Comment by throwawaygh | Hacker News Reader

Comment by throwawaygh | Hacker News Reader

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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 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?

> 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.

> 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.

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.

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.

>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.

People often open restaurants as a hobby project. They like the idea of running a restaurant, maybe because they like the idea of being sociable or cooking for other people.

But they literally have no idea how to run a profitable restaurant. Often they know next to nothing about business in general, and have no idea how to estimate costs/profits.

Plenty of other business types operate on a similar semi-amateur basis, including book shops, record stores, independent garages, hairdressers and beauty parlors, craft and art shops, realtors, and others.

Sometimes they get lucky, or they're started by people who have actual business talent and can deal with challenges creatively.

But often they don't, which is why they fail.

Many also pay very poorly. Both super-professional and super-unprofessional owners can nickel-and-dime their employees, but for different reasons.

Failure is bad because these kinds of small businesses often add life to a community. But there's little or no support or training for them. It wouldn't take much to help them avoid the more obvious mistakes, give them more stability, and turn them into more of a local and national resource.

Bingo.

A lot of people who open businesses aren't doing so to open a business. And most of them don't even know it. A lot of them are trying to open a clubhouse they charge people to be at.

You see it often in the board game/comic/hobby sector. Someone gets it in their head that they could open a shop and it will be great and blah blah blah. But yeah, it goes south because what they really wanted was to play games for a living.

They want to be a business owner, but they don't want to run a business. If that makes sense.

> 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.

There have been many startups that have opened and gone bust in the past 15 years. I don’t think I would say that startups have terrible profit margins. In the context of tech startups the understood answer is that their product sucked. I think the same is true for most restaurants - I think running a restaurant is underrated and if the food is bad or atmosphere is terrible people just won’t go no matter how low the price is.

If restaurants were struggling solely due to low profits they would look a lot more like MoviePass or WeWork. Incredible demand but unsustainable business model. Most restaurants are more like Blockbuster. No demand while trying maintain fixed costs.

Tech startups are not very comparable to restaurants. Restaurants have limited capacity, limited ability to scale, usually pay rent (so any success can be partially sucked up by the landlord), and have limited times of the day and week to earn most of their money.

To support terrible profit margins (relative to the risk), I also would look at the financial status of restaurant owners/operators, who by and large, aren't in the higher end of the income scale. Almost no one tells their kid to grow up and aspire to be a cook or open their own restaurant (unless they already have a a trust fund).

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.

Price changes do work...

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.

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