Food costs put the hurt on low-price restaurants
By Owen Morris in Leftovers
Monday, Jul. 6 2009 @ 12:15PM
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But these aren't normal times, and fast food chains long ago gave up the 30 percent rule on some items. Although McDonald's doesn't reveal its wholesale food costs, it's safe to say that the McDouble -- a double patty burger with one slice of cheese that retails for 99 cents -- is being sold for 50 or even 60 percent of costs. The chain was already forced to take the regular double cheeseburger off the dollar menu because it was costing too much.
As ABC News reported last month,
As the New York Times reports, some items on the T.G.I.Fridays' $5 lunch menu cost up to $4 wholesale. T.G.I.Fridays franchisee owner Ross Farro rebelled:
Other chains aren't far behind. Applebee's has its two entrees, appetizer and dessert special for $20, Chicago Uno is running a pizza, salad and dessert deal for $9. It may not be a great time to own a restaurant but if you like a bargain, it's a great time to eat.
Since 2006, the price of bread has risen 24 percent, beef 4.4 percent, cheese 6.6 percent, and condiments, from ketchup to mustard to pickles, 3 percent. Rising food prices add a dime to the wholesale cost of every cheeseburger.Now, fast-casual chains such as T.G.I.Friday's and Applebee's are also going for broke to keep customers.
As the New York Times reports, some items on the T.G.I.Fridays' $5 lunch menu cost up to $4 wholesale. T.G.I.Fridays franchisee owner Ross Farro rebelled:
Within days of the promotion's start in late April, many franchisees began complaining to the chain's parent company, Carlson Restaurants Worldwide ... Mr. Farro said he and some other franchisees put away the $5 menu inserts at night to stop the bleeding... "We're very upset that we're getting hammered here. We're giving the food away," Mr. Farro said.Restaurants are betting they can get customers in the door with the specials and then sell them the items with really high margins such as drinks, desserts and appetizers. But T.G.I.Fridays is also biting into the profits on those items, offering loyal customers coupons for free appetizers and half-off alcoholic drinks. Meanwhile, other customers are coming in and, as one analyst put it, "they're not buying the soda, they're stiffing the waiter on the tip, they're drinking water and they're leaving."
Other chains aren't far behind. Applebee's has its two entrees, appetizer and dessert special for $20, Chicago Uno is running a pizza, salad and dessert deal for $9. It may not be a great time to own a restaurant but if you like a bargain, it's a great time to eat.
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