Thursday, April 26, 2007

The Take Out Paradox

Byran has an interesting conversation on why there are so few high-end take out places. In the end he concludes

Dine-in patrons provide an important advertising benefit for restaurant owners that dine-in patrons do not. If you see a restaurant empty during peak times, you infer that it's no good; if you see a restaurant full during off-peak times, you infer that it's excellent.

As a result, restaurants are willing to give a price break to dine-in customers to encourage them to sit down and serve as human billboards. Or in other words, dine-in customers actually double as covert employees, whose job it is to advertise the restaurant. Their implicit pay roughly matches the extra cost of the dine-in experience, bringing it into parity with the cost of take-out.


I like the general theme but I think the advertising concept is weak.

What I do think is happening is that there is an interactions based effect. People prefer to go to a restaurant where there are lots of people in part because it is more exciting but for any number of reasons.

Thus the more people you can get into the restaurant the more will want to come. Since their are high fixed costs it pays to subsidize the cheapskates who will then draw in the more environmentally sensitive diners.

Indeed, what a restaurant would really like to do is give a price cut to the first X customers. Then charge the rest more.

My guess is that cheaper places do this by varying price on time of day. More expensive places do this by making you wait in line.

The question is why does the restaurant benefit from you waiting in line. That will have to wait till I get back from Boone.

16 comments:

Gabriel Mihalache said...

Social multipliers stories are interesting but hard to pull off.

You don't want to eat alone but too many people are too noisy.

Some times you want to go to exclusive places, other times you'd rather go to McDonalds.

The main challenge is not showing how a certain type of restaurant can draw in enough people to keep its business going but to show that those strategies are optimal, in a sense.

Anonymous said...

I like privacy. I hate crowded restaurants, where people are packed so closely together I can't have a conversation with my dining companion without someone else listening to it.

I like to eat when I'm hungry. I hate restaurants with long lines or restaurants that make you wait 5 minutes while they clear off the table they've decided you'll sit at, even though there are comparable tables set and waiting for diners.

I like good food. I hate restaurants that are overrated or think too highly of themselves and their ambiance.

I like my own home. After a long tiring day, I'm often too tired to cook and I've seen too many people during the day. The last thing I want to do is be presentable and socialable in a restaurant that is trying to make me wait for an overcrowded noisy dining room. I am always in search of better prepared food that I can take home, eat something enjoyable, with my shoes off, whereever it is most comfortable, in whatever position I feel comfortable.

I guess my problem is I just don't think like an economist.

dWj said...

I'm not much of an expensive-restaurant person, but it seems harder to me to believe that the food per se could be worth that kind of money than that the environment, the service, the whole experience could be worth it. Restaurants are usually classified as a service industry, not food sellers, and I think the service is likely to be of more variable quality than the food is.

happyjuggler0 said...

Food tastes better when it is hot right out of the pan/pot. Takeout means that temperature goes down, even with styrofoam or foil wrap.

High end restaurants are about great tasting food, and therefore they are more sensitive to this issue than the local Chinese takeout which serves lukewarm food from a steam table anyway.

Also, there are similar problems with sauce which the high end chef insists are a necessary component of the dish.

One could alsoargue there are issues with wine pairing as well, with the waitstaff able to assist the customer with a wine that works well with the dish they want (or a dish that works well with the wine they want).

Similarly dining at high end restaurants is a great way to sample expensive wines without having to buy a slew of bottles trying to find out what you like.

Getting pampered by waitstaff is a value added service as well. Same with ambience. Your typical male economist may not think much of this, but his female dinner date is surely paying attention and is more impressed by this than with takeout.

Ability to send an overcooked or undercooked pice of meat back to the kitchen is also an issue.

In short, a cheap takeout place is about a convenient home meal replacement, while an expensive restaurant, at least one that delivers the goods, is about a luxury experience undeliverable with takeout (or delivery).

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