Many people believe that the profits in high-end dining establishments are extremely high, but this is not always the reality. Although gross profit margins tend to be fairly high in fine dining establishments however, unless the establishment is bustling and well-managed net profit margins could be very low, often being in the single digits.
Gross Profit Margin
Gross profit margin refers to the amount left over from sales after a business has paid the price of the goods sold. In the restaurant industry the gross profit margins can be quite high due to the price of food is quite low. However, restaurants generally have higher overheads than other businesses, and this means that the net profit margins tend to be lower.
Restaurant Gross Profit Margins
The majority of restaurants boast gross profit margins of 20-80 percent, as per YCharts Restaurant Industry Rankings. The variance is wide due to different business models. Certain restaurants have huge volume , but with low margins, while others have lower volume but more profit margins.
Fine Gross Profit Margins
According to the president and CEO of National Food Service Advisors, Kevin Moll, the cost of food accounts for only 38-42 percent of the prices listed on the menus at restaurants that specialize in fine dining. If you do the math and comparing the figures, you will find that restaurants with a fine dining experience have an a gross profit margin of about 60 percent. It is important to note that certain dishes on the menu, like pasta dishes, come with very low food costs and many restaurants will have specials on offer to increase sales of these items with high margins. BPlans provides a gourmet restaurant business plan that it estimates an average gross profit margin of 67 percent for the restaurant.
Restaurant Net Profit Margins
Restaurants are prone to high operating costs and their net earnings are usually much less than gross profits. The net profit margins of restaurants all over the nation average around 4 percent, as per the department of research and information services from the National Restaurant Association.