Why Are Restaurants' Profit Margins So Low?
Restaurants are a big part of many Americans' lives. They are also a massive part of the U.S. economy. Watch this short video to learn five things you didn't know about the restaurant industry.
This video is part of a collaborative business and economics project with Job Creators Network and Information Station. To learn more, visit informationstation.org.
The restaurant industry in the U.S. is vast and is a part of daily life in America—with 57 percent of us eating at a restaurant at least once a week.
In fact, for the first time in recorded history, U.S. consumers are spending more money at restaurants than at grocery stores.
With the restaurant industry growing and becoming more prevalent every year, here are 5 things you need to know about the restaurant industry:
Number one: In 2016 there were more than 1 million restaurant locations in the U.S. and they generate annual sales of $780 billion.
Number two: According to the U.S. Bureau of Labor Statistics, in 2017 the restaurant industry employed 12 million people—enough to fill Chicago’s Soldier Field almost two hundred times over.
Number three: 425,000 of the 1 million restaurants located in the U.S. are either independently owned or ran by a franchisee—which means many of these establishments are considered small businesses. You see, while franchised restaurants are associated with a larger corporate body, the franchisee who owns and operates the establishment is not much different than the mom-and-pop diner down the street.
Number four: The average profit margin for U.S. restaurants usually hovers between 4 and 6 percent—meaning for every dollar in sales, the business owner only collects 4 to 6 cents. However, profit margins have historically been known to drop to as low as 1.4 percent.
Number five: 33 percent of restaurant revenue goes towards paying wages, which means that government mandated increases in the entry-level wage can be really hurt an independent restaurant owner or franchisee. A business owner can only raise prices so much before customers start going away.
The restaurant industry plays a vital role in both the lives of ordinary Americans and the U.S. economy.