How Much is That Cod in the Window?
Not as much as it should be
Warning: WONKY AF
I was recently discussing menu prices with some friends and it led to a simple enough question:
What should a dish cost today that 20 years ago cost $25?
There’s a lot of factors one could consider here- concept, location, cost of food, wages, rent, etc but I wanted to base it on something more objective, like the Consumer Price Index. The CPI is an indicator that measures the average change over time in the prices paid by urban consumers for a representative basket of goods and services. According to the Bureau of Labor Statistics CPI inflation calculator, the answer is….
$42.35
This should not have been as eye-opening as it was. I think of myself as a reasonably intelligent person who understands things like inflation, kind of. I was dumbfounded.
Next, I went to the New York Public Library ‘What’s on the Menu’ archive to try and confirm that this was, in fact, crazy. Sure, a dish that was $25 in 2003 should be $42+ now, but that’s not actually how these things work. I found the 2006 menu from Balthazar where there was actually a $25 cod dish on the menu! Alas cod is not on the current menu but halibut was on both the 2006 and 2023 menus.
2006: Sauteed Halibut with a fresh pea ragout, bacon lardons and rosemary $26.00
2023: Atlantic Halibut sauteed swiss chard, poached fennel and celery in a light saffron lemon sauce $47.00
This tracked through much of the menu. The steak tartare app was $14 in 2006 and $26 in 2023. Steak Frites went from $29 to $49. A cheeseburger that was $15 is now $31.
And if you really get into it, that $47 Halibut is actually really cheap. The CPI calculation does not include things like increases in wages, rent, ingredients, etc. Also, the CPI for Food Away from home is actually a little higher than the standard CPI. Standard CPI increases would price a dish from 2006 at $38.80. CPI for Food Away From Home rose faster than standard CPI- that price would be $45.54.
Now, what if I told you that $47.00 halibut dish should actually cost $78.83?
The Employment Cost Index (ECI) measures the changes in the costs of labor for businesses, including wages and salaries as well as benefits. Private sector wages, according the the Employment Cost Index (ECI) rose by 173% from 2006 to 2023. Here’s what it looks like to calculate the menu price based on increases in CPI for Food Away from Home and ECI wages that would keep pace with private sector wage growth overall.
COST ACCOUNTING FOR ECI= CURRENT COST OF CPI X (2023 ECI/2006 ECI)
$45.54 x (4.5/2.6)= $78.83
The idea that a dish that was $26.00 in 2006 could justifiably be priced at $75+ in 2023 may seem crazy. It kind of is, that’s why no one is doing it. That said, if you asked me in 2006 what I thought a well run, ambitious, thoughtful restaurant would net in profit (EBITDA) I would have said around 15-18%. Ask me today and I’d say closer to 5-8%.
Back of napkin, that math checks out. If, to remain as profitable you were in 2006, you need to charge $78 but you can only charge $47 because that’s what the market will bear, the rest comes from somewhere.