Beyond The Latte Effect (Eating Out)September 17th, 2012 by Aaron Koo
The more I write, I suspect that the person behind the post will eventually become more familiar. Todays post is a great example that opens a huge part of my past. Before I went into finance, I spent 11 years of my life working 16 hours a day, 6 days a week in kitchens as a chef. Having a behind the scenes look at the cost structure of a restaurant gives you great insight into why things cost as much as they do. Today, I’ll break that down and we’ll look at how much you can save with small changes in your eating habits.
What Are You Paying For?
When you go to the store to buy ingredients for dinner, the cost involved is for the raw material and maybe a tiny bit in the electricity to power your stove and maybe some water. When you go to a restaurant, you have many more variables to consider. They have to pay for rent, the staff, gas, electricity, table cloths, so on and so forth. To put this into numbers, most restaurants work on a 30:30:30 system. That means that the price of the meal you paid for is broken up as follows:
- 30% for labor
- 30% for overhead
- 30% for food
Essentially you take the cost of the raw materials and multiply it by 3 or 4 if you want to push the envelope. This leaves 10% for profit. Not a big number. Think about that the next time you go out for dinner. If your bill was $100, the restaurant profited $10. That’s assuming that there weren’t any mistakes, that the staff were on time and didn’t slack off, and that they actually did a good number of customers.
If a restaurant is slow, you can simply order less ingredients and send your staff home early. You can’t adjust the fixed costs. But I digress. I believe there’s some saving to be done.
Meet Ms. Foodie
Ms. Foodie loves to eat out. She loves to take pictures of her meals and post them on Twitter. She eats out once a day and on average spends $20 on each meal, including tax and tip. This works out to $140/week or $7280/year. Let’s see what it would look like if skipped eating out for just two of those meals each week.
Two days of dining out typically cost Ms. Foodie $40. Since we know the cost of the materials are multiplied by 3, let’s just divide her dining out budget by 3. So, that’s basically $13, which leaves $27/week she can put into savings. $27/week comes to $108/month or $1404/year. Let’s imagine she invests that money and get an average return of 8%.
- 10 years – $14,040 contributed, $20,904 market value, $6,864 earned
- 20 years – $28,080 contributed, $66,708 market value, $38,628 earned
- 30 years – $42,120 contributed, $167,069 market value, $124,949 earned
- 40 years – $56,160 contributed, $386,974 market value, $330,814 earned
This is an interesting one for me, because I keep telling myself how awesome it would be to eat out everyday. If I was super rich, I can’t see myself having a problem paying a premium on not having to clean and not having to go and buy the ingredients. But for those of us who can use a bit of extra savings at the end of the day, I suspect this is one of the easier transitions to make of the ones I have posted.