The Restaurant Business

Chapter 3

Copyright © 2010 by John Wiley & Sons, Inc. All Rights Reserved

THE RESTAURANT BUSINESS

• The word “restaurant” covers a broad range of types of operations

• The term “food service” is even more far reaching and will be more clearly defined in later chapters

• The most important thing for you to take away from this module is how different restaurant types are classified and characterized

THE VARIED FIELD OF FOOD SERVICE

• Restaurants are those public places that specialize in the sale of prepared food for consumption on- or off- premise

• Sometimes, it is not even easy to discern what is and what is not a restaurant

• Restaurants (and the larger food service industry) represent an important part of North American society – for most of us it is an everyday activity

• Think of your last “restaurant occasion” Breakfast? Lunch? Dinner? Coffee? Snack?

THE VARIED FIELD OF FOOD SERVICE

• Together, Americans spent over $550 billion in food service establishments in 2009, which is double the amount spent some 20 years ago

• That represents 48% of American’s “food dollar” (or food budget)

• This amount is expected to increase into the foreseeable future as Americans continue to seek convenience and activities that suit the typical lifestyles

THE VARIED FIELD OF FOOD SERVICE

• There have been some recent “dips” in food service performance but overall the industry has shown steady growth for the last 10-15 years

• Some of the major trends that are occurring are increases in “off-premise” dining, new and emerging segments (such as “fast-casual”), and a blurring of the commercial and on-site sectors

• Overall, the industry continues to grow and is striving to meet consumers ongoing needs

THE VARIED FIELD OF FOOD SERVICE

• Some segments of the industry with which you should be familiar include:

• Quick-service restaurants (QSR)• Fast Casual• Casual dining• Fine dining• Others include ice cream, coffee shops, food

courts, etc.

CLASSIFICATIONS

• In the next segment, we will classify them into “dining” and “eating”

• There are many ways to classify restaurants in the industry. We can classify them by price, service level (of type), menu, etc.

THE DINING MARKET VS. THE EATING MARKET

• Restaurants serve both social needs (dining) and biological needs (eating); some restaurants serve one or the other while some serve both markets

• The dining market is defined as including those restaurants that primarily serve our social needs

• People will eat in restaurants (that makeup the dining market) to escape from boredom, to socialize, to be waited on, to have a different experience, and for convenience

THE DINING MARKET

• Certain elements of the dining market distinguish these restaurants from the eating market: the importance (and sophistication) of service, the customer, and the occasion as well as others

• The most obvious example of a restaurant type that makes up this market is fine dining

• Fine dining restaurants tend to be characterized as: full-service, small, independent, high-quality food and service, nice ambience, and expensive

THE DINING MARKET

• Largely due to the economy, the demand for fine dining has decreased, resulting in the increasing popularity of “casual upscale” dining

• In addition, some well-known fine dining restaurants have even closed

• Casual upscale restaurants are characterized by sophisticated menus, excellence in food, strong management (typically run by chains), and good wine lists but are slightly less expensive and more casual than traditional fine dining restaurants

THE DINING MARKET

• Examples of casual upscale chains would include Houston’s, Mimi’s, Cheesecake Factory, and McCormick & Schmick’s

• Because of their ambience and the overall experience that they provide, many of these concepts appear as if they are independent restaurants

• Interestingly, because of the success of these chains, they have been the targets for acquisitions by other companies

THE EATING MARKET

• The eating market is differentiated from the dining market in that it caters more to meeting biological needs

• The best (and most obvious) example would be quick-service restaurants or QSR

• The other primary segment is the family dining segment which offers table seating and full service (examples, Denny’s, IHOP, and Cracker Barrel)

THE EATING MARKET

• The eating market can be sub-divided into (1) on-premise and (2) off-premise dining

• Off-premise can be further classified into:– Takeout (or take-away)– Drive through– Delivery

• Together, these three areas have grown tremendously as a result for customers’ demand for speed and convenience

CONTEMPORARY POPULAR-PRICED RESTAURANTS

• When we use the term contemporary popular-priced restaurants, we are referring to the restaurants that cater to the eating market

• As you will recall, the two primary segments in this market are QSR and Family Dining restaurants

• We will also include casual restaurants which provide a bridge between the eating and dining markets

THE EATING AND DINING MARKETS

Fine DiningCasualDining

FastCasual

QSR

UpscaleCasualFamily DiningVending

QSRS

• The Quick Service segment is a very unique segment for a variety of reasons

• QSRs have a very long history, are among the most productive types of restaurant operations in the entire industry and have a history of leading the industry in terms of innovation

QSRS

• Even though many believe that QSR begins and ends with McDonald’s, it is generally believed to have begun in the 1920s with White Castle and then began to develop in the 1940s with Carl’s Jr. and In-N-Out

• The industry has undergone many changes in the past 60 years including the domination by chains and the emergence of McDonald’s as the leader

QSRS

• The QSR industry is characterized by a variety of things including:

• Location • Limited menus• Sales volume• Fast service• Types of employees

(many part-timers)

• Use of unskilled labor• Key roles for unit

managers• Highly competitive

menu prices• Chain domination• Simple unit, complex

system

QSRS

• Some changes have occurred over the last few years including:

• Going more “upscale”• Companies diversifying (changing again?)• Introduction of healthy items• Expansion of menus• Nontraditional locations

FAST CASUAL

• Full-service quality in a quick-service format• Hybrid that combines convenience with higher-

quality ingredients• Examples include Panera Bread, Baja Fresh, and

Qdoba Mexican Grill

MIDSCALE RESTAURANTS

• Midscale restaurants include those restaurants that have simplified production systems (requiring lesser skilled employees), specialized menus and moderately priced food

• This category of restaurants include:• Family restaurants• Cafeterias and buffets• Pizza (sit-down)

CASUAL RESTAURANTS

• Casual restaurants are a “step-up” from Midscale Restaurants

• These restaurants have become more popular in recent years driven by their popularity with a number of demographic groups

• These restaurants are characterized by a relaxed atmosphere, more varied menus and reasonable prices

CASUAL RESTAURANTS

• Casual restaurants include:• “Mainstream” casual restaurants such as

Applebee’s, Chili’s, Ruby Tuesday, and Friday’s• Specialty restaurants such as those focusing on

steak (Outback), seafood (Red Lobster) or pasta (Semolina’s)

• Ethnic restaurants include, among others, Chinese, Italian and Mexican

• Theme restaurants including Hard Rock Cafe

HIGH CHECK AVERAGE RESTAURANTS

• High check average restaurants also known as fine dining restaurants, have a special place in American society

• Fine dining restaurants are solidly established as serving the dining market

• The “average check” begins at about $30.00 and goes up from there – a notable $200 meal in New Orleans comes to mind

HIGH CHECK AVERAGE RESTAURANTS

• These restaurants are typically found in high income and densely populated areas (although there are exceptions)

• Several large US cities are known for fine dining including New York, Chicago, and LA

• They are also typically found in large tourist areas such as New Orleans, Vail, and Las Vegas

HIGH CHECK AVERAGE RESTAURANTS

• Although this type of restaurant is in decline, some are as popular as ever: Excelsior, Restaurant L, Seasons, Aujourd’hui, Julien, and L’Espalier

• They cater to people going out for special occasions (birthdays and anniversaries), celebrations (end of the school year) and business meals

• Even some of these have become more casual (although not necessarily less expensive)

RESTAURANTS AS PART OF A LARGER BUSINESS

• The restaurants in this category do not really fit neatly into another category

• These restaurants exist to serve another business or businesses

• Examples include: restaurants in retail stores such as Nordstrom and Lord and Taylor, and restaurants in shopping malls

• We differentiate these because they are not “free standing”