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  • Efficiency and Restaurants

    Posted by Carl from Chicago on October 30th, 2016 (All posts by )

    Since I eat out a lot and have frequented restaurants of every stripe over the last few decades I am always interested in restaurant efficiency. The restaurant industry is brutally competitive and it always disturbs me when I eat at a restaurant and enjoy it but then fear that the restaurant won’t survive because it lacks a critical mass to make enough money.

    There is an Italian restaurant called “Grassa” in Portland (you can see their logo, below). They are attached to another restaurant called “Lardo”.

    These restaurants serve high-end food (not luxury cuisine, but far from fast-food) and alcohol but have communal tables and always seem to be packed with a line out the door. They are different because their menu is a large signboard (dishes are frequently updated) when you enter the space and you order your food at a central register and they hand you a “flag” to bring with you to your table. Then when your food is ready, they bring it out to you and take away your flag and you eat your meal. Drinks are brought out first (and appetizers) and you can also flag down one of the servers to order more drinks (although most people tend to have one drink with their meal and then leave, based on a few times that I’ve sat at the restaurant). You can also order your food “to go” at Grassa, as well.

    This model drives peak efficiency at the restaurant. There are many fewer tables than you would need at a “standard” restaurant due to the communal standing tables and the food comes out as soon as it is available (the servers don’t have to take orders, they just serve the food as soon as it is up and return back to the kitchen area, unless they are bussing a table that just left). They don’t have to take reservations or mess with any of that complexity, either.

    Customers tend to eat and go since they’ve already paid for their meal (on the front end) – they don’t have to wait for the waiter to bring them their bill and to settle up. This is very efficient on the “back end” of the process. The restaurant doesn’t have to worry about missed reservations because they don’t take reservations in the first place.

    All of this would be moot if the food wasn’t very good, but Grassa serves excellent pasta and various associated Italian dishes and appetizers and salads. We haven’t had a bad meal there yet.

    At a high level, here are the efficiencies that this restaurant drives over the “standard” model:
    1. Use of the “order first, pay first” model means that they need far fewer servers in the restaurant since taking orders and accepting payment are two primary tasks of these employees
    2. The average time a patron takes up a seat is far lower because the time from seating to taking the order and getting it to the kitchen is eliminated as well as the time to receive a bill and settle up the payment
    3. This model eliminates the reservation model, which reduces complexity (and accompanying employee roles) and also eliminates the loss from waiting for patrons that are either late or who do not follow through on their reservations at all
    4.The food arrives to patrons faster and hotter since the servers are primarily driven to serve it quickly since they do not take orders
    5. From the perspective of a customer, the tip is often less because you are paying up front and getting the food delivered. Maybe this is controversial and you are supposed to tip “the same” but I saw a tip jar with a few dollars in it and I don’t think very many patrons tip in this model
    6. The fact that the restaurant has communal tables, faster turn-over and less total employees means that you can thrive in a smaller space and on a smaller investment, and your break-even point is lower

    What are the downsides of this model? Here are my speculations:
    1. Patrons order less alcohol, and alcohol is often the key driver of profitability in any bar or restaurant. I’ve seen various places on the internet where they say the margins on drinks (just taking into account the cost of alcohol) is as high as 80%
    2. Not having reservations as an option is going to scare off some people who don’t have a lot of time for dinner and don’t want to wait around. Since they don’t have an attached bar, there isn’t a place for people to drink while they wait in line. Likely some sort of future enhancement would be to let people get in a “virtual” line (likely waiting for table space if the restaurant is packed) after they check in if they were nearby, could be powered by a smart phone text (I’ve seen this elsewhere)

    All in this seems to be a winning model for a medium to semi-high end restaurant. Restaurants already do the self busing method on the low end (McDonalds) and Chick-fil-A has a pretty cool method where they give you a cup and bring out your order to reduce the line and waiting near the central cashiers and kitchen.

    Cross posted at LITGM

     

    11 Responses to “Efficiency and Restaurants”

    1. Mike K Says:

      “alcohol is often the key driver of profitability in any bar or restaurant. ”

      I have always believed this. One very busy restaurant that I don’t patronize anymore was The Chart House. as their model was no reservations and long waits for tables so the drinks added up.

      I don’t know how they are doing as I have not been in it for years. I avoid Dana Point Harbor in summer as the traffic is bad but in winter I go to the restaurants weekly. Just not the Chart House.

      I don’t have my boat anymore so also less trips to the harbor.

    2. Mike K Says:

      I looked again at the web site and they now take reservations. Maybe they noticed a drop off in business.

    3. Sgt. Mom Says:

      There is a restaurant building around the corner from us which has gone through – at least four different iterations and owners in the twenty years that we have been living in the area. Possibly five, since we have lost count. Proof indeed of the truism about restaurants lasting about three years … either they prove themselves, or go under. The local newspaper restaurant reviewer wondered in print if the building is under some kind of curse, or something. The longest-lasting enterprise was good for about ten years, then got sold … and went downhill. The current iteration was a second location for a long-established cafe established in the thirties halfway across town… which did very well under the previous management. But in the last six months apparently after selling to someone else … not so well. Closed, pending reorganization. All of us cynical locals are just waiting for the new paint job, and reopening under new management…

    4. Brian Swisher Says:

      I always smile when I drive by Lardo, as it reminds me of the character “Don Lardo Baluna del Lobby y Corridor” from George Macdonald Fraser’s comic novel “The Pyrates”.

    5. Whitehall Says:

      Odd that there are many low cost but decent restaurants here in Abu Dhabi and alcohol is banned in all but a few attached to hotels. Low labor costs is one big difference I suppose that offsets the markup on alcohol they can’t exploit.

      Difference markets and difference rules of course but it does make one wonder. Delivery is also widespread here with a very modest fee of a buck or two equivalent

    6. Mike K Says:

      “All of us cynical locals are just waiting for the new paint job, and reopening under new management…”

      I had a friend whose business was developing restaurants, and a few nightclubs, getting them going and successful Then he would sell the business.

      The buyer almost always failed in a couple of years. I was never sure if this was a life cycle or if the people who buy others’ successful businesses are usually losers.

    7. Mike K Says:

      “if the people who buy others’ successful businesses are usually losers.”

      I should add that the buyers often did not realize that a restaurant is a 12 hour a day business and the owner has to be there as most mangers will steal you blind.

    8. Jonathan Says:

      I had a friend whose business was developing restaurants, and a few nightclubs, getting them going and successful Then he would sell the business.

      I think that’s a common business model. Start a restaurant/club, build it up and promote it, get good reviews then sell. Then you move on to the next project. That’s much less a high-wire act than the conventional restaurant biz model is.

    9. Gringo Says:

      Mike K
      I should add that the buyers often did not realize that a restaurant is a 12 hour a day business and the owner has to be there as most mangers will steal you blind.

      While I consider it a possibility that “most mangers will steal you blind,” I suspect a bigger reason is that restaurants are a low-margin,high-hour operation. As a high school and college student I worked for a number of family-owned restaurants. Each had multiple family members working a MINIMUM of 12 hours a day. Most were working 100+ hour weeks. If you have to pay a manager who isn’t a family member, and thus have to pay a market wage, the profit margin will be cut- in many instances into the loss column.

      There is a reason why very few family-owned restaurants survive beyond the first generation. The heirs, who probably grew up working long hours in the family’s restaurant, realize that the money-making ability of the restaurant was dependent on family members working long hours. As they were not willing to put in the long hours, they cashed in and sold the restaurant.

    10. Mike K Says:

      ” If you have to pay a manager who isn’t a family member, and thus have to pay a market wage, the profit margin will be cut- in many instances into the loss column.”

      Oh, I agree but I know a few instances, usually doctors of course, who hired managers without knowing the business well and got taken to the cleaners.

      If you have run the restaurant fir years and know the business well, you can work somebody you know ell into position.

      What you can’t do is buy a restaurant as an investment and expect it to be a passive one. I suspect that is why many buyers of restaurants set up by entrepreneurs who do this as a business fail in about two years.

    11. Subotai Bahadur Says:

      Just speaking from experience.

      My dad was a first generation immigrant from China [12 years old and alone when he came] who learned the restaurant business from the ground up. He owned several of them during his life and was able to retire from the last one and spend the last few years of his life fishing.

      Restaurants are good businesses for immigrants, because you can start out with minimal capital, hire and pay family to keep the money in the family, and can substitute hard work for capital and connections.

      I grew up in those family restaurants, starting by helping bus tables at 4 years old. Customers thought it was cute. My dad always wanted more than that for me, but his last restaurant was kind of a fallback. If nothing else, he could leave it to me.

      He was convinced that I did not want it, at all. If I could not get the military career I wanted [and which he opposed] I was aiming for law school. I did not want to live working 12-15 hours a day, 6 days a week, in temperatures of 109-118 degrees. That is what I did to pay for college, and although law school did not happen for other reasons, I decided that it was preferable and more profitable to spend 8 hours a day fighting felons than working in restaurants. For immigrant families [especially Asians], most of the next generation will move up the economic ladder, and the restaurant dies when the first generation gives it up. There are some exceptions where a son or daughter will take over, but most of them last one generation. And that is a good thing.

      Multi-generation, multi-owner, non-chain restaurants are a rarity.

      Subotai Bahadur