The Economics of a $32 Single Crab
In recent months, restaurant pricing has come up a lot in my reviews. In the case of Kismet, the question of value formed the basis of my critique. I also questioned the prices at Josef Centeno's P.Y.T., in particular a $32 soft-shell crab dish. "I realize that the sourcing here is immaculate," I wrote. "But $32 seems like an awful lot for one soft-shell crab, even with a large pile of greens beside it."
After the (otherwise wholly positive) review was published, I had a conversation with Centeno via email about the price of that dish, and restaurant prices in general. "I make a very conscious effort to keep pricing fair," Centeno told me. He said he aims for around 25 percent food cost, meaning the price of his ingredients should be about a quarter of the cost on the menu. Food cost of 25 percent is on the low end of the industry standard, but the industry standard is based on an economic model that pays very low wages and has less overhead than the current reality. The industry standard is changing rapidly as more owners (including Centeno) now offer health insurance to their employees, and as the minimum wage rises.
In other words, eating out is becoming more expensive, and the trend is only going to continue.
Centeno tells me that the cost of doing business as a restaurateur is rising steadily, citing a 30 percent increase in his health care premiums this year, as well as the coming $12-per-hour minimum wage and the rising price of ingredients.
The crab dish is actually priced lower than a 25 percent food cost would dictate. Centeno's cost is $8 per crab — which, he says, is almost double what it was last year. He explained the pricing of the dish as follows:
There's a little bit of wiggle room to go up or down based on general pricing on the rest of the menu, but the goal is to have it level out to 25%. So a dish with a little lower raw cost may be costed at 23% so that something like soft shell can be costed at 28%.
3.6 x $8 (item cost)=$28.80 (28% foodcost)
So normally my formula would be:
3.6 x $10 ($8+our cost for the remainder of ingredients on the plate) = $36 (guest price)
I knew $36 was not gonna go over well, and that I had to stay in the 27%-28% range and price it at $32.
But they are delicious and people seem OK with price. They would be much cheaper if I bought frozen, but for me it's about the ingredient's quality, so what's the point then? It's always about balancing portions and plating to be able to use the best ingredients without breaking the guest's wallet. Which is becoming more and more difficult.
But still, to me — the consumer — $32 for one crab seems too high. I wrote to him:
The truth is that eating out is going to have to get far more expensive if the business model is to survive. I guess the question is whether people will accept that cost or not. For me it comes down to value — as much as I love soft-shell crabs, it just doesn't seem worth it to pay $30+ for one of them. I get that it's a question of perception, but as a consumer that's an important distinction. How can you create the perception of value even with rising costs?
Whether or not chefs and owners figure out that puzzle, the world of $20 appetizers and a $32 single crab is already upon us. Both consumers and restaurateurs are likely to pay the price, figuratively and literally.
"I think now more than ever people at least need to be aware that things are changing a lot fast," Centeno says. "Some of our favorite places will be far fewer with the way things are headed."
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