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How do restaurants in expensive cities make money?

Posted: Thu Mar 15, 2018 3:47 pm
by Derivative
How do franchises/restaurants/retail businesses in expensive cities (e.g. New York, Bay Area, LA -- the areas next to 3+million dollar homes and top universities/businesses) make money? Isn't their rent astronomically high? For example, if you own a Subway next to Stanford University, how do you make a profit given the sky high rent/real estate by selling $5-$8 subs? Wouldn't Subway owners profit more in a LCOL area with lower rent? It's not like they can sell $20+ subs right? I don't get the math.

Re: How do restaurants in expensive cities make money?

Posted: Thu Mar 15, 2018 3:50 pm
by miamivice
I live in a HCOL area, and have asked the exact opposite question. How do restaurants in rural areas (LCOL) make money?

The difference is that in the HCOL area, restaurants tend to be very busy and have a lot of volume. In LCOL areas, especially rural areas, they don't have the same volume.

For example, in a HCOL area I find often there is a 45 minute wait time to get into a restaurant on a Friday or Saturday night. (Sometimes as long as two hours). I went to a LCOL area (can't remember if it was Saturday or Sunday night) and we were the only diners in the restaurant. As we ate one or two more tables filled up.

Re: How do restaurants in expensive cities make money?

Posted: Thu Mar 15, 2018 3:51 pm
by Liberty1100
In high school, I worked at a dunkin donuts in my small town as a summer job. Just that single dunkin would generate $2-3million in sales per year. Now factor in how large the margins are for a cup of coffee and a donut and you will get an great number.

Re: How do restaurants in expensive cities make money?

Posted: Thu Mar 15, 2018 3:53 pm
by Pajamas
Higher prices and/or higher volume.

McDonald's in NYC charges more than it does in a small town and they are also very busy. Dollar menu? Probably not at all, or much more restricted. Chain stores like CVS and Kmart in Manhattan don't even have weekly flyers like most of their other stores do.

Stores like Trader Joe's charge the same in NYC as they do in other places but do way more in sales per square foot than in any other place in the country.

You can get a rotisserie chicken in a high-cost area in NYC for $5 at the grocery store (if you know where to go) but it is half the size as somewhere else.

Also realize that expensive cities are not homogenous as far as costs. For instance, rent is much lower in upper Manhattan than in lower Manhattan and even lower on a side street than on a major avenue right around the corner.

Re: How do restaurants in expensive cities make money?

Posted: Thu Mar 15, 2018 3:54 pm
by CMD1
$5 subway sandwich? Haven't seen one of those since I moved to Seattle. Even an hour out of town its more like $9-10. Honestly, here the price increases have been very apparent and high as the minimum wage has marched up toward $15. It really squeezes the middle class that want to eat at, especially as they are already paying a higher and higher portion of their income on housing.

Re: How do restaurants in expensive cities make money?

Posted: Thu Mar 15, 2018 3:56 pm
by Sandtrap
The average pizza costs less than $1 to make. The highest cost is the cheese. A Little Caesars Pizza Franchise in a busy HCOL area can do extremely well. A small compact unit in a busy "Food Court", also extremely well. High volume, low cost.
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Re: How do restaurants in expensive cities make money?

Posted: Thu Mar 15, 2018 3:57 pm
by Isabelle77
Liberty1100 wrote: Thu Mar 15, 2018 3:51 pm In high school, I worked at a dunkin donuts in my small town as a summer job. Just that single dunkin would generate $2-3million in sales per year. Now factor in how large the margins are for a cup of coffee and a donut and you will get an great number.
I worked at an Old Spaghetti Factory in a large expensive city when I was a teenager. The owner told me once that each plate of spaghetti and meatballs cost him 8 cents. Add a 30% alcohol mark up and you're in business!

Re: How do restaurants in expensive cities make money?

Posted: Thu Mar 15, 2018 4:02 pm
by Derivative
Okay, so establishing a restaurant in HCOL living area makes more profit generally than in a lower/middle COL area?

Re: How do restaurants in expensive cities make money?

Posted: Thu Mar 15, 2018 4:03 pm
by LadyGeek
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