Is 12% occupancy cost too high for a restaurant?

Twelve percent occupancy cost is above the healthy range for most restaurants. Public chains report rent and occupancy between roughly 5% and 11% of sales. At 12%, a restaurant is carrying rent that will show up as thin margins by year three.

What does occupancy cost include?

Occupancy cost is total annual occupancy divided by annual gross sales. It includes base rent, CAM, property taxes, building insurance, and percentage rent where it applies. Utilities usually sit outside it.

How do I test whether a rent is too high?

Divide the proposed annual occupancy cost by the tenant's realistic annual sales. If the result exceeds 10%, the tenant needs higher volume than projected or a lower rent.

How Much of a Restaurant's Sales Go to Labor and Food?

May 28

Written By Retail Made

Food and labor together are called prime cost. It runs roughly 54% to 60% at public restaurant chains and closer to 69% at independent full-service restaurants.

That gap — about ten points — is the single biggest difference in what two food tenants can carry, and it has nothing to do with the cuisine.

The chains

Across five public companies: Chipotle 54.7%, Shake Shack 54.4%, Potbelly 55.9%, Sweetgreen 57.4%, Wingstop 60.0%.

Five different formats, six points apart. The textbook 60% prime cost is not a myth at the corporate level — if anything, scale beats it.

The independents

Independent full-service operators reported a median labor cost of 36.5% of sales in 2024, including benefits. Limited-service operators reported 31.7%. Industry food cost runs near 32.4%.

That puts full-service prime cost near 69%, roughly nine points above where the chains sit.

Labor is what moved, not food

Since 2019, restaurant wages are up about 41% while wholesale food prices are up about 35%. Menu prices are up about 36%.

So prices roughly covered the average cost increase and nothing more. Wages ran five points ahead of them. That is why operators keep raising prices and keep telling you there is nothing left at the end of the month, and it is part of why 42% of operators reported their restaurant was not profitable in 2025.

There is no single food and beverage labor number

Labor is the most format-dependent line in the business.

Among smaller independent operators, labor can run near 15% at a counter-service shop where the owner works the line, in the mid-30s at a small coffee shop, and near 50% at a buffet that needs staff on the floor whether four people walk in or forty.

Same industry. Nothing else in common. Anyone quoting one labor percentage for food and beverage is quoting an average of businesses that do not resemble each other.

Why any of this is your problem

Prime cost is what is left to negotiate with.

A tenant at 55% has fifteen points of room that a tenant at 69% does not. Ask which side of that line a prospect sits on before you assume what they can pay. And when an operator tells you their labor number, find out whether their own hours are inside it — at owner-operated shops they usually are not.

Understanding Retailers covers how retailers make money, how to read the numbers they give you, and what each category needs in a space.

Retail Made