The Price is Right... Or Not?

At 7:15 on a Tuesday morning, a refrigerated truck backs into the service alley behind a fast-casual restaurant. Forty pounds of boneless chicken breast come through the back door, along with brioche buns, cabbage, pickles, flour, fryer oil and everything else that will become several hundred lunches.

Nobody eating at 12:30 needs to know any of this. That's part of the deal. A restaurant takes a collection of raw materials, labor and logistics and turns them into something that appears, for a few minutes, to be remarkably simple.

Let's follow one sandwich.

We'll use a $14 fried chicken sandwich: a breaded chicken-breast fillet, brioche bun, slaw, pickles and sauce. For the sake of the exercise, we'll assume the chicken arrives at $3.20 a pound. Your price may be higher or lower depending on the supplier, market, volume and whether you're buying from a broadliner or a local producer. The exact number matters less than what happens to it after the invoice is paid.

Receiving

The chicken arrives by the case, not by the sandwich.

That matters. You purchased weight, but you don't necessarily sell all of it. There is trimming. There is sizing. There is cooking loss. There are pieces that don't meet the portion specification. There is waste.

Let's say that after all of that, the usable chicken in our sandwich costs $1.45.

That's the first number.

Not $3.20 a pound. Not the number on the invoice. $1.45 is what the chicken in this sandwich actually cost us.

Prep

Now the sandwich starts accumulating friends.

The brioche bun costs $0.62. The slaw, $0.48. Pickles are $0.18. Sauce is $0.22. Breading, seasoning and fryer oil add another $0.39.

Our theoretical food cost is $3.34.

Then the kitchen does what kitchens do.

A cook portions a little heavy. A case has inconsistent sizing. Some slaw gets left in the prep container. A few buns don't make it to the end of their useful life. A chicken breast gets overcooked and discarded.

None of these things is dramatic. Collectively, they are the difference between what the recipe says the sandwich costs and what the restaurant actually spent.

If those variances move our actual food cost from 23.9% to 27%, the sandwich has consumed $3.78 in food.

Now we know what the food cost actually was.

The wrapper

The sandwich still isn't ready to sell.

A clamshell costs $0.24. The wrapper is $0.10. The bag is $0.12. Napkin, sauce cup, condiments and the other small necessities add a few more cents.

Call it $0.45.

In a full-service restaurant, it's easy to think of these things as secondary. The steak arrives on a plate. The plate comes back. The fork gets washed. The glass gets used again.

Fast casual doesn't have that luxury.

No customer has ever said, "Hold the bowl and pour the food into my hands."

The container is part of the product. The sandwich leaves in it, and the customer takes it with him.

So, for this exercise, we're treating packaging as part of the sandwich's COGS. It may live in a separate paper-goods account on the P&L, but operationally it is inventory consumed to fulfill the order. The sandwich does not exist as a saleable product without it.

Food: $3.78.

Packaging: $0.45.

COGS: $4.23.

The line

Now someone has to turn all of this into lunch.

The chicken gets breaded and fried. The bun gets toasted. The slaw gets portioned. Pickles go on. Sauce is applied. Someone wraps it, bags it and gets it to the customer before the fries become a geological formation.

Assume four minutes of direct and allocated labor at a fully loaded rate of $22 an hour. That's another $1.47.

Labor isn't food cost. It is its own line, and that's fine. We're not trying to rewrite restaurant accounting. We're trying to follow the sandwich.

So now:

COGS: $4.23.

Labor: $1.47.

Prime cost: $5.70.

That's 40.7% of the $14 selling price.

There is $8.30 left.

And that number is the reason we followed the sandwich this far.

The sale

The sandwich goes through the POS at $14.

This is the number the customer sees. It's also the number that can make restaurant economics look deceptively simple.

The customer sees fourteen dollars.

The operator should see $14 minus $5.70 of prime cost, leaving $8.30 before the rest of the business takes its share.

Rent. Insurance. Utilities. Credit-card fees. Management. Repairs. Software. Marketing. Debt service. All the unromantic machinery required to keep the restaurant alive.

And then there is the channel.

A sandwich sold across the counter for $14 is not necessarily the same economic transaction as that sandwich sold through a third-party delivery marketplace. The chicken hasn't changed. The bun hasn't changed. The labor hasn't changed. But a delivery commission can take a meaningful percentage of the sale.

Same sandwich. Different economics.

That's why the question isn't simply, "Is this sandwich profitable?"

The useful question is: profitable through which channel, at what volume, and using how much of the kitchen's capacity?

The table

Finally, the sandwich arrives.

The customer unwraps it. The chicken is hot and crisp. The bun is soft. The pickle cuts through the fat. The slaw brings acid and crunch. For a moment, all of the complexity disappears.

That's the magic trick.

But the operator should be able to run the trick backward.

The chicken began as an invoice. Yield turned it into a portion. Prep turned ingredients into components. Packaging turned those components into a product that could leave the building. Labor turned the product into lunch. The POS turned lunch into $14 of revenue. The sales channel determined how much of that $14 actually remained.

And now we can ask the question that matters.

Is $14 the right price?

The familiar restaurant shortcut would be to say four times food cost. Our $3.78 food cost multiplied by four gets us to $15.12. So, by that rule, yes: we're underpriced.

But that isn't really what the sandwich has taught us.

Four times food cost is a useful heuristic. It is not a business model. It doesn't know that this sandwich requires $0.45 of packaging, $1.47 of labor, a particular amount of fryer capacity, or that half of its sales might come through a delivery channel.

Our sandwich currently produces $8.30 of contribution before the rest of the restaurant's operating expenses.

The question, then, isn't whether some industry rule says the sandwich should be $15.12.

The question is whether $8.30 is enough.

Enough to carry its share of the rent. Enough to pay for the people who make it. Enough to absorb waste, equipment, insurance and bad Tuesdays. Enough to justify the kitchen capacity it consumes. Enough to compensate the owner for the capital and risk required to make the whole thing possible.

If the answer is yes, keep selling it for $14.

If the answer is no, the solution might be a higher price. It might be a different portion. Better yield. Less labor. A faster assembly. A different packaging format. A better sales mix. Or, eventually, a different sandwich.

That's the point of following it.

The $14 price doesn't tell you whether you have a good product. The food cost doesn't tell you either. Even the prime cost doesn't give you the whole answer.

What the sandwich gives you is a trail.

$3.78 in food.

$0.45 in packaging.

$4.23 in COGS.

$1.47 in labor.

$5.70 in prime cost.

$8.30 left to run the business.

Now you know what the $14 has to accomplish.

The recipe tells you how to make the sandwich.

The economics tell you whether you should.

That's why you follow the sandwich.

Are your own prices sabotaging profitability? If they are, we can help!

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