1. The Restaurant Business
Chapter 3
The Restaurant Business
Copyright © 2010 by John Wiley & Sons, Inc. All Rights Reserved

2. 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

3. 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?

4. 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

5. 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 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

6. 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.

7. 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”

8. 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

9. 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

10. 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

11. 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

12. 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)

13. 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

14. 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

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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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)

22. 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

23. 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

24. 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

25. 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

26. 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)

27. 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”