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Weighing In

Gastro-Economics 101 - The Price is Right

Every once in a while someone will ask, "Why can I buy a steak at the grocery store for $5.00 but I have to pay $40.oo for the same steak in a restaurant?"  OK, I sanitized the wording a bit.  Use your imagination if you want the full text version.

Well, suppose that you were running your own kitchen at home as if it was a business, just like the restaurant. 

First off, the steak isn't the only thing that comes on the plate.  It will usually have a starch, some vegetables, perhaps a sauce, maybe some other toppings like sautéed mushrooms, and so on.  If it comes with a baked potato, then you probably have butter, sour cream, chives and maybe some bacon bits with it.  Rather than try to price out all of these items separately, let's just assume that your $5 steak now costs $10.

Next, consider the infrastructure costs.  Your restaurant likely pays rental on its space.  Chances are good that you pay both a mortgage and property taxes.  If you have an average priced house in a major city, your mortgage is likely over $2,000 a month.  Your property taxes will vary from city to city, but let's just say $7,500 per year.  Also, let's say that 10-15% of your floor space is used for the kitchen, dining room, pantry or other food related activities.  If that is so, then your food area costs around $10 per day to maintain.  Since supper is the big meal, the one that costs the most and takes the most to prepare, let's say that the space rental costs $7.50 for supper, with the other meals taking up the rest.  Now your $5 steak comes out to $17.50.

Next, let's include kitchen appliances, pots and pans and such.  Suppose you have $5,000 worth of major appliances that you amortize over 10 years and another $3,000 worth of smaller appliances, pots and pans, and other paraphernalia (don't forget the bread maker, rice cooker, slow cooker, countertop induction burner and the yogurt maker) that you replace on average every 5 years.  Together, these will contribute maybe $3 per day, bringing the total up to $20.50.

We are already half way there, and we haven't yet counted in your dining room furniture, dinner ware, silverware, stemware, serving dishes, drinking glasses, tablecloths, napkins and so on.  To make it easy, let's just lump them all together and say that they add another $2.50 per day.  Think that's too high?  Don't forget that just like your restaurant friends, you need to replace broken dishes at some point, or that drinking glass with the chipped rim.  I know that we just got our dining room table refinished after years of wear and tear, and that wasn't cheap. 

The cost is now up around $23 for your five dollar steak, and we still have more to go.  How about the energy costs to prepare the food, the cost of water to wash the dishes, the dish detergent and other non-comestibles?  That should take us up to maybe $23.75.

Are we done yet?  Not quite.  Did you cook your steak in the kitchen, or on that fancy stainless steel barbecue your spouse gave you for Christmas last year?  It doesn't really matter.  Regardless, just like amortizing other appliances, the barbecue is costing you another 40¢ or so per day, whether you are using it or not.  $24.15.

Did you pay yourself?  Remember, we said that you were running your own kitchen at home as if it was a business.  Restaurants have to pay the cooks, the dish washers, the waiters, the bus boys and girls, and the parking attendant.  OK, maybe I went to far with the last one, but you get my drift.  Say for simplicity that it took a half hour to cook supper and a half hour to set the table and clean up afterward.  Even at a minimum wage, that should add another $10 to the cost.   While you're at it, throw in another $2.50 for menu planning, grocery shopping and the gas to get you to and from the store.  $36.65 and counting.

There are also a number of operating costs that restaurants incur that you don't have to at home,  like the overhead of maintaining a kitchen and dining room that will meet Department of Health and/or food safety standards.  No one is going to come into your house and give you grief for not cleaning under the fridge or behind the fryer, but restaurants face the very real risk of being shut down  if the inspector isn't happy, so they clean way more and way more often that you would, and they pay way more attention to maintaining their equipment than you would.  They also throw out food that you might take a chance on.  They have to advertise, print menus, pay higher insurance rates, and make employer contributions to pension, employment insurance and maybe health coverage.

Now we're done!  Suddenly the question isn't why a $5 steak costs $40.  Now it's how can anyone stay in business selling food at such cheap prices.  Just something to think about!

Footnote:  As I was getting ready to post this article, my wife told me about a posting on the blog of her friend Shelle Rose Charvet. The two of them had been talking about made up terms, one of which was "Gastro-economics".  When I heard the phrase, I immediately thought of this article.  If you want to read Shelle's article, click here.

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