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Restaurant Economics

by Elaine Schwartz    •    Apr 10, 2011    •    220 Views    •    TIME TO READ: 1 minute

For a new restaurant in Chicago, Next, no one is sitting at the phone taking reservations. Instead, online, you can buy a ticket for a table seating 2 or 4 (not 3 or 5). According to Chicago Magazine, the tickets are nonrefundable, include the tip and tax, and extras such as wine.

Benefits?

  • No “underutilized” seats (capital) because a table for 4 has 4 paid for instead of the 3 people who might be dining.
  • No telephone reservationists (a labor saving approach).
  • Variable pricing, based on demand and costs. The owners plan to use peak pricing by charging more for the 7 pm Saturday reservation that everyone wants and less for 9:30 on Tuesday evening. Then, like airlines, prices can change as demand changes.
  • And finally, through the new software designed for this approach, they are changing the market structure for online booking; OpenTable, where most people book online, will have new competition.

With a waiting list of thousands, Next restaurant tickets are being resold on Craigslist and eBay.

The Economic Lesson

Proving again that economics need not be the dismal science, a restaurant can provide examples of capacity utilization, demand and supply, variable pricing, technological innovation, and competition.

Chef Achatz referred to diminishing returns in a recent interview when he said that he believed in small portions (and a 23 course meal).

 

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