Question

Zoom kitchen, a chain of four restaurants in the Chicago area, is known for serving sizable portions of meat and potatoes. During the past four years salad sales have increased from 18% of its sales mix to 40%. This has pleased company management because the contribution margin on salads is much higher than on meat.

Why do you suppose restaurants are so eager to sell beverages and desserts?

Answer 1

Restaurants are eager to sell beverages and desserts because they offer high contribution margins with low cost of goods and labor, increasing overall profitability. These items also enhance dining experiences, potentially leading to increased sales. High markups on these items significantly contribute to a restaurant's revenue.

Step-by-step explanation:

Restaurants are eager to sell beverages and desserts because these items typically offer high contribution margins, meaning they contribute more profit per item sold compared to other menu items like entrees. Beverages and desserts have lower costs of goods sold and require less labor to prepare, increasing their overall profitability. Moreover, these items enhance the dining experience, encouraging customers to linger and possibly order more.

For example, when Zoom Kitchen noticed a shift towards greater salad sales that had higher margins compared to meats, management was pleased because higher margins contribute more to covering fixed costs and thus increasing profits. Similar to this, beverages and desserts might have an even higher contribution margin, making them attractive additions to a meal from a financial perspective for the restaurant.

Additionally, items like beverages are often highly marked up compared to their cost. Coffee, soda, and alcoholic beverages require minimal preparation and can be sold for several times their cost, substantially increasing earnings. Desserts, while similarly easy to prepare or even outsourced, significantly mark up the dining bill, contributing to the restaurant's bottom line.