“I just want to be charged a fair price at a restaurant, to pay a price that covers food costs and pays workers properly”

Whenever we talk about restaurant pricing, or about service charge, this is the comment we receive. And we love to hear it – it means that customers care about our industry and they notice and care about people who work in the restaurants they love. They want a sense of fairness and transparency, they want to know that they’re doing the right thing. But the reality is complicated, and we always wonder – if customers knew what that ‘fair price’ really looked like, would they really be willing to pay?

For years our culture of eating out has been built on a seemingly insurmountable cognitive dissonance: on the one hand there’s outrage that many of our workers rely on service charge to attain a living wage, and sadness that our farmers struggle to seek out a viable existence. On the other hand there’s an equal outrage that the prices on menus are creeping ever higher, when customers’ own outgoings are heading in the same direction. On neither hand is there any outrage that independent restaurant owners often pay themselves a subsistence wage, if at all.

We hear it with such frequency that the words begin to lose the weight that they should carry: The numbers simply don’t add up.

So what would it look like if the numbers DID work? What if each member of staff were to be paid an appropriate living wage without relying on an optional charge? What if our farmers could raise crops and livestock in a sustainable way and be appropriately rewarded for it? What if independent restaurants operated like any other industry, with financial reserves and owners who are adequately compensated for their success? How much would our customers really have to pay? And would they actually be willing to do so?

There are many broken assumptions that have contributed to the breaking of our industry model. There’s been the decades-long, blinkered expectation of cheap food, coupled with a reliance on cheap labour. Property investment funds have driven rents ever higher. Each one of these factors is a complex article in itself (and if anyone wants to dive into any aspect please get in touch). The twin hammers of Brexit and Covid served to drive nails a little further into hospitality’s coffin and, while these events initially prompted understanding and goodwill from the public, they also had a significant impact on customers’ lives. Their own bills skyrocketed, and despite the continued spotlight on global and local supply chains for food and utilities that started to shine during pandemic shortages and continued through the Ukrainian war, public interest and comprehension started to wane after three monotonous and increasingly expensive years. Goodwill seemingly evaporated, replaced by the illogical notion that restaurants owed customers the responsibility of maintaining affordable prices while upholding quality and ethics.

Eggs, dairy and meat have all surged by 40% in the last few months. Business owners including Legare, Cin Cin, Sourdough Sophia and others have all reported utility bill increases of up to 400% over the winter compared to the same period last year. The minimum wage and the London Living Wage have recently risen, and staff shortages have led to a general wage inflation (or correction?) across the industry. Previously, operators aimed for a wage bill comprising 28-32% of total costs, but in many establishments that figure has now increased to 37% or higher.

As a case study, Mandy Yin of Sambal Shiok noted that the price of cooking oil has soared from £15 for 20 litres to £36—a staggering 140% increase. Another lesser-known challenge in hospitality finance is the absence of value-added tax (VAT) on most ingredients, which means restaurants cannot recoup any portion of their VAT bill from menu prices subject to a 20% charge. Business rates are on the rise, and many establishments face additional financial burdens such as loan repayments for business interruption or rent pauses during the pandemic. It’s no surprise that Mandy stated, “My salary from the business since Covid is literally the minimum amount for me to pay enough national insurance to get a state pension.” There’s a deliberate denial of the fundamental truth that if something appears cheap, someone somewhere is undoubtedly suffering.

Why do customers view a mark-up as a scam, rather than a crucial economic device? We hear time and time again: “I could buy these ingredients from Tesco for £x, and you’re charging £xxx”. Well yes – but then again you would be doing your own washing up, paying your own rent, lights and gas, serving your own food, providing your own equipment, cleaning your own kitchen, putting your own flowers on the table, paying your own accountant. On top of that, your supermarket may not be paying the suppliers a fair price. Many independent restaurants work directly with growers and farmers and see the value in paying a little more to play a part in a sustainable economy, ensuring that their suppliers are still able to do what they do in years to come, and continue to do it carefully, thoughtfully and well. And the tiny profit on top? Without owners receiving adequate compensation to thrive and generate innovative ideas, the beloved establishments we enjoy would simply cease to exist.

So we asked: what do we have to do to make the numbers add up? How much would we have to raise prices to get to that fair price? We took a simple example: a pappardelle with slow-cooked beef ragu, with a 2021 menu price of £12.00. And we did some maths. We added the 40% price rise on eggs, flour, meat and dairy. We added the 400% uplift on utilities (all that energy for the delicious, long, slow cook!). We added the increased wage percentage, then included service charge and NI contributions into the figure so that no one would have to rely on an optional extra to top up their wages to a sustainable level.

The result? In 2023, your plate of pasta needs to rise from £12 to £19.82. And the ‘profit’ on top, from which employers now have to also repay their Covid loans, manage rent hikes, pay themselves through their own cost of living crisis? That’s down from £1.40 for the dish in 2021 (already a tight margin), to just 14p. 

So would people be willing to pay a 61% uplift – or more, if we want the final profit to reflect a survival point for the establishments we love? And if not, we have an even bigger question to ask: how can independent restaurants, without economies of scale, survive this moment? Customer attitudes will be slow to change, especially in moments of economic crisis, but restaurant closures happen quickly. If we want our incredible industry to survive and thrive, we need both customers and the government to foster a deep understanding of the challenges we face. An awareness of the true figures behind the experiences they love is a good place to start.

With special thanks to Viewpoint Partners, hospitality account specialists, for their help and insight.