We often presume to understand restaurant economics because we know what a chicken breast costs at the supermarket. “I could make this dish at home for $5,” goes the refrain. Could we? Here, Eater looks at all the costs in a popular restaurant dish to see what goes into it, and how much profit comes out.
Despite the steady drumbeat about inflation, it still shocks to see a Thanksgiving pecan pie cost $50.
While the rate of national inflation has finally begun to ease (down to 7.7 percent in October from a high of 9.1 percent in June), the impact on groceries has been far greater, with shelf prices rising 12.4 percent. For consumers, the cost of butter has increased 24.6 percent in the last year. For bakeries like LA’s Fat + Flour, who were used to wholesale pricing enabled by buying cases of 30 pounds, it’s shot up 64.4 percent, from $2.59 per pound to $4.26. Accordingly, Nicole Rucker, founder of Fat + Flour and author of Dappled: Baking Recipes for Fruit Lovers, has raised the price of her apple pie from $45 to $55 this year.
It’s not all bad news, though. “Holiday sales are important because if you play your cards right you can get a rush of sales all at once for little effort,” says Rucker. She estimates that preorders (no one wants to arrive at the bakery to find that their special pie is sold out) during the holidays are 10 times the normal volume. Many small businesses don’t have the cash flow to support the necessary overtime needed to meet holiday volume but there’s a secret to it: high-fee loans through companies like PayPal, Square, and Shopify. Rucker uses loans like these often — she currently has two, totaling $35,000 with a $5,000 fee — because like many other small business owners, she couldn’t get a more favorable loan from a bank. “It [costs] more than a bank’s interest rate but far less than most credit cards. They are useful but I hope flow of business can return and we can stop using them, ‘cause they currently take any profit I would have.”
To understand how all this works, and why Fat + Flour will only make 30 Hidden Rose apple pies this Thanksgiving, let’s look at all the costs.
Menu price: $55
Total cost to bakery: $50.07
Food costs: $14.60
Pie crust: $2
Sugar and spices: $1
Pie tin: $1.41
“One thing I am passionate about is fruit,” says Rucker. “I love to spend money on fancy fruit. Hidden Rose apples are literally bright-pink inside. They are super juicy and tart and kind of taste like watermelon candy but still very much apple.” They also cost around $43.50 a case, versus the more commonly used Granny Smith or Pink Lady apples that would run about $35.
Committed to reusable pie tins, the bakery eschews the standard aluminum for a pressed metal (embossed with their logo) that can be baked 200 times. Then there’s Plugra, a brand of European-style butter with 82 percent butter fat. The bakery uses conventional butter (usually 80 percent) for most products, but bakers like Rucker prefer the European butter for the lamination (hand-layering of dough and butter) required for pie crusts and croissants. More fat and less moisture means it melts quicker and the dough retains more buttery flavor. It is also 36 percent more expensive than regular butter. All in, these pies run at just above 26 percent food costs.
Labor costs: $22
During the holidays a bakery runs on overtime. “Overtime is 1.5 hourly wages,” Rucker explains. “It also raises payroll taxes significantly to operate on OT. Obviously, that must get factored in when deciding how to pull this off. Will the volume of orders and profit from that be worth the OT and stress?”
In the last year, with the store’s hours no longer limited by pandemic closures, Fat + Flour’s sales have increased 60 percent. Concurrently, labor cost has risen 19 percent. Most of that is due to the price of retention — holding onto the same number of staff, but paying them more. Plus, there has been the new cost of retail shopping for ingredients previously available wholesale. For all of 2021, due to nationwide shortages, a Fat + Flour employee had to drive around LA, sometimes hitting five stores, just to find condensed milk and graham crackers. This cost the bakery more in wages, plus gas, which is expensive these days.
Then there’s the invisible cost of making pies: time. The Fat + Flour pie crust takes a whopping three days to make. On day one the ingredients are weighed, chilled, mixed into dough, shaped into bricks, then rested overnight. On day two the dough is sheeted and laminated, then rested again. Finally, on day three, the dough is cut, crimped and stored. “You don’t have to do it this way, of course,” Rucker admits. “But this is how we do it so that the gluten relaxes in between processes and the dough hydrates fully before use. This process is the reason our pie dough glows and is actually flaky, as opposed to tender-crumbly.”
While wages represent 31 percent of Fat + Flour’s total sales, buoyed by more profitable items, the pie runs closer to 40 percent labor costs. It’s part of why the bakery cannot exclusively be a pie shop, and it’s why Rucker has to put a limit on how many pies the shop makes daily.
Fixed costs: $13.47
As a tenant with a barely 100-square-foot stall in LA’s Grand Central Market, Fat + Flour pays rent as a percentage of sales, plus a flat fee on a separate prep space. In addition to credit card charges and hosting fees for ordering sites like Tock, there’s also the ongoing expense of paying off the loans needed to get through the season.
“Small businesses make holidays happen with the help of high-interest loans. The Small Business Administration takes months to return a decision and is mostly based on personal income. But these loans often debit automatically a percentage of your daily sales. They help cover the increase in cost of goods and labor to prep for holiday, but also eat into overall profit margins.” The fixed costs account for about 24.5 percent of the cost of the pie.
The bakery enables DoorDash delivery through Square, which passes the fee ($8 to $15) directly to the customer.
Profit or loss
“I used to think that the sales of holidays carry over and save January diet season,” says Rucker. “But now I just think, how can we make some money and not burn everyone out for two weeks of sales?” Rucker also likes to use the money to come up with new ideas to retain sales in the new year. Luckily, she says, “the January diet thing hasn’t hit quite as hard” in the past two years, and Valentine’s Day has been seeing increased demand. She now uses January “as a development month” for a big Valentine’s Day fun project.
From her 30 Hidden Rose apple pies, with a profit of $4.93, Rucker will net $1,650, and on the overall Thanksgiving pie sales, Fat + Flour will barely break even. However, over the month of November, Rucker expects to sell about 8,000 cookies. And that’s what keeps the lights on: cookie profits, which help cover the cost of the more labor-intensive pies. There is some small profit in the pies, but considering the volume of time and space they require, they are only on the menu to satisfy the creative passion of the shop’s bakers, and fulfill consumer demand.
Still, in order to maintain profitability, prices have increased three times in the last two years. Twice by shrinkflation, making cookies smaller incrementally to get more from a batch. They started at a massive 5 ounces, then went to 4 ounces last year, and slightly smaller again on some of them this year. And Rucker raised prices from $3 to $4.
“At this point a small bakery is a community service, which is something a former business partner used to say to me as a slight,” Rucker sighs. “But I guess I am okay with that now and don’t think of it as a diss. This pie is something I am making for me. It’s gorgeous and special. I chose to make this fancy pie because it made me feel good and reminded me of why I started baking and love this business in the first place.” That her Thanksgiving pies have nearly sold out suggests her community loves them, too.
Corey Mintz, a food reporter focusing on labor in restaurants, is the author of The Next Supper: The End of Restaurants as We Knew Them, and What Comes Next (Public Affairs 2021).