs you $24 in the restaurant, only costs you $6 on the liquor store shelf. However, that $100 bottle probably costs close to $50 or a wine cost of around 50%. Most restaurants sell their wine by the glass and cheapest bottles at a 4X markup, their mid-priced bottles at 3 times and their $100 and more bottles at twice the price. They aren’t going to mark up Jordan Cabernet at the same rate that they’ll mark up Yellowtail Chardonnay. Otherwise, your $100 becomes a $200 bottle very quickly. So, believe it or not, you’re getting a much better “deal” on expensive bottles than you are on the cheap plonk.

“This slippery slope your wanting to tread on will close a business in a matter of weeks. I’m not sure why people think that by charging 2.25 for a soda, with free refills will buy a corvette for the owner.

Where am I wrong? Am I wrong in how much the two liter costs? In the idea that fountain drinks cost even less? The restaurant may choose to throw drinks under the category of food costs – but on the individual drinks taken by themselves restaurants are making one heck of a profit. They have to be. More importantly, customers know it. Almost everyone buys pop themselves – they know what it costs. There are no “preparation costs” – there is no pepsi-chef making my drink for me. We all know that the server’s time doesn’t count since there is little in the way of labor costs to the restaurant”.

But there are preparation costs. Have you priced a canister of CO2 lately? There is a little labor involved as well. Who do you think changes out the syrup, cleans the machine of all that sticky gook that accumulates on the nozzles, breaks it down at  night, etc.? No, it’s not the same as cooking a steak, but it’s part of labor costs. How much do you think it “costs” for a line cook to cook a steak? About 80¢, if you only count the 5 minutes that it might take to cook a rare steak. And that’s out of $40 cost. But that’ s not how you look at labor costs. You don’t look at the “actual cost” of cooking an item. You look at how many manhours have to be used to crank out a given amount of food at a given amount of overhead (including food costs). It’s the same with beverages or any other product in the restaurant.

“I also have to point out that the more I am paying, the more I feel aggravated by this. If I am in McDonalds I have no problem paying for separate drinks or even refills. But when I have just spent over $100.00 on a meal – then it aggravates the heck out of me”. 

It shouldn’t make any difference.  McDonald’s doesn’t have to let the cola subsidize their case of crystal wine glasses that get broken every month. Or the $300 of lost sliverware a month. Or those nice flowers in the entrance. Or the CIA-trained Chef that you have to pay $50k a year. Plus, due to their volume, you are probably paying even more as a percentage than the actual cost of the product at McDonald’s.

Just because you spend a lot of money on a meal, this doesn’t automatically entitle you to free stuff. You have free will to not eat there, or not to pick the lobster or the $100 bottle of wine. Having said that, a nice restaurant will sometimes treat its better guests to things like an occasional complimentary coffee or dessert. The key word is complimentary. It should be up to them, not the guest demanding it. Does the customer demand a free wristwatch when they buy a TV at WalMart? I think not.

I hope that this has clarified things just a little. There are books written about this sort of thing. I tried to cover the subject as succinctly as I could.

Tipout pt. 2

So, what does the US Department of Labor say about tip pooling?

“Tip Pooling: The requirement that an employee must retain all tips does not preclude a valid tip pooling or sharing arrangement among employees who customarily and regularly receive tips, such as waiters, waitresses, bellhops, counter personnel (who serve customers), busboys/girls and service bartenders. Tipped employees may not be required to share their tips with employees who have not customarily and regularly participated in tip pooling arrangements, such as dishwashers, cooks, chefs, and janitors. Only those tips that are in excess of tips used for the tip credit may be taken for a pool. Tipped employees cannot be required to contribute a greater percentage of their tips than is customary and reasonable”.

Pretty specific, eh? Now, as far as Oregon goes (a state where the practice of a mandatory tipout to the kitchen seems to happen on occasion), I found this in another blog:

“Oregon law fails to address tips and tip pools and, therefore, BOLI does not enforce any standards regarding tips.  While the U.S. Department of Labor (DOL) establishes regulations regarding tips based on the federal Fair Labor Standards Act (FLSA), the DOL and the courts interpret the law differently.  Recent cases within the United States District Court for the District of Oregon have held that the FLSA does not regulate tips if the employer does not claim a tip credit (and Oregon prohibits employers taking a tip credit).  Employers are also free to make the tip pooling arrangements they dictate a condition of employment. As a result, even though the Department of Labor regulations grant restaurant workers control over their tips, those workers cannot currently assert those rights in Oregon courts”.

And this:

“The requirement that an employee must retain all tips does not preclude a valid tip pooling or sharing arrangement among employees who customarily and regularly receive tips, such as waiters, waitresses, bellhops, counter personnel (who serve customers), busboys/girls and service bartenders”.

Tip Pool Criteria:

  • consists of traditionally tipped employees: waiters, waitresses, servers, bartenders, counter personnel (who serve customers), busboys/girls, and hosts
  • cannot include owners or managers in the tip pool
  • cannot take more than a “customary and reasonable” amount of each employee’s tips (15% of tips or 2% of sales is customary and reasonable according to the Department of Labor)”

And here’s the phrase that allows the tipping of kitchen employees:

“When non-traditionally tipped employees are included in a tip pool, that is when the system has to be entirely voluntary—each employee can decide how much (if any) of her tips to share with anyone else”.