I saw this post on my Twitter feed earlier:
When will people start questioning why their food is so cheap and stop being excited that its so cheap. [sic]
The poster — and I’m not about to give him free advertising — is the owner of a restaurant that charges $18 for a burger. You can understand why he’s upset that people are excited that there are dozens of other restaurants in town that charge less for a burger.
Now, maybe he’s trying to make a point here about the public’s blindness to the impact of food subsidies. And this particular restaurant is one that goes out of its way to use locally grown ingredients. Which only makes his argument more laughably elitist. You would think a restaurant relying primarily on local ingredients would not be charging substantially more than chain restaurants — not a McDonald’s necessarily, but say, a Bennigan’s — for something as basic as a burger. Shaking your fist in the air and crying, “CORN SUBSIDIES!” doesn’t explain this state of affairs.
This restaurant happens to be in a part of the city where zoning and other local government interference drives up the cost of doing business substantially. I bet I could open a restaurant with the same menu (and local ingredients) in a less developed part of the city and charge $6 for a hamburger. And then the local authorities would shut me down for one of a hundred reasons, not the least of which is that I’m offering a service outside the areas “zoned” for commercial and restaurant use.
The point is that government economic distortions are everywhere you look. While it’s useful (and necessary) to focus on certain interventions, such as agricultural subsidies, in isolation, there is always a larger context to keep in mind. And it’s especially important not to let self-interested parties attempt to seize the moral high ground by claiming only their business model avoids the distorting effects of the state.
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grass fed beef goes for around $4.75/lb for ground beef … so even using the finest ingrediants they are obviously charging $18 for their “atmosphere” … which better be pretty darn good for an $18 burger … maybe in some of the better staffed Hooters you could get away with it …
That’s woefully ignorant of how high-end food is made, or the interplay between food, cost labor cost, and fix expenses. Even assuming that we are only pricing one ingredient, the beef, at a generally high food cost of 30% that still makes for a burger of $15.8. Its much more likely that the meat was less expensive, but the meat accounts for less of the total cost of the dish and that labor cost is closer to the low 20′s percentage wise, with fixed costs of rent, utilities, taxes, etc, making up a substantially higher percentage of cost.
I don’t take issue with the article, I agree with Olivia: The state distorts our economic reality. I do take issue with how you’re are coming up with your figures for what is a reasonable price for restaurant food.
I meant $7.90 for the cost of the burger.
Some figures for support.
A reasonably priced non-wholesale burger from a supermarket, even using grass-feed beef (I’d have to run over to Fresh Market), would cost me $6 for a half-pound burger. This is using lettuce, tomato, onion, garlic, turmeric, crushed red pepper, dill, pickle, mustard, and ketchup on a whole wheat bun. Wholesale prices are definitely less than that and if I wasn’t such a picky eater, I could cut the price of the beef down to $1.25/lb by using the regular stuff.
Of course, there’s the preparation. But how long does it take to make a burger? For me, from the ground beef, 3 minutes to season and form the patty before putting it on the grill. Unless this restaurant is paying its cooking staff to stand around watching the meat cook, that’s basically all the physical labor necessary to produce a hamburger. Onion and tomatoes are typically pre-sliced, usually at about 30 seconds apiece to get around 6 tomato and onion slices. So, to be charitable, the hamburger cost 10 seconds of pre-prep. Set a timer and flip the burger when it goes off, which is negligible in the production process. Another 30 seconds to put the burger on a bun with the tomatoes, onion, lettuce, pickle, mustard, and ketchup with a 1 minute run to get it to the customer. Total physical labor shouldn’t be more than 5 minutes, tops. If you’re paying a cook $65,000 a year to cook a burger (hence why you don’t go to places where the cook can produce something much better and buy a simple hamburger, you’re paying a guy who can make a good rack of lamb to fry up ground beef), that’s approximately $31 an hour, or $1.55 for he burger and a waiter being paid $1.50/hour plus tips adds $0.20 to the cost. So, with grass fed beef with easily obtained supermarket, non-wholesale goods, the ingredients and labor cost about $7.70
Toss in typical overhead of about 100% and you’re looking at about $15 for the burger for a place like Outback Steakhouse.
Bringing it down to a smaller hamburger joint with wholesale prices, use a can of Season-All instead of that mix above (which I prefer when I make my own burgers), no waitstaff, and a cook probably earning in the neighborhood of $30k/year, and you’ll probably be able to get a burger for around $8 still using quality ingredients. Using crap ingredients, you’ll end up with a $3 Double Quarter Pounder.
At $18 for a burger, he’s either an owner of a classy joint (and as noted above, it’s unwise to go to expensive restaurants for a simple burger), or he’s in an area with seriously inefficient locally grown produce. It’s rare to find a location where all the herbs, spices, vegetables, mustard seed, pickling capabilities, and cattle (along with the cattle feed) can be produced with any semblance of efficiency. Something has to be imported or you’ll either do without major ingredients if you want to avoid paying outlandish prices for inferior goods.
Not all Hamburgers are the same though.
People can make some seriously f-ing delicious hamburgers. If I had more money to blow I’d pay 18 dollars for hamburgers if it was good enough. But it would have to be some seriously delicious stuff. Real quality.
A full meal is more reasonable. Like a drink, 2 sides, and a salad or something along with the hamburger. 18 dollars is reasonable price range nowadays for a full meal. It would be way too expensive for the standard fair you get from Applebees or other chain, though. It would still have to be really good for me to come back.
I don’t think it’s unreasonable at all to charge 18 dollars for a burger if that is what the market will support. But bitching about other people charging less is silly.
^bingo
The price is relative, I would think twice about ordering a $18 burger unless it came from my favorite “chic, classy” burger joint in town. It tastes phenomenal, the staff is excellent, and the atmosphere is unmatched. Totally worth it…now that chain restaurant that charges $10 for a burger seems like a waste
“maybe in some of the better staffed Hooters you could get away with it”
Hooters ? I have always found it weird to mix sex with food. Yuck ! LOL
Standard restaurant economics, according to TV Celebrity restauranteur Gordon Ramsay, is that you charge 4 times the cost of the food for each item.
There is a segment of frequent restaurant patrons who prefer higher prices. They do not want to dine next to families with kids and those whom they considered the “bottom eaters”. For $18, such burger joint caters to them “top eaters”. These patrons don’t mind paying the higher price since dining out is a privilege.
I’m a “bottom eater”, unemployed with almost no money and I eat “filet mignon” at $50 a piece from time to time, LOL
The term “reasonable” is risible here. If $18 clears the market for some particular burger, at least two people (the buyer and the seller) found it reasonable. The same goes for any given $3 burger. I know that consumer behavior researchers find (sometimes, anyway) that providing cost information tends to increase perceived price fairness, or ameliorate perceived price unfairness, but unfairness really boils down to “more than I prefer to pay.”
That said, I saw similar nonsense last year from some purveyors of “artisanal” olive oil in California (bet you didn’t see that coming), who wanted the state to intervene to the advantage of their $17-per-quart offering (said price based, apparently, on the ability to put “artisanal” on the label with a straight face). By way of comparison, I can get extra virgin olive oil of very good quality from Aldi for less than $10.
Word.
Government interventions are everywhere, and they are never acceptable in any form. Anything less is moral equivalence.
What about nature’s interventions ? What about natural disasters ?
Are they “acceptable” ? Is there a “moral” value to a tsunami, volcanic eruption, meteorite crash, earth quake, tornado, hurricane ? Would you call the Japan tsunami “evil” ?
Well, the government is the human and conscious form of natural disasters. In the past, there were natural disasters that killed more people than modern government sponsored wars. I don’t think we can conceive the government as a moral entity, it seems to be the brutal consequence and continuity of nature and it’s physical laws.
Back in prehistoric times, it was nothing but brutality, violence, life killing life and meteorites showering the earth, gamma ray bursts and frequent orbit changes etc.
Well, the government is an organized and sophisticated relic of the past and it is currently in it’s terminal phase.
The government was made by nature, by “God” if you will, not by man. And it’s subject to the same laws of survival of the fittest, natural selection and Darwinism.
When science and technology advances far enough, it could very well be that the government will no longer be able to adapt and survive in this environment and be replaced by something else.
I regard the government as an intelligent natural disaster and not as a moral agent.
The government is in our way the same way a hurricane, tsunami or virulent disease is.
Digression…The Big Mac Index is a wonderful tool for deciding which economies ofter the most Big Mac for the buck. It certainly worked for my investments in Malaysia, Thailand, Indonesia, and China in the late 99′s and early aught, as these currencies were severely mismatched on a PPP basis, and undervalued the Big Mac in local currencies in term of Big Macs . Iceland’s Big Macs on the other hand,;were sky-high, and the Krona apparently overvalued pre-Crisis.
“not the least of which is that I’m offering a service outside the areas “zoned” for commercial and restaurant use.”
Offer a delivery service, that way you don’t need to be in a zone.
McDonald’s would make a fortune if they would deliver.
How about “McDonald’s” vending machines where the burgers and fries are frozen or dried and simply steamed up for some time and come out ready to eat ?
How about “McDonald’s” food sold at convenience store, ready to heat up in the convenience store’s microwave ?
No zoning problems there.
I am amazed on mises of all places to see people complaining about prices (I refer to the comments, not to the article which has a good lesson on distortions).
Don’t you guys arguing know the cost theory of value is as worthless as the labour theory of value? :p
Here here
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