I’ve heard it, you’ve heard it – it’s practically gospel in business circles: the food industry is the toughest game in town. The margins, they say, are razor-thin. Restaurants struggle to stay afloat, operating on mere pennies of profit per dollar.
It’s a narrative so deeply ingrained that it’s almost sacrilege to question it. And for a long time, I accepted it, nodding along sympathetically to tales of grueling hours and financial precarity.
But lately -- especially here in West Hollywood and Los Angeles -- a gnawing skepticism has begun to set in. My personal experiences with pricing have led me to wonder: how legitimate are these claims of wafer-thin margins, really?
Let’s start with a classic: a glass of wine. I've sat in countless L.A. establishments, perusing menus where a single glass of a decent, but not extraordinary, vintage is priced anywhere from $15 to a staggering $40. A single glass! My mind immediately jumps to the local grocery store or liquor shop, where I can often buy an entire bottle of that very same wine, or something comparable, for a mere $8. An entire bottle for less than half the price of one glass.
I don't need a business degree to see the math here. (And I'm a Buff Boy -- math ain't our thing!) Even accounting for uncorking, glassware and the sommelier's expertise (if there even is one), the markup for that one pour is eye-watering. If a bottle yields, say, five glasses, that's a potential $75-$200 revenue stream from an $8 cost. "Razor-thin"? That sounds more like a gold mine.
Then there’s the humble caesar salad. Twelve dollars for what amounts to a few leaves of romaine lettuce, a squirt of dressing, some croutons, and a sprinkle of parmesan. The ingredient cost for that, even at wholesale, must be pennies on the dollar – perhaps less than a buck, if we're being generous. The labor involved is minimal. Yet, it commands a price tag that could buy me a substantial bag of groceries.
And don't even get me started on the ubiquitous side of fries. A little cardboard box, perhaps a dozen or so golden sticks, adds $4 to my meal. It’s essentially one potato, sliced and fried. A single potato costs pennies. A 50-lb. bag of potatoes costs around $20, yielding hundreds of servings. The mark-up on these basic, low-cost items feels less like a struggle for survival and more like a carefully constructed profit strategy.
Add some gravy to those fries? One ladle into that cardboard takeout cup adds anywhere from $3 to $9 depending on the restaurant and delivery app, if you're using one. Yes, we've seen a medium gravy (let's be generous and say that's two ladles) add $9 to an order. Go to the dollar store and buy two powdered packages of gravy for a dollar and make it yourself.
My ultimate moment of truth came walking through a bustling mall recently. A new, chic ice cream shop had popped up. Curiosity (and a sweet tooth) led me inside. One scoop. Just one scoop, in a plain cup, was $5.45. I blinked, checked the price again. Five dollars and forty-five cents for a single serving.
My mind immediately flashed to the supermarket aisle, where an entire giant pail of premium ice cream – maybe 1 gallon, enough for a dozen scoops – often retails for the same price, or even less, especially on sale. The disparity was stark, almost comical. Here, I was paying the full price of a family-sized dessert for a mere spoonful. No thanks. We'll see how long they're in business.
Now, I’m not entirely naive. I understand that restaurants and food businesses have significant overheads beyond just ingredient costs. There's rent, utilities, labor (cheffing staff, servers, dishwashers), insurance, marketing, specialized equipment, waste and the sheer unpredictability of demand. I know it's a demanding industry, fraught with challenges. I acknowledge the investment in ambiance, the convenience of not cooking and the service provided. These factors undoubtedly contribute to the price.
My contention, however, isn't that food should be dirt cheap. It's that the magnitude of the markups, particularly on high-volume, low-cost staple items, seems to defy the "razor-thin" narrative. When a basic ingredient's cost is multiplied by 10, 20 or even 50 times its wholesale price for a single serving, one has to question the foundational premise.
Are these businesses truly just scraping by, or are they leveraging location, convenience and perceived value to command premium prices that offer substantial returns?
Perhaps in some corners of the industry, particularly for high-end, labor-intensive culinary experiences, margins are indeed tight. But for the everyday items I've described – the glass of wine, the simple salad, the side of fries or that single scoop of ice cream – the notion of "razor-thin" margins feels like a carefully crafted illusion. It feels more like a narrative designed to discourage scrutiny of pricing strategies that are, in fact, incredibly lucrative.
My observations in L.A. suggest a reality where the cost of a few leaves of lettuce or a single potato can escalate into a significant revenue stream, leaving me to wonder if the industry's much-touted struggles are sometimes overstated, or at least, selectively applied. (I almost want to set up a deep fryer on the sidewalk outside one of the restaurants and undercut the price of fries before customers go in.)
As consumers, perhaps it's time we start looking beyond the narrative and questioning the numbers more closely. Is it truly a struggle for survival or an incredibly profitable enterprise operating under the guise of precarity? From my vantage point, the answer increasingly leans towards the latter.