Through August 2024, the cost of eating out at establishments that provide full service meals and snacks has risen 23% since January 2021.
In fact, when you go out to a restaurant today, it's not uncommon to see things like $16 dollar BLT sandwiches on the menu. How is it possible that two slices of toasted bread, a couple strips of bacon, several leaves of lettuce, and one or two tomato slices and some mayonnaise possibly cost so much?
The short answer is because of the inflation unleashed in early 2021. That inflation has driven up the costs of everything it takes to provide you as a customer with a BLT sandwich, including rents, utilities, and labor - it's not just the cost of food itself that has gone up.
Brian Will is a restaurant owner in the north Atlanta metropolitan area. In the following TikTok video, he lays out the percentages and costs of doing business that dictate why he has to charge for a BLT sandwich:
@dropoutmm Restaurant food is expensive #restaurantlife #foodcost #restaurantindustry #restaurant #businessowner #businesscoach ♬ original sound - The Dropout Multimillionaire
We thought the numbers he provided, including the average number of BLT sandwiches that his restaurant must sell per day just to break even, made for some interesting math. We've built the following tool to convert the numbers he throws out into the math behind them, but you're more than welcome to change the numbers to consider a multitude of other scenarios. If you're accessing this article on a site that republishes our RSS news feed, you may need to click through to our site to access a working version.
The default values are mostly those given by Will for his restaurant, which almost certainly involve some rounding. We tweaked the value of the unit cost of the food to roughly match what it would take for the restaurant to break even, assuming an average of 257 BLT sandwiches at $16 each per day. Of course, the restaurant's net income represents the income that Will and his partners earn through their ownership and management of the business. If they're just breaking even, with a net income of $0, they can't afford to be in business and the restaurant will shut down.
If they do have a positive net income, say from selling an average of 300 BLT sandwiches per day instead of just 257 to break even, they're going to have to pay income taxes on it, which is why we added that additional element to the tool.
There's one other aspect to consider as well. Today's inflated prices for BLT sandwiches and every other menu item on American restaurant menus are changing the way people eat, with fewer people willing to eat out because of the higher prices they would have to pay. The effect of inflation on supply and demand has a negative effect on the restaurant industry. If they could count on selling more sandwiches every day, they could sell them for a lower price, but the higher costs for everything that goes into making a sandwich to be served at a restaurant have made that marketing strategy much more risky.
If the risk of making the wrong decision in this real world scenario means going out of business, especially if you expect inflation to continue making everything more costly, could you as a business owner even afford to try?
Image credit: Photo by David Trinks on Unsplash.
Labels: business, food, inflation, investing, personal finance, tool
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