How do restaurants price a dish?
Not by marking up ingredients, though that is where it starts. A dish price must cover food, labour, overheads and a margin, and the reason restaurant food seems expensive relative to ingredients is that ingredients are a minority of the cost.
The starting point: food cost percentage. Most operators target ingredient cost at roughly 25–35% of the menu price, varying by type of establishment. A dish costing £5 in ingredients at a 30% target therefore sells at around £16.50 before rounding.
What the rest covers: staff wages, which are frequently the largest single cost and rising; rent and business rates; energy, which has become a serious pressure; equipment and maintenance; insurance, licences and compliance; waste and spoilage; breakages; card processing fees; marketing and delivery platform commissions, which can take a substantial share of an order's value; and finally profit — which in hospitality is typically thin, commonly single-digit percentages.
Why the percentage alone is not enough. A dish with a good percentage but a low cash margin may be worse for the business than one with a worse percentage and a higher absolute contribution. Operators look at cash gross profit per dish alongside percentage.
Menu engineering. Dishes are analysed on popularity against profitability: high-both items are promoted and protected; high-profit, low-popularity items are repositioned or renamed; popular but unprofitable items are reworked or repriced carefully, since removing a favourite carries risk; and low-both items are cut.
Other levers: portion control, which is where costs quietly escape; using one ingredient across several dishes to reduce waste; menu design, where placement and the absence of currency symbols measurably affect ordering; and drinks, which carry far better margins and frequently subsidise the food.
Why prices rose so sharply. Ingredient inflation, energy, wages and rent compounded simultaneously, and restaurants operating on thin margins had no cushion to absorb them.
What this means for diners: the markup is not on the ingredients; it is on the operation that turns them into a served meal.