India's Eating-Out Economy
Food Cost and the 30 Percent Rule
How restaurants calculate food cost percentage and prime cost, why ingredients are often around 30 percent of menu prices, and what eats up the rest.
Restaurants watch their costs closely.
Food cost percentage
Food cost % = cost of ingredients ÷ menu price.
- A dish selling for 300 rupees with ingredients costing 90 rupees has a 30 percent food cost.
- Many restaurants aim for around 25 to 35 percent.
Where the rest goes
- Staff wages.
- Rent, often high in good locations.
- Utilities: gas and electricity.
- Licences and taxes.
- Delivery commissions.
- Marketing.
- Wastage.
- Profit.
Prime cost
Prime cost = food cost + labour cost. Many restaurants aim to keep it under around 60 to 65 percent of sales.
Why margins are thin
After all costs, restaurant net margins are often in the single digits.
Managing costs
- Portion control.
- Reducing waste.
- Negotiating with suppliers.
- Menu redesign when ingredient prices rise, as when tomato prices spiked in 2023.
The tomato spike
When tomato prices jump fivefold, a restaurant's curry food cost rises from 30 to 40 percent. It temporarily reduces tomato-heavy dishes on its menu.
Thinking restaurants profit hugely because food is cheap to make
Rent, staff and other costs leave thin net margins.
Key takeaways
- Food cost is ingredients divided by menu price.
- Many restaurants target 25 to 35 percent.
- Prime cost combines food and labour.
- Net margins are often in single digits.
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