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> But they will, they will go down the street But... why? To save a couple bucks on a burger? This is a serious question. Is this really how consumer behavio

> But they will, they will go down the street But... why? To save a couple bucks on a burger? This is a serious question. Is this really how consumer behavior works in the restaurant industry? Restaurant food isn't actually a commodity. A burger from one place can be quite different from a burger at another. Even at the low end -- I much prefer McD's to the other fast food joints. Atmospheres can be very different as well, even at the low end. Etc. This is not at all how I behave. I have two local bars. I like both way more than all the other bars. I have one local brunch place I like way more than all the other brunch places. All 3 places can & have increased prices. In one case substantially. I go anyways. Granted, I have more expendable income than the average American. But this is even how I behaved when I was on a pretty tight budget during grad school -- a few regular places and I went as much as I could within my budget. Maybe I'm just a weirdo?

djbebs 5y ago
Price changes do work...
lotsofpulp 5y ago
> Maybe I'm just a weirdo? Yes. The data clearly shows the vast majority of the restaurant business be a low margin, high risk venture. That must mean a majority of the customers are very price sensitive. I can easily afford to pay double and triple what most restaurants charge today. But I’m not going to pay it because I can easily make a meal at home of better quality for less, just have to add in my time and energy. Moreover, I don’t trust restaurants to not cut corners most of the time due to the volatility of their business. But that’s all personal preference. I suspect most people just have limited budgets, so increased prices means less times they go out.
- throwawaygh 5y ago
  > The data clearly shows the vast majority of the restaurant business be a low margin, high risk venture I think what I was suggesting was that perhaps restaurants as an industry have systematically under-estimated consumers' willingness to pay. You see this in software pricing discussions a lot, actually: small shops that leave a lot of money on the table by not charging enough. Is it really so crazy to imagine that restaurants might be doing the same thing? > That must mean a majority of the customers are very price sensitive. It's this "must" that is always asserted but... I think might not be as true as we assume? I am not a restaurant owner, so what do I know.
  - lotsofpulp 5y ago
    Restaurant owners aren’t leaving money on the table because they’re charitable people. There’s so many restaurant openings and closings for so many decades that I think it’s a pretty good indicator of their price dynamics. Software is B2B many times and has efficiencies of scale that restaurants don’t.
    - throwawaygh 5y ago
      I'm not suggesting thy are charitable. I'm only suggesting that they are not omniscient. > There’s so many restaurant openings and closings for so many decades that I think it’s a pretty good indicator of their price dynamics. This may well be true. But I mean, if this were the case, a common failure mode for restaurants would be full tables right up until bust, right? Low prices due to unprofitable margins would mean lots of demand. Losing money on every head, but lots of heads. But, IME, in my area, restaurants that fail in the first year or two do not fail in that modality. They usually have some of the lowest prices, but empty seats none-the-less. Because the food isn't good, or the menu is weird, or they don't do marketing right, or the location is wrong, or a million other things. But in my area at least I basically never see restaurants will full tables fail.
      - lotsofpulp 5y ago
        >I'm not suggesting thy are charitable. I'm only suggesting that they are not omniscient. Sorry, I was just being snarky. I meant that there's so market is so "deep", that it surely represents the true prices. >But I mean, if this were the case, a common failure mode for restaurants would be full tables right up until bust, right? Low prices due to unprofitable margins would mean lots of demand. Losing money on every head, but lots of heads. They're not unprofitable margins, they're low margins. Restaurants have a high fixed cost, but low marginal cost. Every day they have to have some amount of staff and food, but once they have sold enough for the day to cover those costs, each extra doesn't cost them much at all due to the relatively low price of food and water and electricity and gas (compared to the labor). I'm not sure on the statistics of the exact failure mode, but I do know that your run of the mill restaurant can't charge people $30 per entree and get away with it. There is a cap on how much people are willing to pay most places, with the exception being a select few that cater to the rich, have a certain ambiance, reputation, quality of food, etc. >But, IME, in my area, restaurants that fail in the first year or two do not fail in that modality. They usually have some of the lowest prices, but empty seats none-the-less. Because the food isn't good, or the menu is weird, or they don't do marketing right, or the location is wrong, or a million other things. But in my area at least I basically never see restaurants will full tables fail. You're right that there are many reasons for them failing, but many can't work on things like marketing location, or quality food, because they can't charge enough money for those expenses in the first place. Celebrity chefs can come out swinging with high priced menus, but not the vast majority who might be doing it because it has low start up costs and they don't need credentials. Where I live, entrees cost $15 minimum, and with tip, you can budget at least $20 per meal per person. Even with that, I doubt the cooks are making anywhere near a desirable living, and I doubt the restaurant owners are making a decent living, especially if they're paying rent.
parineum 5y ago
Consider the quality of a McDonald's burger/meal. It's not hard to find something considerably better and marginally more expensive yet they are still in business.
asciident 5y ago
Yeah I think you're unusual. I and my family each have price points in my head, once a restaurant charges more than that on the total line, we look for other options. $5 for good enough lunch, $10 for a great lunch, $20 for gourmet lunch, $20 for a great dinner, $40 for gourmet dinner.

djbebs 5y ago

Price changes do work...

lotsofpulp 5y ago

> Maybe I'm just a weirdo? Yes. The data clearly shows the vast majority of the restaurant business be a low margin, high risk venture. That must mean a majority of the customers are very price sensitive. I can easily afford to pay double and triple what most restaurants charge today. But I’m not going to pay it because I can easily make a meal at home of better quality for less, just have to add in my time and energy. Moreover, I don’t trust restaurants to not cut corners most of the time due to the volatility of their business. But that’s all personal preference. I suspect most people just have limited budgets, so increased prices means less times they go out.

throwawaygh 5y ago
> The data clearly shows the vast majority of the restaurant business be a low margin, high risk venture I think what I was suggesting was that perhaps restaurants as an industry have systematically under-estimated consumers' willingness to pay. You see this in software pricing discussions a lot, actually: small shops that leave a lot of money on the table by not charging enough. Is it really so crazy to imagine that restaurants might be doing the same thing? > That must mean a majority of the customers are very price sensitive. It's this "must" that is always asserted but... I think might not be as true as we assume? I am not a restaurant owner, so what do I know.
- lotsofpulp 5y ago
  Restaurant owners aren’t leaving money on the table because they’re charitable people. There’s so many restaurant openings and closings for so many decades that I think it’s a pretty good indicator of their price dynamics. Software is B2B many times and has efficiencies of scale that restaurants don’t.
  - throwawaygh 5y ago
    I'm not suggesting thy are charitable. I'm only suggesting that they are not omniscient. > There’s so many restaurant openings and closings for so many decades that I think it’s a pretty good indicator of their price dynamics. This may well be true. But I mean, if this were the case, a common failure mode for restaurants would be full tables right up until bust, right? Low prices due to unprofitable margins would mean lots of demand. Losing money on every head, but lots of heads. But, IME, in my area, restaurants that fail in the first year or two do not fail in that modality. They usually have some of the lowest prices, but empty seats none-the-less. Because the food isn't good, or the menu is weird, or they don't do marketing right, or the location is wrong, or a million other things. But in my area at least I basically never see restaurants will full tables fail.
    - lotsofpulp 5y ago
      >I'm not suggesting thy are charitable. I'm only suggesting that they are not omniscient. Sorry, I was just being snarky. I meant that there's so market is so "deep", that it surely represents the true prices. >But I mean, if this were the case, a common failure mode for restaurants would be full tables right up until bust, right? Low prices due to unprofitable margins would mean lots of demand. Losing money on every head, but lots of heads. They're not unprofitable margins, they're low margins. Restaurants have a high fixed cost, but low marginal cost. Every day they have to have some amount of staff and food, but once they have sold enough for the day to cover those costs, each extra doesn't cost them much at all due to the relatively low price of food and water and electricity and gas (compared to the labor). I'm not sure on the statistics of the exact failure mode, but I do know that your run of the mill restaurant can't charge people $30 per entree and get away with it. There is a cap on how much people are willing to pay most places, with the exception being a select few that cater to the rich, have a certain ambiance, reputation, quality of food, etc. >But, IME, in my area, restaurants that fail in the first year or two do not fail in that modality. They usually have some of the lowest prices, but empty seats none-the-less. Because the food isn't good, or the menu is weird, or they don't do marketing right, or the location is wrong, or a million other things. But in my area at least I basically never see restaurants will full tables fail. You're right that there are many reasons for them failing, but many can't work on things like marketing location, or quality food, because they can't charge enough money for those expenses in the first place. Celebrity chefs can come out swinging with high priced menus, but not the vast majority who might be doing it because it has low start up costs and they don't need credentials. Where I live, entrees cost $15 minimum, and with tip, you can budget at least $20 per meal per person. Even with that, I doubt the cooks are making anywhere near a desirable living, and I doubt the restaurant owners are making a decent living, especially if they're paying rent.

parineum 5y ago

Consider the quality of a McDonald's burger/meal. It's not hard to find something considerably better and marginally more expensive yet they are still in business.

asciident 5y ago

Yeah I think you're unusual. I and my family each have price points in my head, once a restaurant charges more than that on the total line, we look for other options. $5 for good enough lunch, $10 for a great lunch, $20 for gourmet lunch, $20 for a great dinner, $40 for gourmet dinner.