How an SF Restaurant Can Turn a Profit — Even With 40 Percent Labor Costs

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.

There’s no good time for your restaurant’s oven to explode, but certainly half a year into a global pandemic that made operating a restaurant unprofitable, impersonal, and joyless has to be one of the worst times possible. For Reem’s in San Francisco, where the cuisine revolves around mana’eesh flatbread and three quarters of the menu comes out of the oven, it meant spending $45,000 on a new appliance (not to mention $100,000 in lost sales while the restaurant was closed for over five months) and waiting for the Marsal MB-60 double deck to be shipped from North Carolina. Not that owner Reem Assil sat on her hands. She had already undertaken the process of transitioning her restaurant to a co-operative, employee-owned model, and had enlisted the nonprofits Project Equity and Sustainable Economies Law Center to explore options.

“The world of worker-ownership is so new that there are a variety of ways you can structure it,” says Assil. “So we are being diligent and thoughtful about a model that works for us and our employees.”

The restaurant had already launched an apprenticeship program — 12 of the 26 employees are engaged in a yearlong course to learn skills in leadership, political education, participatory governance, and management, in order to prime them culturally for the shift to co-operative ownership. The end goal is to land on a new model and collectively write bylaws that will change the legal structure of the business.

“We are halfway through and it has been amazing to see people’s growth.”

So what does this kind of investment in workers have to do with the price of lunch? To see how this unique business structure impacts costs, let’s look at one of Assil’s signature items — kishek and cheese man’oushe (the singular of mana’eesh), the freshly baked flatbread topped with fermented bulgur yogurt and harissa (both made in house), grated akkawi cheese, and, for an extra dollar, arugula.

Menu price: $11
Additional 20 percent service charge: $2.20

The printed menu cost is $11; the restaurant has an included service charge, which brings the true cost to the consumer up to $13.20. Assil counts the service charge towards sales.

Total cost to the restaurant: $11.96
Profit (outdoor dining): $1.24
Profit (pickup, unsliced): $1.12
Profit (pickup, sliced): $0.73
Profit (delivery): -$0.06 (loss)

Food Costs: $2.06

Dough: $0.11
Spicy kishek: $0.38
Arugula: $0.34
Akkawi cheese: $0.75
Olive oil: $0.18
Chile spice mix: $0.30
Packaging: $0.12 for parchment paper and pastry bag or $0.51 for pizza box

Mana’eesh are the cornerstone of the Reem’s menu. Every day, the kitchen produces hundreds of these flatbreads, which are composed of relatively inexpensive flour, olive oil, and yeast. Even the kishek, yogurt fermented with bulgur wheat and house-made harissa (including red fresno chiles, roasted red peppers, onions, garlic, tomatoes, salt, cumin, coriander, lemon, and olive oil), doesn’t break the bank. Neither does a generous glug of California olive oil. But as with pizza, it’s the cheese that runs up the majority of food cost. Still, even with the akkawi, a mild, brined cheese made by Karoun Dairies in San Fernando, California, grated over top of the man’oushe, the food cost of the dish is 15.6 percent, well below the 25 percent many restaurants aim for.

Labor Costs: $5.32

Modest ingredients require many hands to quickly transform them into exquisite meals. Someone has to deseed all those chiles and shape each ball of dough. Appropriate compensation runs up the labor tab. The lowest-paid staff at Reem’s start at $16.75/hour (with a cost of living increase every six months), which goes up to $20. They also split 85 percent of a 20 percent service charge that adds up, on average, to an additional $8.50 an hour. The remainder of this charge goes into a fund that covers benefits and the COL wage increases.

“We are trying to build jobs with dignity,” says Assil. “A livable wage is the base of everything else. It is a human right.” As such, Reem’s runs at 40 percent labor costs, while comparable restaurants typically run closer to 33 percent.

Fixed Costs: $4.65

In addition to the usual suspects of fixed costs — insurance, taxes, bank charges, POS, garbage, dishwasher, $9,000 monthly rent, hood cleaning, phone, loan repayments, and so on — Reem’s folds salaried management into this bracket. This may change in the future, as the business evolves into its employee-owned model. But for now, the investment in training adds a lot to fixed expenses. Fixed costs currently account for 35 percent of sales.

“Our salaried management is there through thick and thin, making the operations run whether we have sales or not,” says Assil. “That is why we see them as a necessary investment to run the business. I think there is a shift in people’s consciousness about the true cost of food and for that I’m thankful for this new chapter of Reem’s. When you create a culture centered around the people who work there, you invest in the things that make people happier and healthier. Ideally we want to see all our labor as a fixed cost.”

Third-Party Delivery Costs: $0.79

Assil was always wary of third-party delivery companies, a sector she describes as a race-to-the-bottom tool to maximize worker productivity while minimizing pay. Just before the start of the pandemic, after negotiating commissions down to 22.5 percent for delivery and 10 percent for pickup, she used Caviar for a while, incorporating the fees into higher prices for delivery.

“Even though Caviar doesn’t like that, and they say not to, we would upcharge on the pricing to account for that percentage of the cut. So our customers were paying for that.” Even so, Reem’s was just barely breaking even on these orders.

Once COVID-19 restrictions forced restaurants to focus on off-premises sales, Assil settled on the combination of Toast for online ordering (a flat $99 monthly fee) and Candlestick for delivery. The courier company is a bike operated co-op with a 6 percent commission. Though the dispatch zone is limited, at present only 4 percent of revenue comes from delivery. “Being worker-owned, they’re better aligned with our values. And the cut was reasonable.”

Profit or Loss

“I often call this the ‘heritage man’oushe,’” Assil says, “because it shows the beautiful sophistication of our approach to cooking — fermentation, working with chiles, creating bold flavor. All our Lebanese customers kept asking for it because it brought them nostalgia of street-corner bakeries. So we listened and now it has a cult following.”

The kishek is not the best-selling man’oushe. It ranks maybe fourth or fifth. And compared with higher-margin items like falafel, hummus, and the za’atar man’oushe, it’s not super profitable. But there’s a limit to how high Reem’s can price food without pricing out of its neighborhood. “The more we can scale, the more we can make the prices accessible. Although it’s a small profit, we’re happy about it and we think it’s still worth it to have on the menu. I’ve thought about nixing this one. But with a few of the higher-margin items, it evens out.”

Corey Mintz, a food reporter focusing on labor in restaurants, is the author of the upcoming book The Next Supper: The End of Restaurants As We Knew Them, And What Comes Next (Public Affairs 2021).
Michelle K. Min is a food photographer based in San Francisco.