Why Would an LA Restaurant Keep Selling a Dish That Loses Money?

We often presume to understand restaurant economics because we know what a chicken breast costs at the supermarket. “I could make this dish at home for $5,” goes the refrain. Could we? Here, Eater looks at all the costs in a popular restaurant dish to see what goes into it, and how much profit comes out.

Uyên Lê has profitable items on her menu at Bé Ù, like her banh mi. But there are two key reasons why she has so far been willing to lose money in order to keep the $10.50 caramelized pork with eggs (thit heo kho) on the menu.

The first is that the founding principle of her not-quite-year-old restaurant is to provide jobs with livable wages: Lê is committed to starting all staff at $18/hour (minimum wage in Los Angeles is $14.25/hr and livable wage in Los Angeles is $16.25/hr). However, that puts her labor costs at higher than the average, and underestimating her fixed costs — like equipment, maintenance — affect that too.

“You know the WAG method? I’ve done a lot of market and retail analysis in my former life,” says Lê, who has a master’s degree in city planning and worked at the UCLA Labor Center and an electrician’s union. “You look at the size of retail operation in the geographic market, the square footage and services, the amount of revenue generated per square foot. You have to plug in all these numbers, but you have to make assumptions in order to have some level of analysis. The WAG method is the Wild Ass Guess method and it’s kind of where I am right now.” Even though she wants to keep the menu affordable, Lê will soon need to balance her high fixed and labor costs with the prices she charges. “We’re trying to key it in a little bit more.”

But the main reason Lê’s willing to take a $3 hit on every dish sold is far more personal: Lê is devoted to executing the cherished family dish and making it available to a restaurant audience. Her version starts with the simple act of hard boiling and peeling eggs. They are then placed in a large stock pot with pork belly on top (to keep the eggs submerged and prevent them from drying out). The braising liquid, adapted from her mother’s recipe, calls for seasoning with fish sauce, sweetness from Coco Rico coconut soda, brown and amber color notes from caramel and annatto oil, plus water, which simmers uncovered for over four hours. The reduced liquid is thick — not as sticky as French jus, and not as viscous as a Jamaican oxtail gravy — and the gooey pork belly is served along with the egg and the sauce over rice with scallions and pickled mustard greens. “Every Vietnamese family has a recipe for this,” says Lê, but as ubiquitous as thit heo kho may be in home kitchens, Lê couldn’t find it at restaurants. So she made it herself.

“This is the type of thing that people will eat and say, this brought me home to my childhood,” Lê says. And that makes it worth it.

Menu price: $10.50

Total cost to restaurant: $13.51
Profit: -$3.01 (loss)

Food costs: $4.59

Red Boat fish sauce: $0.38
Caramel: $0.04
Annatto seed oil: $0.28
Coco Rico: $0.45
Pork belly: $2.63 (.45 lbs)
Eggs: $0.45
Rice: $0.28
Scallions: $0.04
Pickled mustard greens: $0.04

“The food cost for this dish is probably the highest out of all my dishes,” says Lê, who aims to keep a 25 percent average food cost comparable to menu price; the thit heo kho clocks in at 43.71 percent.

Lê notes that prices for ingredients have risen steeply, particularly with wholesalers. “Wholesalers are not reluctant to increase the cost of something 50 percent overnight. So that’s been an increase, 20 to 30 percent in a lot of things, that I didn’t expect.”

Despite the unexpected supply chain issues that caused increased food costs, Lê has been uncompromising on her choice of ingredients. A typical restaurant would buy whole pork bellies (which would be cheaper). But wanting to maintain the fidelity of her mother’s dish, Lê insists on sourcing only the center cut of the belly. “We call it thit ba chi, which means the meat with three threads. That creates that mouthfeel — it’s a quality control issue.” And where other restaurants might save a premium brand for finishing a dish, Lê empties a bottle of Red Boat into the pot, which in LA costs double the average price of fish sauce. Ditto for using annatto seed oil to infuse an amber tone to the broth. Those two liquids alone add $0.64 to the food cost of each portion. But the dish is meant to be “a hug for your stomach and your soul,” Lê says. “So it has to be done this way to feel like this.”

Labor costs: $5.25

Lê is the first to admit that her menu is too labor-intensive for a take-out restaurant. Combined with paying a living wage, this results in a payroll that currently hovers around 50 percent of revenue. “I always assumed that mine would be higher than the industry average,” she says, but it’s higher than she wants. “There’s gonna come a point very soon when I raise my prices for certain dishes. That’s just the way it has to be.”

Her goal is to reduce labor cost to 40 percent by helping staff become more efficient, while also raising prices of certain dishes a bit to reflect the true cost of how prep-heavy the restaurant is. Raising prices is a last resort, and it’s at odds with her desire to serve food at a price point accessible to residents of the Virgil Village neighborhood.

Fixed costs: $3.67

Though Lê hasn’t compensated herself, or paid down any of the initial investment in buying the restaurant and equipment, Bé Ù’s fixed costs — rent; insurance; bank charges; garbage; dishwasher; security; exterminator; hood cleaning; phone; and Toast, her preferred online ordering software — are at the high end of what is usually advised (most restaurants I’ve reported on tend to run somewhere between 18 to 30 percent fixed costs, compared to Lê’s 35 percent here). “I probably did too low an assumption for equipment and maintenance costs when I started, [and for] these other business disruption costs that come along when operating in a pandemic.”

Third-party delivery and takeout costs

“We do not do delivery because of the high markups,” says Lê. “We are takeout only where you can order online through Toast, call in, or order at the window.”

Profit or loss

At a menu price of $10.50, Bé Ù is losing $3.01 on each order of caramelized pork with egg. “I wish it was a loss leader to get people in the restaurant,” Lê says, “but it’s actually just an emotional connection to a dish I want to share widely like it’s a cultural ambassador.”

Not wanting to increase prices across the board, she’s considering payment on a sliding scale, perhaps keeping a few items, like the vegan banh mi or the popcorn chicken, at a fixed price. It’s possible to raise prices selectively, preserving certain dishes, like this one, at a value that makes it more widely available. And once she’s a bit more stable, she plans to apply to accept EBTs (Electronic Benefit Transfer). “I grew up on food stamps. And I feel like that could help to maintain some affordability for people on a fixed income.”

Lê’s has been trying to figure out how to communicate to customers why she needs a price increase, having established the three pillars of her business as good food, good jobs, and affordability (already three times the ambition of most restaurants). “I’m still keeping that foundation. But something’s got to give in order to figure out how to build a sustainable restaurant that’s resilient, so I can stick around and meet these goals.”

Corey Mintz, a food reporter focusing on labor in restaurants, is the author of The Next Supper: The End of Restaurants As We Knew Them, And What Comes Next (Public Affairs 2021)