OK, today we have a sampler of stories on one of my favorite topics, restaurants! First up, BusinessWeek has a story on Next, a new restaurant opening in Chicago that will sell tickets in advance (Next Up in Fine Dining: Pay in Advance, Mar 31). Because you pay up front for a prix fixe menu, the cost can vary by day of week and time of day. We wrote about Next almost a year ago (and the place still hasn’t opened!). The article points to some operational benefits to pre-selling tickets that go beyond just better revenue extraction as well as what Nick Kokonas thinks can be done with the concept.
The tickets will allow them to know how much Next can spend on its food budget. More importantly, by spreading diners evenly throughout the week and not getting pinched by late cancellations, they can keep a reasonably sized full-time staff employed, rather than rely on people to work mainly on Fridays and Saturdays. They won’t have to pay anyone to answer phones, either.
Kokonas has big dreams for his reservation system. He has employed two programmers to work on it full-time, and he hopes to spin the operation off as a separate company that will challenge the reservation hegemony of OpenTable, the restaurant software giant.
As I said, Next will offer a prix fixe menu. Over at the New York Times site, a restaurateur explains why his still new establishment has implemented such a pricing scheme (What Price Glory?, Apr 1).
Why prix fixe? Let’s talk money. In October and November, we were happy to see anyone walk through the doors, as we were green and untested. The traffic we generated for opening in winter was rewarding, sometimes nearing 100 people on weekend nights. We couldn’t help but notice a tendency for guests to enjoy the bread and amuse bouche and then order only the mussels kim chi or maybe the fried trout or chicken. Soup and salad was a favorite combo. The portions were generous. We took a perverse pride in satisfying guests with fewer than three courses. It was not smart business. …
Check average is key. From the beginning, every business plan was built on that all-important number. Traffic was unpredictable, weather the same, the economy was in flux, but the check was something you thought you had control over. You set the prices. If you feed 500 guests a week at $50 per person, your total is $25,000. If the average check were $75, the same number of people, with the same servers, same dishwashers, same insurance, same public relations budget, same rent, same costs almost down the line, that total becomes $37,500 a week. Everyone in the front of the house ends up with a better cut — servers and busboys and back runners and bartenders. And your restaurant becomes a more desirable place to work, so you get the pick of the litter. Everyone is happier.
This is an interesting take on demand management. If the front of the house is the bottleneck for the restaurant, tables will determine how much business the firm can do per night. However, a firm using an a la carte menu does not actually control what the customer spends. This is one of the interesting things that sets restaurant apart from other hospitality services. Once you are at a hotel, you can add a bunch of things to your bill ranging from room service to in-room movies. But those charges are generally secondary to the room rate, which the hotel locks in before your arrival. A restaurant cannot do that unless it moves a prix fixe menu.
Finally, the Wall Street Journal has an article on restaurant chains trying to tighten up their purchasing and supply chain management (Restaurants Test New Ways to Shop, Apr 1).
Starbucks Corp. wants to team up with other companies to buy milk, sugar and other essential food items. Darden Restaurants Inc., owner of the Red Lobster and Olive Garden chains, is moving to a system where it buys only what it knows it needs.
Such strategies, which are new to the restaurant business, come as chains are seeking ways to blunt the impact of higher prices for grains, meat, sugar and other essential ingredients.
“We’re seeing a level of sophistication in supply-chain management that didn’t exist five years ago,” says Dave Donnan, a partner in the consumer-products practice at consulting firm A.T. Kearney. “The separation of those that will succeed and those that will fail will be based on attention to detail.”
The most striking thing about the article is that none of the ideas discussed seem like rocket science. If anything, it is surprising that big, supposedly sophisticated operators are just taking these steps now.