Monday, June 04, 2007

Profit Margins

As regular readers of this blog (yes both of you!!) know I do not support the concept of "minimum/living wages" since this is merely vote seeking via hidden taxation by public officials. However, I DO SUPPORT the elimination of all personal income taxes which would allow us all to live a higher quality of life.

I was reminded of the minimum wage arguments when I read an article in Florida last week which focused on the 88th annual National Restaurant Association Restaurant-Hotel-Motel Show held in Chicago last week. Here are the restaurant statistics provided in the Florida Today newspaper article that I read --

  • 70% of restaurants are independently owned
  • 61% of these restaurants will close in three years
  • 30 to 34% of a restaurant's budget comes from food costs
  • 25 to 30% of a restaurants' budget comes from staff costs
  • 3 to 4 % is the typical restaurant's profit margin

So adding these statistics up another way shows that 55% to 64% of a restaurant's operating costs comes from food and staff costs which are some of the lowest paying occupations in the country. When minimum wages increases are imposed on business like restaurants and vegetable farms -- unless they can lobby to be exempted -- it further reduces the profit margins of restaurants thus causing more bankruptcies.

Since Americans love to dine out versus cooking at home I would encourage everyone to really think about immigration reform -- another topic I have written about on this blog where I advocated having the Mexican states vote in referendums to determine if they should join the USA -- the next time they eat in a restaurant since these professions tend to be dominated by immigrant workers.

A 3 to 4% margin is VERY thin so I am shocked anyone would open a restaurant -- state legislators and Members of Congress should have a greater appreciation for the entrepreneurs that do take the leap.


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