What Are the Profit Margins for Restaurants Delivering Food?
Pizza restaurants are well known for their delivery services, but other types of restaurants can increase their sales by offering to deliver to their customers, including ethnic restaurants and even restaurants that specialize in barbecue. Home delivery not only saves the customer time but also can help the restaurant keep its costs under control and increase the profit margin. Offering to deliver food can build your restaurant's competitive advantage and your profitability.
The formula starts with revenue. The cost of the food is subtracted from the sales generated from food to arrive at the gross profit for food. The cost of beverage is subtracted from the sales generated from beverages to arrive at the gross profit for beverages. Labor is subtracted to arrive at the cost to prepare and serve food and beverage. Operating costs and occupancy costs are subtracted to arrive at net profit.
Food costs should be ideally about 30 percent. For example, if the spicy chicken cashew entrée's ingredients cost $2.40, the retail price of the dish should be $8. If that price is higher than the competition, adjust the dish's recipe so the cost is less and it can be priced lower. Subtract out a tablespoon of cashews or reduce the chicken by an ounce and fill in with less expensive vegetables. Restaurants that deliver food or provide takeout rather than seating diners in the restaurant can justify lower prices. Both labor and occupancy costs are less than a full-service restaurant.
The kitchen staff is paid a competitive wage. However, the wait staff depends on their tips rather than their wage. The restaurant has to pay them at least minimum wage, but part of that can be generated by tips. How much varies by state. Labor is a controllable cost based on how busy the restaurant is. Labor cost typically should be no more than 20 percent of revenue.
These expenses include replacement of plates, flatware, glassware, tablecloths, napkins, restroom supplies and delivery boxes. Since restaurants that deliver food may have fewer customers who eat in the restaurant these expenses are less than a full-service restaurant.
Occupancy costs include the lease or mortgage payment, licensing, insurance, utilities and garbage pickup. Occupancy costs depend on where the restaurant is located and its square footage. Restaurants that primarily deliver can be housed in a smaller space.
The restaurant may or may not charge for delivery or require a minimum order for free delivery. In any case there is a cost involved. The employee making the delivery has to be paid for her time and the use of her vehicle. She may also be tipped by the customer when the food is delivered.
The median pretax net profit for a full service restaurant is 3 percent of total sales where the average check per diner is $15. High-end restaurants -- the average check per diner is $25 or more -- generate a median profit of 1.8 percent. Limited-service restaurants have the highest net profit margin of 5.9 percent as of 2010 according to the National Restaurant Association. The profit margin for a restaurant that delivers food depends more on the type of restaurant -- full-service or limited -- than whether the restaurant delivers food. If the majority of the restaurant sales are from take-out and delivery, the business can take advantage of lower labor and occupancy costs to achieve a higher margin. In addition, the volume of customers is not limited by the seating space in the restaurant, only by the production capacity of the kitchen.