The Restaurant Business Chapter 3 The Restaurant Business

THE RESTAURANT BUSINESS The word “restaurant” covers a broad range of types of operations, some of which students may be unaware of The term “food service” is even more far reaching and will be more clearly defined in later chapters The most important thing for students 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 (e.g. Dream Dinners) 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 $500 billion in food service establishments in 2006. This amount has doubled just since the early 1990s That translates to well over $1 billion each day and 47.5% of the “food dollar” This amount is expected to increase into the foreseeable future as Americans continue to seek convenience and activities that suit our 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 There are many ways to classify restaurants in the industry. We can classify them by price, service level (of type), menu, etc. In the next segment, we will classify them into “dining” and “eating”

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. There may be some overlap between the two 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 In recent years, the demand for fine dining has decreased, resulting in the increasing popularity of “casual upscale” dining. Some well known fine dining restaurants in some cities 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 the Chart House Because of their ambience and the overall experience that they provide, many of these concepts appear as if they were 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 or QSR and Family Dining restaurants We will also include casual restaurants which provide a bridge between the eating and dining markets. We will discuss each of these in turn

QSRs The Quick Service segment is a very unique segment for a variety of reasons. You have all been consumers of “fast food.” Think about why you go you QS restaurants….. 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 in industry in new developments

The Eating and Dining Markets Upscale Casual Family Dining Vending E QSR Fast Casual Casual Dining Fine Dining

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. Others also started around this time including McDonald’s. 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)

QSRs (continued) The QSR industry is characterized by a variety of things including: 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

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”