So, why does our food cost a lot? According to the article below, its due to (i) rental price, (ii) worker cost, (iii) material cost, and (iv) hidden costs.

Logically, those tepi jalan stalls should be the cheapest places to eat (and yes indeed), but there are some stalls whom prices are equal to restaurants.

Some restaurants may reduce price by sourcing for lower quality products as raw material. This brings down the cost for materials.

Others may hire illegal workers, which also brings down the cost a bit.

Some become creative and reduce the portion of the food, or use smaller plates to play tricks on our eyes.

To understand why Malaysians are charged four times more for a 20-sen roti canai, CHAI MEI LING and TAN CHOE CHOE delve into the economics of food to dissect the prices of popular fare

WHY is it that we pay RM3.50 for a bowl of instant noodles when the same amount can get us five packets from the hypermarket?

What is the real cost of a plate of nasi lemak, fried rice and roti canai?

To answer these questions, the New Sunday Times team got insiders from the food and beverage industry to open up on the sensitive and tricky issue of pricing.

The truth is the actual cost of most Malaysian staples is just one-third of the price we are paying.

For example, it takes only slightly more than RM1 to whip up an average plate of char kuey teow, which sells for RM4 at a regular outlet.

Roti telur, the actual cost a mere 60 sen, is priced at RM1.80.

As drinks cost much less to prepare, businesses reap an even higher profit margin.

On an average, consumers fork out five times the actual cost of a drink. It takes, for instance, 30 sen to come up with a glass of teh tarik that we pay RM1.50 for.

These lopsided equations may raise the question of unfair trade practices, but traders argue that there are other factors that need to be taken into account.

Rental, workers’ wages, hidden costs and profit are also worked into the price tag, they say.

Of them all, rental carries the most weight, says business operator and chef Khairul Arifin Ismail.

At the high-end restaurant where he works, rent amounts to an astronomical RM40,000 a month.

“Rent is the biggest expenditure for businesses housed in a proper lot. It’s a fixed amount. It’s not something traders can change. Some business people struggle just to pay the rent.”

It is not surprising then that 30 to 40 per cent of what we pay for is attributed to rental. Other factors give business owners more flexibility in fixing an amount that can maximise their profit.

For example, many opt for foreign labour which costs less. This is especially when locals fresh out of school are now demanding up to RM1,000 pay a month.

Workers’ wages normally make up 15 to 25 per cent of the food price, says Khairul.

Businesses also have to contend with wastage and hidden costs, such as food packaging, wear and tear of equipment and miscellaneous items such as tissue paper and plastic cutlery.

If businesses are prudent, they can bring it down to five per cent of the food pricing, and thus channel more of the savings into profits.

With all these to juggle, striking a balance between costs and profit is a huge challenge for businesses. Fix a price too low and one ends up running a loss; charge too high and one risks losing patrons.

To come up with competitive prices, operators depend on experience and business acumen.

Marcus Poon, for one, feels the price of his food items are “reasonable”, if not bordering on cheap.

Poon operates a WiFi-enabled, air-conditioned cafe that serves a combination of Asian and Western cuisine near a residential area in the Klang Valley.

His competitors include hawker stalls and several other cafes in the area.

“Most of my food items cost 35 to 45 per cent of the price I charge. But that is just the cost of materials.

“When you take the cost of labour and rental into consideration, the total cost per item is about 65 to 75 per cent,” says Poon.

So, a profit of between 25 and 35 per cent is reasonable, he adds.

“The F&B business is getting increasingly competitive these days and consumers are spoilt for choice. Although my profit margin is supposedly about one-third of the price, my turnover is not that high,” says Poon.

Khairul says a profit of 20 to 30 per cent is considered normal for any budget and medium-sized business, but high-end restaurants and hotels mostly take home a profit margin of about 10 per cent because of the high costs of investment.

Even then, they are the biggest takers as the value of the margin is much bigger than the profit of smaller businesses.

“A hotel that charges RM45 for a plate of fried rice may gain a 15 per cent profit after deducting all the other expenses that come in the form of a gold-rimmed plate, air-conditioning, expensive tablecloth, good service and such. The value is almost RM7.

“Comparatively, at a normal eatery, a 30 per cent profit amounts to only RM1.20.”

Sometimes, the price of a dish is reflective of the labour that goes into preparing it.

“There’s more to a packet of nasi lemak than it seems. Making the sambal takes a lot of effort,” says Khairul, who has 20 years of experience in the food industry.

“Many people think that nasi beriani gam, which sells at RM8 to RM9 a plate, is expensive. But the process of making it is tedious. We’re also paying for the process, not just for the materials.”

Poon says consumers should appreciate that the prices they pay are also for the ambience of the restaurant.

“Wallpaper, decorations and renovations — all these cost money but we cannot factor these into the calculation of the prices of food items we sell. At least, not in this neighbourhood.”

But this doesn’t mean that he can choose not to repair, upgrade or renovate his cafe because “every restaurateur has to strive to differentiate themselves from others”.

“Everyone likes a concept store these days. Some places sell yucky food at exorbitant prices, but if the concept or design of the shop is appealing, people will still come.

“Ultimately, it is very much a demand and supply situation,” says Poon.

Lim Hui San, a single mother with three children who operates a hawker stall in Jinjang, Kuala Lumpur, says the food business does not promise huge returns.

She says the material cost of a plate of char kuey teow with shrimps, blood cockles and bean sprouts is RM1.20. She sells a plate at RM3.80. On a good day, she can sell up to 80 plates.

Similarly, her profit margin is about 30 per cent after deducting the cost of rental and labour.

“But the coffee shop where I operate my stall only opens six days a week and it also closes shop on public holidays. I also have to pay a local assistant RM1,200 a month.

“I could easily get an illegal for less, probably RM700 to RM800, but I’m trying not to.”

Lim earns about RM2,000 to RM3,000 a month.

“A respectable amountlah. Any less and I would not know how to survive in Kuala Lumpur.”

source: http://www.nst.com.my/nst/articles/10mfo/Article/#ixzz1MrG83EVh