Menu Pricing: How an LA Restaurant Balances Low Prices with Profits

We often assume we understand restaurant economics because we know what a chicken breast costs at the supermarket. “I could make this dish at home for $5,” the refrain goes. Could we? Here, Eater takes a look at all the costs of a popular restaurant dish to see what’s in it and the benefits that come with it.

Uyên Lê has profitable items on its menu at Bé Ù, such as its banh mi. But there are two main reasons why she has so far been willing to lose money in order to keep the $10.50 egg caramelized pork (thit heo kho) on the menu.

The first is that the founding principle of his restaurant, which is not quite a year old, is to provide jobs with decent wages: Lê has pledged to start all staff at $18/hour (the minimum wage in Los Angeles is $14.25/hr and living wage in Los Angeles is $16.25/hr). However, this puts its labor costs above average, and the understatement of its fixed costs – like equipment, maintenance – also affects this.

“Do you know the WAG method? I did a lot of market and retail analysis in my old life,” says Lê, who has a master’s degree in urban planning and worked at the UCLA Labor Center and an electricians’ union. “You look at the size of the retail operations in the geographic market, the square footage and the services, the amount of revenue generated per square foot. You have to enter all of these numbers, but you have to make assumptions in order to have some level of analysis. The WAG method is the Wild Ass Guess method and that’s kind of where I’m at right now. Although she wants the menu to remain affordable, Lê will soon have to balance her high fixed costs and labor with the prices she charges. “We’re trying to capture it a bit more.”

But the main reason Lê is willing to take a $3 hit on every dish sold is much more personal: Lê is dedicated to executing the cherished family dish and making it available to a restaurant audience. His version starts with the simple act of boiling and peeling hard-boiled eggs. They are then placed in a large pot with pork belly on top (to keep the eggs submerged and prevent them from drying out). The braising liquid, adapted from her mother’s recipe, calls for seasoning with fish sauce, the sweetness of Coco Rico coconut soda, hints of brown and amber color from caramel and coconut oil. annatto, as well as water, which simmers uncovered for more than four hours. The reduced liquid is thick – not as sticky as French jus and not as viscous as a Jamaican oxtail sauce – and the gooey pork belly is served with the egg and sauce over rice with scallions and pickled mustard greens. “Every Vietnamese family has a recipe for it,” says Lê, but as ubiquitous as this heo kho might be in home kitchens, Lê couldn’t find it in restaurants. So she did it herself.

“It’s the kind of thing people will eat and say, it took me back to my childhood,” Lê says. And it’s worth it.

Menu price: $10.50

Total restaurant cost: $13.51
Profit: -$3.01 (loss)

Food costs: $4.59

Red Boat fish sauce: $0.38
Caramel: $0.04
Annatto seed oil: $0.28
Coco Rico: $0.45
Pork belly: $2.63 (0.45 lbs)
Eggs: $0.45
Rice: $0.28
Green onions: $0.04
Marinated mustard leaves: $0.04

“The food cost of this dish is probably the highest of all my dishes,” says Lê, who aims to maintain an average food cost of 25%. comparable to menu price; the thit heo kho is at 43.71%.

Lê notes that ingredient prices have risen sharply, especially at wholesalers. “Wholesalers are quick to increase the cost of something by 50% overnight. So it was an increase, 20-30% in a lot of things, that I didn’t expect.

Despite unexpected supply chain issues that led to increased food costs, Lê was uncompromising on her choice of ingredients. A typical restaurant would buy whole pork belly (which would be cheaper). But wanting to maintain the fidelity of his mother’s dish, Lê insists on only getting the central cut of the belly. “We call it thit ba chi, which means three-thread meat. It creates that mouthfeel – it’s a quality control issue. And where other restaurants might save a premium brand to finish off a dish, Lê empties a bottle of Red Boat into the pot, which in LA costs twice the average price of fish sauce. Ditto for using annatto seed oil to infuse an amber tone to the broth. These two liquids alone add $0.64 to the food cost of each serving. But the dish is meant to be “a hug for your stomach and your soul”, says Lê. “So you have to do it that way to feel like that.”

Labor costs: $5.25

Lê is the first to admit that her menu is too labor intensive for a takeout restaurant. Combined with the payment of a living wage, this translates into a payroll that currently hovers around 50% of income. “I always assumed mine would be above the industry average,” she says, but it’s higher than she likes. “There will come a time very soon when I will increase my prices for certain dishes. That’s just the way it has to be.

Its goal is to reduce labor costs by 40% by helping staff become more efficient, while slightly increasing the prices of certain dishes to reflect the true cost of the restaurant’s cumbersome preparation. Raising prices is a last resort, and it goes against his desire to serve affordable food to residents of Virgil’s village. piece.

Fixed fee: $3.67

Although Lê has not compensated itself or reimbursed any of the initial investments in the purchase of the restaurant and equipment, the fixed costs of Bé Ù—the rent; Assurance; bank charges; garbage; dishwasher; Security; exterminator; hood cleaning; call; and Toast, his favorite online ordering software, are at the upper end of what’s generally advised (most restaurants I’ve reported on tend to operate between 18-30% fixed costs, versus 35 % for Lê here). “I probably assumed too low a cost for equipment and maintenance when I started, [and for] those other business disruption costs that arise when operating in a pandemic.

Third-party delivery and pick-up costs

“We don’t deliver because of the high margins,” says Lê. “We only offer takeout where you can order online through Toast, call or order at the window.”

profit or loss

At a menu price of $10.50, Bé Ù loses $3.01 on each order of caramelized pork with egg. “I wish it was a loss leader to bring people to the restaurant,” says Lê, “but it’s actually just an emotional connection to a dish that I want to share widely as if it were of a cultural ambassador.”

Not wanting to raise prices across the board, she’s considering paying on a sliding scale, perhaps keeping a few items, like vegan banh mi or popcorn chicken, at a fixed price. It is possible to selectively increase prices, keeping certain dishes, like this one, at a value that makes it more widely available. And once she’s a bit more stable, she plans to apply to accept EBT (Electronic Benefit Transfer). “I grew up on food stamps. And I feel like it might help maintain some accessibility for people on fixed incomes.

Lê’s tried to figure out how to communicate to customers why she needed a price increase, after establishing the three pillars of her business as good food, good jobs and affordability (already three times the ambition of the most restaurants). “I still keep this foundation. But something has to give to figure out how to build a sustainable and resilient restaurant, so I can stay and achieve those goals.

Corey Mintz, a food journalist who focuses on working in restaurants, is the author of The Next Supper: The End of Restaurants as We Known Them and What’s Next (Public Affairs 2021)

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