I'm not sure how many people know this, but profit margins in the F&B sector are slim to none. There are many statistics being thrown around, but to summarise: for every ten restaurants that open today, only three will make it past the second year. The other seven fail.
Now, what about the 30 percent that do go the distance? Do they rake in the cash like Russian druglords? What are the nett profit margins for a chef-owned restaurant in Singapore? Answer: anywhere from 1 to 10 percent of sales. One percent for those just hanging in there, and 10 percent for the cream of the crop. Most hover around the 4 to 6 percent mark.
Okay, so let’s picture ourselves operating a successful business that generates a neat 10 percent nett profit margin. What that means is: for every table that spends $300, only $30 goes into the bank for real. Scaling this number up, if the restaurant generates $3,000 on a given weeknight (quite a respectable taking for a casual 50-seater shophouse restaurant), only $300 of that is actually profit. The other $2,700 all goes to paying off rent, ingredients, staffing, utilities, cleaning, equipment servicing… the list goes on.
‘But wait,’ you say. ‘$300 ain’t bad, is it?’ Well, just divide that by a hypothetical team of eight (waiters, chefs, dishwashers, managers) that worked that day. You’ll find that each employee generated the business a grand total of $37.50 for all the hustling they did. Doesn’t sound so hunky-dory now, does it? In a more relatable way, if a top 10-percenter restaurant operated 365 days a year, its annual profit would come from 36 and a half of those days. All work done on the other 330 odd days is purely to cover costs. Let that sink in for a sec.
So, good folks, the next time you’re tempted to Instagram-rant over that $25 pork chop at a good-looking café (and make a comparison like, ‘It’s the same size as the one you can get at the hawker centre for $8!’) please know that the chap who took a loan to open that comfortable place you’re sitting in is making at most $2.50 from that dish. The other $22.50? That’s what it costs to put that slab of meat in front of you in the first place.
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