The overhead on takeout is far less than dine-in although the menu items cost the same. Dine-in costs include base waitstaff salary and workman's comp, cleaning crew and dishwashers, electricity, insurance, ect.. while takeout requires the very small cost of packaging. Something that always bugs me is restaurants that charge $2 or $5 surcharge for takeout. I'm saving the restaurant a ton of money by not using the dining room, why would they discourage that?
> It cannot be explained by economies of scale
I disagree. Increase in takeout is an increase in efficiency for each line cook and emnployee.
There was a 23 seat restaurant on the top of the hill in Pacific Grove, CA in the 90s named Taste Bisto. The chef and his wife made a fortune from that tiny restaurant. He did two things. First, he set the prices so there was always a little line waiting at the door, not too long, and he encouraged takeout with an emphasis on making the food still look presentable when the person opens the container 30 minutes later at home. According to the chef, his real profits came from the takeout. From the point of view of the grill cook, grilling 8 pork chops or 18 pork chops at. the same time isn't much different, as the cook has to stand by the grill anyhow.
> Something that always bugs me is restaurants that charge $2 or $5 surcharge for takeout. I'm saving the restaurant a ton of money by not using the dining room, why would they discourage that?
My parents owned a small family restaurant in Europe when I was little. We never charged extra for takeout, but it was viewed as lower margin as dine in, largely for two reasons.
1. For takeout we usually missed out on the revenue on drinks and desserts, which have enormous margins (think multiples rather than percentages).
2. A lot of the extra labour for dine-in was internalized by the family. Now you might object that using the wife and kids as cheap labour is not an honest calculations of the margins, but with family labour you can (a) largely circumvent the tax wedge (high in Europe) and (b) the presumably undercompensated labour is ofset by higher profits which still stays in the family if the head of family is careful with money.
> Something that always bugs me is restaurants that charge $2 or $5 surcharge for takeout. I'm saving the restaurant a ton of money by not using the dining room, why would they discourage that?
Take out customers rarely order drinks, which is where dine-in has high profit margins. The extra charge compensates for that.
The extra charge doesn’t discourage much because most people have already decided that they’re not dining in.
I linked the Cheesecake Factory 2022 report below. I asked chat-gpt for some analysis and didn't double check the math so take with grain of salt. When you take into account the largest costs for Cheesecake Factory is labor of which 50% is waitstaff and leases for prime locations, profits from on premises alcohol sales do not compare to profits from takeout.
If 11% of sales are alcohol at 20–25% of the menu price and 25% of sales are off premises at 28–35% of the menu price, what is the percentage profit from alcohol and off premises food and non-alcohol beverage, assuming they are mutually exclusive?
To break it down:
Alcohol:
Cost percentage: 20–25%
Profit margin: 75–80%
Profit contribution: 11% × 75–80% ≈ 8.25–8.8% of total profit
Off premises:
Cost percentage: 28–35%
Profit margin: 65–72%
Profit contribution: 25% × 65–72% ≈ 16.25–18% of total profit
Cheesecake Factory isn’t representative of restaurant businesses. It’s like saying restaurants should be more like McDonalds, or startups should be more like Google.
I'm using extra data to add to the original study—which found that off-premise takeout and delivery increased from 50% to 60% after the pandemic leading to higher sales per employee—to show that extra costs like lease payments, insurance, wages for waitstaff, and utilities don’t fully offset the slightly higher profit margins from selling alcohol on premise compared to selling food and non-alcoholic drinks through takeout or delivery. Using financial data, I demonstrate higher off premises takeout or delivery leads to higher sales per employee -- the same conclusion the paper we are discussing made.
Notably, the paper shows that the share of visits lasting 11–20 minutes did not drop (and even increased a bit). This indicates that the overall shorter visit times aren’t because dine-in customers are being served faster. Instead, it’s mainly due to a rise in takeout and delivery orders (takeout customers are being served slower because there are more, if you follow.) In other words, even if people wait a bit longer for their takeout, the large number of takeout orders is what lowers the average time customers spend at the restaurant which corresponds to the higher sales per employee. (If you disagree with this interpretation, please refer to the study, as that is its main argument.)
My point is that even though alcohol generally has a higher markup, the extra overhead needed to sell alcohol on premise means that its profit margins do not fully make up for those costs compared to off-premise takeout or delivery. Moreover, the data from The Cheesecake Factory, ~25% off premises takeout or deliver sale, is similar to what is seen in any traditionally dine-in U.S. restaurant, corporate or mom and pop, that isn’t Michelin starred.
> Something that always bugs me is restaurants that charge $2 or $5 surcharge for takeout. I'm saving the restaurant a ton of money by not using the dining room, why would they discourage that?
Because takeout isn't competing with the dining room. Customers don't go to a restaurant and then choose between those options; they've already planned whether to eat in or out. Restauraunts charge that because customers have shown they will pay it. Once you have that meal in mind, that $2 or $5 doesn't discourage you.
But it discourages me from ever ordering there again. There's a lot of restaurants out there. A now out of business restaurant charged the equivalent of a tip for takeout. I ate there once and just walked to the restaurant across the street that didn't charge me extra for take out.
This really seems the like 'oh duh' insight. The output of your revenue-making equipment (the kitchen) went up without requiring additional floor space and staff to serve a larger customer-base.
More specifically - the restaurants that survived (which is already a feat in and of itself) could serve more customers since they didn't have to turn as many tables. Even with the "overhead" of food delivery apps - restaurants could still purchase whole-sale ingredients in bulk and sell to more people without building out their physical plant.
To add - the dine-in experience has gotten faster. You don't need to wait for menus and you don't need to do the dance when settling your bill. Even if you didn't expand your delivery clientele you could probably turn tables faster without any 'hit' on rushing out your loyal customers.
Maybe what is happening is before 2020 the people who carried the food from the kitchen to the customer were employees and after the people who carried the food from the kitchen to the customer are gig workers not employees which would explain "Figure 1. Annualized Real Sales per Employee (1992=100), Food Services and Drinking Places, Seasonally Adjusted" [0]. Restaurants now use gig workers and not employees to deliver the food. Of course, there are more sales per "employee."
Take out is terrible for restaurants. All the profit is in alcohol which people rarely take out. In distant second, profit comes from understaffing. So it should be obvious how and why productivity rises: in the absence of lucrative dine in drinkers, understaff. Then the denominator in the productivity calculation is smaller.
Where does the profit from subsidies go to? A few years ago, McDonalds has subsidies of $1.5B USD, and $1.5B in profits. They really are a real estate company, and nursemaids for broken ice cream machines.
McDonalds corporate and its franchises are not real estate businesses. I understand there are insight porn Substack writings saying so. The locations of a McDonalds doesn’t change but same store sales fluctuate a lot. They suck because the food sucks, and it got too expensive for its audience of people who eat shitty food. This is not at all an unorthodox opinion. The real estate idea is the unorthodox one.
I am not sure which subsidies specifically you are talking about but you are probably right that the fact that they pay their workers so poorly relative to others in hospitality, and that the services their people need are paid for by taxpayers in their communities instead of McDonalds, is a subsidy that is relevant to their bottom line. But, since I don’t know how comparable they are to SMB hospitality, it’s really hard to say. One POV is that McDonalds is the addictive thing that competes against alcohol, and maybe it has gotten less addictive, or it faces cultural headwinds like smoking did.
> All of our restaurants offer a full-service bar where our entire menu is served. During fiscal 2022, alcoholic beverage sales represented 12% of The Cheesecake Factory restaurant sales. We offer all items on our menu, except alcoholic beverages where disallowed by regulation, for off-premise consumption, sales of which comprised approximately 25% of The Cheesecake Factory restaurant sales during fiscal 2022. [0]
Industry benchmarks for similar chains put food ingredients typically around 28–35% of the menu price and alcoholic beverages around 20–25% of the menu price. Nonetheless, making 2x profit on 25% of sales is incredible for restaurants.
At Cheesecake Factory, total food and beverage cost is 24.6%. Labor cost is 36.7%: of that waitstaff is ~50% of labor and kitchen staff is ~30% of labor. Operating cost is 26.7%. Looks like after other costs the profit was ~1.2%. Not much but that profit comes from the 25% off-premise consumption without alcohol.
Takeout for Michelin star restaurants is not a good idea. For almost all other restaurants, takeout is were the profits are. Engineering a menu and kitchen is like engineering a database, you have to ask things like are there a lot of writes and few reads or a lot of reads and few writes to determine how to structure it. When designing a restaurant and menu there needs to be equilibrium between how many seats in the dining room, what if any liqueur license to acquire, an expectation of percentage of food will be takeout, and menu items that will satisfy both dining room and takeout quality expectations. We eat with our eyes first even if it is opening a steaming hot carton of Orange Chicken from the Cheesecake Factory. There are always tradeoffs and it matters what the end goal is and more often than not the goal for both a database and kitchen is to earn as much profit as possible.
Some advice if you ever open a restaurant. The single biggest pain point when working in a kitchen opening a brand new restaurant is not enough storage. [1] You need enough containers to hold each of every element. You need enough containers to hold each of every element in cold storage for backup during service. Lastly, you need enough clean containers to switch the contents of each element into at the end of each night or to be dirty waiting for cleaning while the others are being used. The week before you open a restaurant, count how many containers you thought you needed and have in stock and triple that amount. Nothing will slow down service like not having enough containers. See, engineering a kitchen is like engineering a database.
What about the additional costs for delivery and online platforms? Both only apply for delivery and are quite significant. Takeouts should reduce costs, but delivery has significant costs added to each order.
> Increase in takeout is an increase in efficiency for each line cook and emnployee.
There's also a kind of precarious food-business "art" going on behind your anecdote that follows the sentence I quoted (long line, but "not too long," etc.). In your single-minded speculation about the efficiency of takeout that art isn't present.
That art is the difference between this legendary Pacific Grove restaurant on the one hand, and a "for rent" sign on a failed restaurant with a fridge full of frozen pork chops and regret on the other.
The overhead on takeout is far less than dine-in although the menu items cost the same. Dine-in costs include base waitstaff salary and workman's comp, cleaning crew and dishwashers, electricity, insurance, ect.. while takeout requires the very small cost of packaging. Something that always bugs me is restaurants that charge $2 or $5 surcharge for takeout. I'm saving the restaurant a ton of money by not using the dining room, why would they discourage that?
> It cannot be explained by economies of scale
I disagree. Increase in takeout is an increase in efficiency for each line cook and emnployee.
There was a 23 seat restaurant on the top of the hill in Pacific Grove, CA in the 90s named Taste Bisto. The chef and his wife made a fortune from that tiny restaurant. He did two things. First, he set the prices so there was always a little line waiting at the door, not too long, and he encouraged takeout with an emphasis on making the food still look presentable when the person opens the container 30 minutes later at home. According to the chef, his real profits came from the takeout. From the point of view of the grill cook, grilling 8 pork chops or 18 pork chops at. the same time isn't much different, as the cook has to stand by the grill anyhow.