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Why Restaurants Are So Fucked

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Re: Why Restaurants Are So Fucked

#121

Post by PaulDavisThe1st »

dehrmann wrote: post #85
nickff wrote: post #12

This post misses the forest for the trees. The reason for the low margins in the restaurant business is the lack of differentiation. Their products are largely commoditized, so they have no competitive advantage or market power. Peter Thiel discussed this in a lecture for YC, where he said that you can work very hard to make the best restaurant in a city, but it doesn't give you much pricing power, because the second…

> lack of differentiation. Exactly. The French Laundry can charge $325+ for dinner because it is arguably one of the 15 best restaurants in the country. It is incredibly differentiated.

That level of differentiation, though, is only available to on the order of 20 restaurants in the entire country.

Re: Why Restaurants Are So Fucked

#122

Post by PaulDavisThe1st »

paypalcust83 wrote: post #25
jariel wrote: post #13

Earlier quoted context omitted.

The issue is not 'why they have thin margins' - the issue is their inflexible operating ability mostly due to fixed costs, specifically rent. If restaurants had 20% margins they would still be facing collapse. Rent is a huge portion of costs vis-a-vis most other businesses that can be run 'anywhere' whereas restaurants need prime locations.

My great-grandfather was in the restaurant business back east, but my grandfather saw how unprofitable it was and became a mechanic rather than continue the family business. (He got fired once as a short-order chef in the 50's from a Howard Johnsons for cooking too well. ) Restaurants must relocate to cheaper areas like warehouses and shift to a delivery-first distribution model, which Uber, Lyft, and Google Express…

Wait, so now the plan is (a) reduce rent overhead (b) pay someone to deliver all the food? You're betting that the increase in costs implied by (b) exceeds the possible drop caused by (a) ? Good luck!

Re: Why Restaurants Are So Fucked

#123

Post by supernova87a »

Unless you're a really special restaurant with significant differentiation capabilities and people come to eat at your place irrationally, here's a tip:

Restaurants are never the ones making the money. They enable others to make money. Usually, landlords.

And generally, be cautious about going into a business where people want to do it because it's their passion. It means you're going to competing with people who are willing to work for nearly $0 because it's their passion.

Re: Why Restaurants Are So Fucked

#124

Post by RandallBrown »

triceratops wrote: post #50

> Drinks for instance cost us more than at the grocery store — but we can’t exactly go get 20 cases of pop per day, so we don’t have much choice. I didn't understand this. It may not be feasible to buy 100 cases of pop at a regular grocery store, but isn't Costco/Sam's Club set up for that? I do think it comes down ultimately to real estate prices. Major metros in North America have gradually become unaffordable for…

I'm not sure why you couldn't buy 20 cases of pop per day at a big grocery store. There's more than 20 cases of each flavor at my local grocery store and there's lots of other grocery stores nearby that have the same selection.

Also, you're right. Costco exists too.

Re: Why Restaurants Are So Fucked

#127

Post by dehrmann »

PaulDavisThe1st wrote: post #116
dehrmann wrote: post #75

> So, why are the margins so bad anyway? Well, it starts with the fact that the industry as a whole shot itself in the foot when it started competing on price. Started? You're always competing on price until you hit a certain status. Restaurants are low-margin if they offer a commoditized product. They're also up against time. People lose interest in restaurants, and if they can't maintain enough business a few years…

And yet this is not (so) true in Europe, where (1) people eat out less but (2) people pay more for restaurant food. What's the difference? Is it really just too many food vendors thinking that the $1 happy meal is their competition? Or what? EDIT: a better formulation, from a reply I wrote below: I'll restate it somewhat differently: eating out in Europe more accurately reflects the full cost of everyone involved mak…

1 and 2 can both be true and margins can still be low because of higher rent and/or labor costs.

> Is it really just too many food vendors thinking that the $1 happy meal is their competition?

Maybe if you're a Burger King, but most restaurants aren't really competing with fast food. It's more like the Italian place is competing with the Sushi place in the same price bracket (I'm guessing, but 3x-5x more than fast food).

Re: Why Restaurants Are So Fucked

#128

Post by karmelapple »

duxup wrote: post #70
thinkingkong wrote: post #3

Restaurants are fucked but the underlying costs associated with real estate are insane. Where I live, treasured restaurants close at a regular cadence due to rent hikes. Nobody can afford to run a restaurant at the prices being charged here. The end result is a cocktail that is $25 or a pint thats $10. High real estate prices are essentially forcing every commercial space to become a chain restaurant unless they can…

Yeah I wonder about the real estate situation. There is a retail development near me that sat largely empty for years. They kept it up and clean, but word was the prices were sky high. It still has a huge number of vacancies ... we're talking 5+ years after it was built. Meanwhile other retail places had shops closing, word was the rent kept climbing. I almost want to suggest that the local city come up with a concep…

Harvard Square in Cambridge, MA, has trended towards being one of these places in recent years. Restaurant or other long-standing business can no longer afford the rent, and it’s either replaced by nothing or a bank. It says the lifeblood out of the area.

From what I understand, the owners of the buildings are holding out for the high cost renters... like a bank.

A city government could provide incentives to ensure these places don’t sit vacant, and that formerly thriving areas stay interesting and have shopping for most people, not just those with massive wallets or looking for a bank.

Re: Why Restaurants Are So Fucked

#130

Post by 2019-nCoV »

fouc wrote: post #114
542458 wrote: post #99

Earlier quoted context omitted.

A few things here: - In NA, if you’re “just a kitchen” you’re essentially fast food/takeaway - and putting myself directly into competition with McDonalds+etc doesn’t sound like an awesome proposition to me. (Obviously this will vary by culture and local competition) - Signage, fancy tables and dishes are way cheaper than you’d expect at commercial scales, especially once you amortize them over their estimated lifesp…

Yeah I'm really talking about a sole proprietorship/self-employed sort of restaurant. The owner is also the cook. (that level of scale) Would be nice if there were more smaller businesses. And less barriers to entry.

The food truck would be the closest NA incarnation of that.
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