Food for Thought - Dec 10, 2009 - Mark R. Vogel - [email protected] - Mark’s Article Archive
SPACE FOR RENT
I used to cook at an upscale Italian/Mediterranean restaurant. I am now a regular patron and routinely refer them business. Whenever I dine there the owner warmly greets me and always informs me that “the table is yours for the evening.” While on the surface this may seem like a platitude, in actuality he is offering me something quite valuable. In essence, he is permitting me to leisurely occupy my table for as long as I want. Were I to choose to accept his gracious offer to its fullest extent, it would mean depriving him of the opportunity to generate additional sales from that particular table. And while I never overstay my welcome, I know he genuinely would allow me to.
Generally speaking, as a business increases production of its product, (assuming there is a commensurate demand), overall profits will rise. Enterprises respond to increased demand by augmenting manpower, equipment, or extending their hours of production. Thus, a factory blessed with escalating sales may hire more workers, procure more machines, or add an additional shift. But there are limitations and one of the most significant ones is the physical space. Our booming factory for example, can only fit so many machines and employees within its physical boundaries.
A business can acquire more space but this is perilous. Purchasing more land or buildings will only be performed with some assurance that the surge in demand will be sustained. Physical expansion is always an expensive venture and can become a fiasco in the face of fleeting demand. Once obtained, supplemental land or buildings are a huge liability if sales start to fall. The problem is that physical space cannot be temporarily expanded. A restaurant can’t create an additional room on the spur of the moment on a busier than average night. Thus restaurants, and most other enterprises for that matter, have a fixed amount of space in the short run.
Another predicament for restaurants is that their space restrictions aren’t merely a function of the facility’s size, but the fact that the customers themselves are taking up most of their space. A factory’s space is not compromised by the presence of the people consuming the product. But in restaurants, particularly at dinner time, and especially at fine dining establishments, the patrons are present and linger to consume the product.
They’re not just purchasing a meal, they’re purchasing an experience. If the restaurant is at capacity, every customer is preventing or delaying another customer’s patronization. It’s a quirky paradox that because of space limitations, the very people making you money are the same people limiting you from making more money.
So for example, let’s take a hypothetical restaurant with 100 seats. Let’s assume on a given night there are 300 prospective guests. Depending on the restaurant’s hours they could theoretically serve all 300 if one third arrived for an early dinner, one third mid-evening, and the remainder for a late night supper. We’re also assuming they’re going to eat their meal and vacate the table in a reasonable amount of time. But suppose most of the clientele is disinclined to a 5:00 or a 9:30 seating. Suppose they desire to arrive during prime hours and worse yet, stretch out their meal and bask in the experience. Now, because of the patrons who object to an early or late dinner, as well as the “sitters,” (restaurant jargon for guests who like to dawdle), the eatery can only serve 200 of the possible 300. The failure to optimally “turn over tables” (serving multiple cycles of guests at the same table in one meal period), has reduced this establishment’s income. In essence they have not utilized their space efficiently, or in other words, have not maximized the revenue potential of their space. This is one reason lunch prices are lower than dinner prices. People don’t loiter at lunch; they order food to go or eat with alacrity and leave. High turnover results in more sales emanating from the finite amount of space, thus boosting earnings and lowering the per unit cost of production.
Eateries have a number of strategies for expediting table turnover. Generally speaking, the more preeminent the restaurant, the more likely people are there to “dine;” not just eat and run. Thus, upscale establishments simply charge more. You’re not just paying for the superior food, ambience and service; you’re also paying “rent” for the use of your table over a protracted period of time. Another tactic is to implement designated seating times with time frames. For example, a restaurant may have seatings at 5:00, 7:00, and 9:00 and inform you of the two hour curtailment when making the reservation. Simpler eateries may employ “early bird dinners,” or reduced prices that expire at 6pm in an effort to lure some peak-hour diners to off-peak times. This opens up more peak-hour slots and raises overall sales.
Some places will just tell you to hit the road. I was dinning at a French bistro in New York City one summer, seated at one of their outdoor tables. A line was forming for the fully packed restaurant and the outdoor tables were prime real estate. I suppose we were tarrying too long after the meal as the server, diplomatically but peremptorily, informed us that they needed to move things along. And finally, some establishments will less directly, but more rudely, accelerate momentum by rushing your service. You’ll be consuming one course while the next is arriving.
In summary restaurants, like all industries, have certain costs that must be overcome in order to stay viable, as well as grind out a worthwhile profit. Complicating matters is a fixed amount of space which caps revenue potential. The only stratagems are maximizing the space’s productivity or hiking the “rent” you pay for the use of that space. Harking back to my introductory example, it pays to be on good terms with the landlord. As in any good relationship, they’ll actually give you some space.
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