Restaurants: The Economics of The Madhouse

My mother was the worst of all. In addition to having a great head for figures, she was a very talented cook. No, those weren’t the failings. But take her to a restaurant, then unless she took an immediate like to the place or the people (this happened about 25% of the time) she could be a nightmare. The super numerate among you will have worked out that I am talking about 75%, or three quarters for those of you who prefer your fractions vulgar.

HOW MUCH?!! she was wont to say, not at all sotto voce, looking at the price of a dish. Now let’s make certain adjustments, (a) for inflation – she died 14 years ago, and (b) to make the sums easy. Say the object of her ire is a starter priced at £8.40. I remember one such quite well. I could make that at home for a fraction of that price, she hissed. Given her talent, I have no doubt that that was the case. For many, of course, who lack the skill, that ain’t so. But does it stop complaints by those who know no better (and by those who ought to)? No, it does not. I suspect that by now all chefs and restaurateurs reading this are beginning to nod more furiously than a Churchill dog in the back of a speeding car. So let’s have a look at the subject in some more detail.

The first thing to be ignored by many, especially the majority who have never run businesses of their own, is VAT, one of the many taxes paid by small businesses. Value Added? Now there’s a laugh. Value for whom? Currently charged at a whopping 20% (at one time it was as low as 8%), VAT means that one sixth (20/120) of the price of a dish goes straight to the taxman. Does the owner get paid for collecting this tax? Of course not, but that’s another story. So the gross income from mother’s starter is £7, not £8.40.

Those of you who read the Tom Eats! reviews know how much store I set by first impressions. What do they involve? Let’s consider a few factors. Good design, interesting table settings, attractive decor? Yes. A room that’s at a pleasant temperature and well maintained? Of course. Enough staff to make sure you are attended to promptly? That’s a given. These therefore involve (a) capital costs to get your place set up, (b) property costs, whether by way of rental, loan repayment or return on a purchase price, (c) running costs to keep the place warm and clean, and (d) staff costs (which involve more tax paid by the owner in the form of employer’s National Insurance contributions).

We haven’t even looked behind the scenes – most people never do. Have you any idea how much it costs to fit out even a small professional kitchen? How many chefs are involved in making your meal? At top Michelin levels, some places can have almost as many staff as customers. And it’s not just chefs. You would complain about slow service, so you don’t want the cooks having to wash their own pots. Many a top chef will tell you that the plongeurs, or kitchen porters as they tend to be known these days, are the most important people in his kitchen.

Oh, and the food. Funnily enough, the owners have to buy that. How much do they have to buy? How good is your crystal ball? If you’re not busy on a Friday and Saturday night, shut up shop now. But what about a Wednesday? It might be 7 covers and it might be 17 or 70. You can’t buy just enough for the 7, just in case. Clever chefs know how to adapt to minimise wastage, but some is inevitable. Broadly speaking, restaurateurs have to be budgeting for the dish to cost a minimum of three times the cost of the materials, with VAT on top of that. So, mother dear, did you expect more than £2.33 worth of food on your plate?

Why a multiple of three, I hear you ask? Raw materials and overheads. What else? Silly me. I forgot that chef might need to feed, house and clothe himself and his family. And if he’s not making any more than he could do just plying his trade behind someone else’s stove, what is the point? Profit, ladies and gentlemen, is not a dirty word, it’s what ensures that you and I have a range of excellent places where we can go and dine. And the lack of it is the reason why so many restaurants last so little time. Think about a city area you know well. Take a look at it and ask yourself how many of those restaurants were there 10 years ago. While some of the fallen may have been inept, many have simply succumbed to the economics of the madhouse.


  • Six by Nico has been in Edinburgh for some time now, having started in Glasgow’s Finnieston (who doesn’t these days?) and spread. I have yet to visit. Feed back from this and the other parts of his empire is entirely polarised. People have either loved or hated it. Mr Simeone now has outposts in Liverpool, Manchester and Belfast. I read that that he is planning his first London restaurant. Good luck to him. Feedback, please.
  • The very talented Roberta Hall McCarron of The Little Chartroom, Albert Place, Edinburgh will be taking part in the Scottish heat of the Great British Menu. This year the theme is children’s literature. Roberta’s place scored a very impressive 20.5/25 in November 2018.


  1. Vikki Wood on 4th March 2020 at 8:14 pm

    Interesting read. I have a list of costs that people don’t think of when dining. Music for instance. We have to pay for that. Bin collection is expensive. If a piece of equipment breaks, for instance your stove, it’s not a £299 effort from Currys. All adds up. Then don’t get me started about the festival and Christmas in Edinburgh. Months that restaurants used to make a good profit to cover the slow months. That doesn’t happen now. The council prefer to get pop ups in who hoover up the revenue.

    • Tom Johnston on 5th March 2020 at 9:38 am

      I thought you might approve of this article.

  2. Robert Corrigan on 7th March 2020 at 5:40 am

    Very enjoyable Tom.
    I also thought of the additional costs of breakages, staff uniforms, staff training, pensions, pest control, advertising, it all adds up!

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