Over the past few years, avocado toast has gained a high profile, from an avocado-only restaurant in New York to the most recently horrifying “avolatte” phenomenon. It’s why Millennials can’t buy homes. It’s the death of San Francisco food culture. It’s the devil on toast. Somewhere along the way, the buttery fruit that is so deliciously slathered on toast across America, got a real bad rap for being trendy, and expensive.
But really, it’s not about the avocados.
The bourgeois treat is, however, a great example of the hidden costs of menu items, and the cost of running a business with super-slim margins (e.g. a restaurant). The Bay Area is no stranger to fancy toast, avocados or not. But prices in restaurants are rising nationwide, particularly in cities like San Francisco, Los Angeles, Washington, DC, and New York City. It’s a tricky combination of the cost of living, foreign policy, trade policy, labor shortages, and even more factors beyond the control of restaurant operators.
Jessica Sackler, one of the partners in Oakland’s Calavera and a graduate of Cornell’s business and hospitality program, finally got tired of answering questions from people (including her own mother) about the cost of menu items, penning a breakdown of what exactly goes into the creation and costs associated with the much maligned toast. Here’s Sackler’s explanation in full.
(Editor’s note: These are not hard numbers based on Sackler's own menu, but instead a more general rundown of the non-food costs associated with running a business.)
“For those, like my mom, who *really* don't understand why avocado toast costs $10, here is a quick & dirty breakdown from the perspective of the restaurant operator.* I hope this sheds some light on the issue:
1. Food cost: $3.50 (35%)
Check here for how and why avocado prices are at a historic high: https://www.bloomberg.com/…/guacamole-costs-to-jump-as-avoc…
Let's say this $10 avocado toast uses a whole avocado, organic of course, which now run almost $3.00 each. We will throw in another seventy-five cents for thick, whole grain bread, sesame seeds, & other garnish.
2. Labor Cost: $3.00 (30%)
So, avocado toast doesn't grow on trees. You need someone to order the avocados (chef/manager), prep the avocado and toast (especially if you are making the bread), take the order, serve the order, and then clean the dish it was served on.
Minimum wage in SF is currently $13.00 but most reports claim you need to make more than double that to actually live in the city. (https://ww2.kqed.org/…/how-much-to-afford-a-1-bedroom-apar…/) So, it's not like there is much of a chance the people serving you can afford to live where they work, but let's assume this cafe is running a tight ship, and paying their staff above minimum, with some limited benefits. Add in payroll tax and local health insurance mandates, and you're likely looking at a labor cost of *at least* 30%
So, after your controllable expenses, you have a contribution margin of $3.50 left to pay your rent, insurance, supplies, utilities, linens, smallwares, equipment, office costs, accounting, PR, etc, etc, etc. Let's look at the big ones:
3. Rent/Utilities: $1.20 (12%)
If you are very, very lucky, your rent in SF is less than 10% of your overall sales. Let's say your rent at this particular avocado toast cafe is 9% of sales, and we will tack on another 3% for lights/gas/water/wifi/CAMS/trash/compost/grease removal.
4. Everything else: $1.5 (15%)
Now, there are a LOT of other expenses. We won't do them individually, but it's fairly common for other operating expenses to be at least 15%. This also includes paper supplies (menu), printing, advertising, accounting, worker's comp insurance, disaster insurance, computer expense, postage, repairs & maintenance, flowers, janitorial services, reservation service, recruiting, HR services, and the other million things needed to run a restaurant.
So now, what is left of that $10.00?
Seventy cents, or a 7% EBITDA on your $10 avocado toast. Sounds about right. So how many avocado toasts would you need to sell to break even from the $750,000 in start-up costs you spent on build out, permits, a basic beer/wine license, etc?
Almost one million. (1,071,428 to be exact)
And that's before taxes.
So, next time you complain that something is too expensive because you know that you can get an avocado at the store for $2.99, think about all the other things that go into it being served by healthy people, in a pleasant environment, in a convenient location.
*this applies to primary, notoriously pricey US cities only, namely: The Bay Area/NY/DC/LA/anywhere in Hawai'i
**these numbers vary greatly depending on the type of operations, but a 7% net profit before taxes, interest, and depreciation is fairly standard.”
What do you think? Is it worth it? In the meantime, here’s a map of SF’s best toast. Decide for yourself.