Everyone loves going out to dinner. Indeed, people love to eat delicious food, and they especially love to eat it when it’s cooked for them. Now, generally consumers know they’re probably paying over the odds for these meals. But what if we told you that there are some that are disproportionately, almost insanely, overpriced in your favorite restaurants?
Of course, dining out is an experience. It’s not just about the food. And when you go to a restaurant, you are paying to be waited on. Furthermore, you’re paying to have your meal cooked by someone with more culinary skills than you (in theory). Also, you’re paying for the calm, relaxing ambience created by low-level lighting and soft music.
So this means that restaurants can’t simply charge what it would cost to make the same meal at home. Indeed, the restaurateur is paying the staff of waiters and waitresses for their labor. They’re paying the chef to work their magic in the kitchen. And they’re paying the electric bill to keep those fancy lights on.
To add to that, the owner has other overheads to think about. Yes, they’ll be paying rent on the restaurant’s location, and they’ll have shelled out for a liquor license as well as paying for insurance. Furthermore, they need to pay to adequately train their staff to work safely. And don’t forget the matter of advertising, which even in the internet age isn’t necessarily free.
Now, restaurant pricing is generally determined by how much a meal is going to cost to serve, including staff costs and ingredients, plus an added 25 to 35 percent. So, if a meal costs $14.50 to put together, it will likely be priced at $25 for the customer. A savvy owner may even drop the price to $24 to make the customer think they’re getting great value for their money.
But restaurants can also use value-based pricing. This focuses on what the customer is willing to pay. And an example is how very few restaurants price appetizers at more than $10, even if they include pricey ingredients. The psychology behind it is that customers don’t value appetizers as highly as main courses, and they are unlikely to pay more than 10 bucks for one.
In 2014 Thrillist spoke to a group of restaurant owners about the harsh realities of running an eatery. Peter Gevrekis, of Desnuda in New York, said, “As a restauranteur, you must be prepared to handle every position in the restaurant. You must learn to wear all the hats – especially at the early stages of the game.”
“One day you are mopping floors, unclogging toilets, and washing dishes, and the next you are preparing cocktails and food,” continued Gevrekis. “You can forget about your personal life for the first five-ten years. The business will consume every waking moment you have. You, as the owner, have to be the first one in and the last one out, otherwise you can say goodbye to your profit margins.”
However, Paul Abrahamian, of Sticky’s Finger Joint in New York, focused on the satisfaction a restauranteur can get from owning their own business. He said, “At the end of the day, there is only one type of success, and that is to be able to live your life your own way on your own terms. One cannot think in terms of the monetary. One must think in terms of the pursuit of happiness.”
Thrillist then published a list of the most overpriced foods on any restaurant menu in 2015. Intriguingly, the website enlisted some insider help in compiling its list. The site spoke to a selection of chefs and establishment owners, who were able to talk anonymously about the realities of the often insane price hikes in the restaurant business.
To start with, one chef lifted the lid on the high-end “kobe” beef many restaurants are serving these days. You see, genuine Japanese kobe beef is a delicacy, with its fatty, marbled appearance and tender, flavorful taste. It comes from the Tajima strain of black cattle, which is reared in Hyōgo Prefecture according to strict regulations enforced by the Kobe Beef Marketing and Distribution Promotion Association.
However, the anonymous chef revealed that many American restaurants are serving U.S. style “kobe” and advertising it as the genuine article. There are no regulations for the American substitute, so what many diners are getting isn’t the high quality meat they expect. Restaurants are simply aware the brand carries enough cultural caché that they can bilk unsuspecting customers into paying more.
As of 2016 only eight U.S. restaurants were certified to sell kobe beef. And Inside Edition did an investigation into uncertified eateries that were advertising kobe. One Michelin-starred restaurant was serving a kobe beef lunch for $110 but, when questioned, the owner said an error had been made and changed the name to Wagyu beef. Appallingly, a tavern in New York was charging $17 for a fake kobe beef hot dog.
Speaking of Japanese cuisine, sushi is enjoyed all over the world. However, a restaurant owner told Thrillist that diners should be wary of the spicy tuna roll, no matter what establishment it comes from. The reason is, “because they’re made with the leftover parts of the tuna and disguised with the spicy sauce.”
What’s more, truffle oil was singled out by the insiders as not being what it seems to be. Real truffles are expensive items in restaurant kitchens, and they are priced accordingly. But several chefs interviewed by Thrillist agreed that the truffle oil served in many restaurants to jazz up a risotto or make fries seem classier is not the real thing. Rather, it’s a synthetic imitation.
Many eateries try to make good, old fashioned mac and cheese seem fancier by adding lobster to it. Yes, diners will happily pay a few extra bucks for some lobster on their classic cheesy macaroni, as it’s one of the higher-end seafood items. But one restaurant owner revealed the ugly truth.
“You aren’t getting prized lobster tails and generally not even claws, you’re getting all the scraps from the body shells,” the owner admitted. “It may taste great, but the restaurant’s laughing all the way to the bank.” So perhaps, for the sake of your wallet, it might be best to stick with the regular mac and cheese.
Another seafood that is vastly overpriced, according to the insiders, is the oyster. If oysters are part of an overall dish, like oysters Rockefeller, the anonymous chefs were willing to give restaurants a pass. But, if they’re charging $36-$45 for a plate of oysters, ice, lemon, and hot sauce? Well, that’s, “absolutely outrageous for an ingredient that requires no culinary skill whatsoever.”
Alarmingly, the price hikes on drinks, both alcoholic and soft, are even higher in the restaurant trade than those on the food. And Business Insider estimated that a $3 glass of soda has a mark-up of a staggering 1,150 percent. However, if you decide to go for water to save yourself some cash, don’t opt for the bottled option: that has an even more mind-boggling mark-up of 2,000 percent.
If you brew a coffee at home, using the Starbucks brand of ground coffee, your cup of joe would cost around 20 cents. But, if you buy a tall coffee from a Starbucks store, you’ll wind up paying a crazy 825 percent more. The mark-up on coffee has also been estimated at 300 percent by NBC News and a whopping 2,900 percent by Business Insider. Whatever the true number is, it’s undeniably a rip-off.
And furthermore, if you’re thinking of having a boozy beverage with your meal, you may want to think again. Business Insider believes that an average bottle or glass of beer will likely be marked up a mammoth 1,150 percent. If you decide to go for a fruity cocktail instead, make sure the bartender doesn’t make it with well drinks.
You see, a “well drink” is bar slang for the low-price liquors that are kept within reach of a bartender. Every bar and restaurant will have a whole rail of well drinks that can be doled out to customers who think they are saving a bit of money. Generally, every bar will have one variety of cheap rum, whisky, vodka, bourbon, tequila, and gin.
So if a customer doesn’t state what brand of liquor they want in a cocktail, it’s the well drink option for them. One restaurant proprietor admitted to Thrillist that the price hikes on his well drinks are much higher than on his higher quality liquors. This means that you’re probably better off to pay a few extra bucks for a recognized brand, as at least then you know it’s the good stuff.
Of course, wine is another area in which restaurants make a killing. In 2014 the Wine Enthusiast website laid out the restaurateurs’ attitude to this particular mark-up. Yes, it revealed an extract from a restaurant management textbook that read, “Wine is a good profit item. It will average approximately the same cost of sales as food, but the labor and operating costs needed to present it are substantially less.”
Randy Caparoso of Wine List Consulting Unlimited stated that, across the restaurant industry, mark-ups are an average of two and a half to three times the wholesale cost. For example, a bottle of wine that costs a restaurant $10 to buy might sell in a store for $15. But the restaurant owner will charge $25 to $30 in their establishment.
Caparoso continued, “Everyone knows you pay more in restaurants than at retail, but what really aggravates a lot of consumers is how wacky prices can be. A bottle may be $25 at one restaurant, $15 at another, and $40 at a third.” Julie Brosterman, CEO of Women & Wine, echoed this sentiment and said that customers are simply wise to the game nowadays.
“People are savvier about wine mark-ups than they used to be,” said Brosterman. “They know retail prices, and they can look up wine prices on their Blackberry’s while sitting in the restaurant.” Dated though the technology referenced may be, Brosterman’s point arguably applies more than ever now considering almost every customer has a smart phone in their pocket at all times.
According to Caparoso, you will find the highest wine mark-ups in the higher end restaurants. The reason for this is all about the overheads. He explained, “A neighborhood restaurant where you’re greeted at the door by the owner who also seats you, takes your order and cooks your food has two to three lower overall expenses than a restaurant with fresh flowers, valets, five chefs and an army of waiters.”
Caparoso continued to Wine Enthusiast, “Wine is a commodity, a costed good. It’s the same as buying a pair of shoes. The nicer the store, the higher the cost of the shoes.” While Caparoso’s reasoning is valid, the article then went on to reveal something unexpected. The highest mark-up in any restaurant’s wine list will be on their cheapest wines.
To put it into perspective, a bottle of wine bought by a restaurant at wholesale for $50 may be marked up to $80 on their menu. That’s 60 percent more than the restaurant paid for it, which seems like a lot. But the previously mentioned $10 wholesale bottle that is marked up to $30 on the wine list costs a full three times more than what the restaurant paid.
And one of the primary tricks in the industry is that the second cheapest bottle of wine is often the most egregiously marked up. You see, it’s all about exploiting a customer’s psychology, as economics professor Mike Shor of Vanderbilt University explained. He said, “People don’t want to look cheap, so they order the second cheapest wine.”
All in all, like with well drinks, it’s a better idea to spend a bit more money on wine in a restaurant than you may initially want to. Picking the cheaper bottles will not get you value for money, even if it may seem that way. Instead, you’ll simply be left paying over the odds for subpar wine.
In fact, it might even be worthwhile to step outside your comfort zone and pick a lesser-known wine. Because the price of well-known brands is always hiked up the most because the restaurant knows it will be a perennial seller. But as Jay Frein, a wine manager in Nashville, noted, “If there’s a wine I really want on the list but don’t think a lot of people will order, I put an even lower mark-up on it.”
Putting aside the expensive wines, fancy seafood, and trendy cuts of meat, you may also be surprised at just how much restaurant price hiking there is on everyday items. For example, when diners visit their local café or restaurant for breakfast, the majority of dishes will contain some variety of egg. But what if we told you eggs are some of the most overpriced items on any menu?
According to Statista, the average retail price for a dozen eggs in 2018 was $1.54. That is equivalent to less than 13 cents per egg. Yet, in Denny’s, ordering a single egg will set you back $1.79. And ordering a Denver omelette will cost 9 bucks, which Priceonomics says is a mark-up of 566 percent. Even if you go for the $8 spinach omelette, it’s still hiked a massive 471 percent.
And pancakes are priced even more outrageously than omelettes. According to Reader’s Digest, a serving of fluffy pancakes should only cost 23 cents to make. After all, the only ingredients are eggs, flour, milk, and baking soda. But when a restaurant serves you a stack, they’ll likely be charging anywhere from $6 to $10. Even with additions such as syrup, whipped cream, and fruit, that’s still a hefty mark-up.
Now, let’s say you decide to go out to an Italian restaurant for dinner. Chances are that you and your loved ones are going to chow down on delicious pasta dishes and pizza. But, while these favorites may be tasty, they are actually terrible value for money when you consider how low-cost it is for the restaurant to make them.
As Cheat Sheet points out, a plate of pasta at Olive Garden may cost $14.99 and seem like good value when compared to items like steak. But that pasta dish likely only cost the restaurant a few bucks to put together, and the mark-up could be as much as 700 percent. In truth, restaurants make more money from pasta than from a premium steak dish.
With regard to pizza, Franchise Help states that the average American person gets through a huge 23 pounds of it every single year. Food costs for a pizzeria are, on average, equivalent to 20 percent of their total sales. This is a much lower number than other restaurants, whose costs are generally between 27 and 32 percent of sales.
This all adds up to some pizzerias making an extremely healthy 20 percent profit margin, as opposed to other restaurants whose average profit margin is between three and six percent. Toppings are also a great way for pizzerias to boost their profits, as the price creeps up with each addition. For instance, the pepperoni they charge $3 for likely cost less than 50 cents to buy; a mark-up of 525 percent.