It’s a familiar feeling. You enter a restaurant, sit down, and by the time you open the menu and see the outrageous pricing, it’s too late for escape. “£15 for a pizza!” you exclaim. You try and do the maths – the ingredients can’t cost more than a few pounds and they can cater in bulk, so why is it so expensive? When we head out to eat, the prices can often seem inexplicably high. So, where does our money actually go? Are these businesses making a fortune selling reheated ready-meals, or are hidden costs the culprits for these inflated prices? The closure of around 750 pubs last year would suggest that the truth is closer to the latter.
Before I started working in a café, I imagined there to be some kind of capitalist conspiracy for cafés and pubs to take as much of our hard-earned money as possible – I mean, £3 for a coffee must be a rip off, right? Needless to say, I didn’t understand the economy, but getting a job helped to change this. Run by a lovely University of Oxford graduate Claire Hawkins, and going by the name ‘Indigo,’ my workplace opened my eyes to the many unexpected financial pressures on small business.
So, let’s break it down: a toasted ciabatta will set you back around £5, a couple of pounds less if you have it to take away. Already, £1 (20%) is taken as VAT. The ‘cost of sale’, i.e. the price of the ingredients, can vary between 90p-£1.40. Unlike supermarkets, Indigo does not mass-produce their food and uses higher quality, locally sourced bread and fillings, leading to a higher cost of sale (but tastier toasties!).
The next biggest costs are the overheads: salaries, rent, bills and insurance add up to 12% of Indigo’s turnover, with staffing representing the largest cost overall. These vary greatly between businesses and can often be subject to big and sudden increases. Indigo faced a series of break-ins, resulting in the business insurance quadrupling to an annual cost of £4000. In a worst-case scenario, a business frequently vandalised or broken into can be blacklisted and unable to find insurance. Restaurants don’t just need rainy-day money but must also account for these sudden and uncontrollable events.
The unexpected costs continue. Any restaurant or café playing music must pay for ‘public performance licensing,’ based on the size of the seating area within earshot. For Indigo, a café with 18 seats in total, this works out to be £500 a year. Larger restaurants pay thousands just to legally play some background music. Similar costs include banking charges and losses due to power cuts, both of which sets Indigo back around £1000 and, in the case of the latter, causes a significant amount of food waste as the contents of fridges are ruined. Smaller costs, such as replacing stolen or broken crockery – yes, people really do steal dirty mugs and plates – repairing furniture and buying decorations add up too, and take a cut of that original £5 for a sandwich. All this leads to a perhaps surprisingly low profit for the restaurant, yet still higher prices for the consumer. Costs aside, we must also remember the huge amount of stress for the owners of restaurants and cafés who are responsible for both their own wellbeing and income as well as that of their staff.
As with all aspects of economics, supply and demand invariably contributes to the differing prices of food and drink at restaurants and cafés across the country. You can expect to pay more in cities like London and Oxford where both the rent and the demand is higher. An afternoon tea at The Ritz will set you back at least £60, in part because it’s what people, especially tourists, are prepared to pay for such an experience. People are increasingly turning their backs on materialism in favour of these ‘experiences’ and this, in addition to the growing wealth of the middle class has led to the development of unique and expensive fine dining opportunities. Restaurants can also provide an easy way of trying foods from different cultures – you can hardly walk a square metre in London without coming across a specialty restaurant which is almost as good as grandma’s cooking.
With all these costs to consider, both for the businesses and the consumer, why do people still choose to eat out and how are these businesses able to stay open? We all know why: people love going out! From catching up with friends to family celebrations and romantic evenings, restaurants provide an ideal setting for these special moments – and artsy Instagram food photos – making people more willing to spend money on a meal.
In spite of the frustrations of these seemingly unfair prices, when lockdown is lifted, I suspect that restaurants and pubs, along with all other social spaces, will be the first port of call for many of us. Perhaps the lesson learned throughout all of this is that the pleasure of gathering in our favourite pizzeria is priceless, or at least worth that £15.
