One night in Alsace

[Steve Plotnicki]

Fat Guy - The issue isn't morality, bias, prejudice or anything else as such. The issue is how the market traditionaly values something versus how it is currently valueing the same item. That real estate is worth approximately 10 times the rent roll is a longheld ratio. That musical copyrights are usually valued between 6-8 times the publisher's net income stream, is long held as well. And my guess is if we were to do the research, there has traditionally been a correlation in price between three star restaurants, and the restaurants in the categories below three star. The issue I have raised is whether that ratio has been changing recently? And there seems to be a number of people who have claimed that it is.

When I was in Oxford last February, for our last night there we ate in town. We had time to kill before we were to meet our dinner guests and we walked around the area where we were eating (it's where Le Petit Blanc is so I'm sure someone can fill in the street.) Since we were thinking about eating Indian, we checked out all the Indian restaurants on the street. There were 3 or 4 of them. Not remembering the exact cost, the one at the bottom of the street priced their chicken curry at X. And the next place, which was slightly up the hill from the first place charged 50p more. By the time we got to the top of the hill, the price of chicken curry was something like 2 pounds more expensive then at the bottom of the hill. And the decor of the restaurant went from standard issue Indian to slightly posh. All the space of a block and a half.

That is the issue that I raised. And it was really Robert Brown's issue that he raised during the summer. Has something happened at the three star restaurants where they have changed the ratio of where their price point falls among the various choices of eating out? And if they have, for whatever reason, that doesn't sound arbitrary to me, it sounds purposeful. And the issue is, can it be maintained? Or are they redefining who the haute cuisine ritual is for? It's only after they make their motivations clear, that the market will either accept or reject their premise. Exactly the same way that the real estate market sometimes pushes mulitples above 10X. But history has shown that to be a temporary condition and the market ultimately crashes, and then it eventually resets itself back at ten.

[jayrayner]

Okay guys. We've done the theory. Let's move on to practise. Do any of YOU mind paying bug bucks for foodie experiences? and if so, what arer the thigns you don't mind paying it for? And has it been worth it - within your own moral universe?

[Fat Guy]

Marcus: So what do you think the profit margin is at a Michelin three-star restaurant? Tell us a number, and show me how any given restaurant is out of whack.

There is no extortion or undue exaction in the purely voluntary relationship between a Michelin three-star restaurant and its customers, and therefore no conceivable way to describe any aspect of the pricing structure as "gouging." It's easy to call anything that feels expensive "gouging," but it's not accurate. And as I said before, it's not as though these three-star restaurants are raking in money hand over fist. Many of them are struggling to break even at their current price levels. Were they hugely profitable, others would enter the arena and compete. As it is, nobody wants to because even with 3000% markups on some bottles of wine you can't get bank loans, you can't find investors, and you can't get all that rich.

[AdamLawrence]

When I was in Oxford last February, for our last night there we ate in town. We had time to kill before we were to meet our dinner guests and we walked around the area where we were eating (it's where Le Petit Blanc is so I'm sure someone can fill in the street

Walton Street, Jericho. Oddly, the cheapest of those Indians, the Bombay, at the top of the street, is the best. It's BYO. The others are standard-issue curry house crap.

From Your Oxford Correspondent.

[Fat Guy]

That real estate is worth approximately 10 times the rent roll is a longheld ratio. That musical copyrights are usually valued between 6-8 times the publisher's net income stream,  is long held as well. And my guess is if we were to do the research, there has traditionally been a correlation in price between three star restaurants, and the restaurants in the categories below three star.

Don't you see you're talking about two completely different concepts as between your first two examples and your third? Were you to continue the analogy you'd have to ask about a restaurant's gross versus its expenses, and there all you'd get is a valuation of the restaurant not a determination of the validity of its menu prices. Moreover, the ratios in real estate and publishing are simply based on the anticipated income stream from an investment. There is no investment when it comes to buying food; it's just a simple purchase of a consumable that can never be resold, banked, invested, or anything else.

[Andy Lynes]

Yes, please, concentrate everyone. This man has an article to research after all.

(I'm putting this bit in brackets so that I can pretend it doesn't really count as yet another a comment that doesn't directly address Jay's actual question. But. Prices for 2 and 3 star menus have actually gone down compared to their early 90's level. Marco Pierre White was charging £75.00 plus supplements of say £20.00 for dishes of foie gras and sea bass at Hyde Park Hotel (3 Stars). Gordon Ramsay now charges £65.00. John Burton Race used to charge £50.00 for two courses when he had 2 stars at L'ortolan. I'm not sure what he charges in London now but The Square (2 stars) charges £55.00 for 3 courses, as does Petrus).

[cabrales]

Were they hugely profitable, others would enter the arena and compete. As it is, nobody wants to ...

Steven -- Obviously, a chef has to have a certain cuisine before he has a chance to receive three stars. It's hardly as though new entrants into the three-star arena can *choose* to play there.

[Steve Plotnicki]

Jay - To be consistent with some of the things I wrote in the snobbery thread and the Arpege thread, the amount of money I am willing to "overpay" for a three star meal is directly proportionate to how big a statement the restaurant is able to make. To me, I find the 300 euro tasting menu price at Arpege at the point of it almost being outrageous. But I think that Passard has a clear and concise point of view that I am interested in hearing. So I don't mind going back to keep experiencing it until I am sated. I use the same approach to other things that hold great personal interest for me like music. I can listen to a CD 200 times in a row until I am at a level of understanding as to why the musicians made many of the choices they made. Or as I described in my review of Taillevent, if I want some pampering and luxury along with my artisanal veal chop then that is a good choice. But I have no tolerance, or desire to pay a large sum of money just for something that purports itself at being a three star meal, but doesn't have the requisite soul or feeling to move me in the way that a place like Arpege moves me. My meal at L'Ambroisie last year was like that, as was my meal at Guy Savoy this past February, although a very good meal, failed to move me to the point where I can say the 250 euro truffle tasting menu is worth the money. It isn't. And in my book, nobody is a bigger culprit of the high price/not intersting food school at the price they charge then Ducasse. They should put him in the overpriced food museum.

Fat Guy - You keep trying to characterize our objections to current three star restaurants as if we are making value judgements. We're not. We are just saying that in many ways the meals aren't worth it. With "worth it" being defined as the cost of one of those meals when compared to the cost of meals at lesser places.

[Fat Guy]

Okay guys. We've done the theory. Let's move on to practise. Do any of YOU mind paying bug bucks for foodie experiences? and if so, what arer the thigns you don't mind paying it for? And has it been worth it - within your own moral universe?

After basic middle class American expenditures -- such as rent, utilities, clothes, cable TV, dog food, a pathetically small percentage of income saved, etc. -- I spend just about 100% of what I have on dining out. And on the whole I'd have to say I've found better value at the extreme high end of the pricing spectrum than at the next levels down. When I shell out $600 to dine with my wife at a place like Ducasse -- something I'll do maybe once a year, and that's assuming some pretty lowly wine -- what I get is an evening that I remember and savor forever. Half that much money spent at Chanterelle buys me an enjoyable but forgettable meal. Knock off another $100 and you're in the realm of the totally undistinguished middle-market restaurants. I'd much rather have one meal at Ducasse than three meals at any of those places. I find that value picks up again when you get into the cheap eats area -- there's a lot of good stuff out there for less than $20 per person. So my eating tends to bounce between the two extremes, especially when I'm the one paying. If some newspaper wants to send me to review an undistinguished bistro, I'm happy enough to do it, but I wouldn't be likely to spend my own money there.

[Fat Guy]

Were they hugely profitable, others would enter the arena and compete. As it is, nobody wants to ...

Steven -- Obviously, a chef has to have a certain cuisine before he has a chance to receive three stars. It's hardly as though new entrants into the three-star arena can *choose* to play there.

Not so. There are three-star restaurants like Taillevent where the chef is undistinguished relative to his three-star peers. And there are tons of two-star restaurants with chefs who are talented enough to produce food at a much higher level than Taillevent, but nobody wants to fund them in three-star ventures. Still, your point goes to show that the average consumer of a three-star meal is often willing to pay a certain premium for a big-name chef.

[Fat Guy]

"worth it" being defined as the cost of one of those meals when compared to the cost of meals at lesser places

How is that a meaningful comparison? That's the same old bad argument that's trotted out to go up against any luxury item where the price differential versus the next best thing seems big as a matter of raw numbers. I fail to see how you can enjoy a meal at Taillevent yet adhere to that line of reasoning.

[John Whiting]

SteveP writes:

Chez Pannise offers their Monday menus at a low price because it's the slowest night of the week.

Why do you insist on reading the minds of people you don't know? Of course Alice picked Monday because it was a slow night; and yes, the ingredients are less expensive. But these were the elements that made it possible to offer a bargain night without losing money, not the motivation for doing so. I've known these people for forty years. You have to believe me.

[marcus]

Fat Guy -- I was not intending any comment on the profitability of 3 star reastaurants today, although I suspect that with a few exceptions they are quite profitable. I've also seen articles about how much going from 2-3 stars raises the value of the business. I was objecting to the concept that a business should price its product at the highest price that a customer is willing to pay and that this makes good economic sense.

[Fat Guy]

I was objecting to the concept that a business should price its product at the highest price that a customer is willing to pay and that this makes good economic sense.

If the restaurant is full every night, I can't see how it could make sense to do it any other way. A three-star restaurant isn't a manufacturer, where you can maybe increase volume by lowering prices. There are X number of tables that will each accommodate one party per night. The only jiggering you can do with the price/volume equation is maybe lower your wine prices to stimulate more wine sales, or offer attractively priced tasting menus to cut your food costs. But when you go from 3000% to 300% on your markup you need to sell a lot more wine to make up for it -- probably more than people will drink. Now if a restaurant consistently has empty tables but keeps its prices high, this might eventually become an untenable situation, or not, depending on the specifics of the situation. But this doesn't seem to be what's happening. And while a three-star can charge a lot more than a two-star, it also has to spend millions on silverware and other crap in order to get that rating. Some never recover from that expenditure. I don't think, for example, that Ducasse -- whose prices are at the extreme high end -- is running a single profitable haute cuisine restaurant. They're all subsidized by hotels. So when you go there you should consider yourself the recipient of a nice subsidy from an anonymous billionaire because if you had to pay for the real cost of the meal you'd be out an extra couple of hundred dollars!

[Steve Plotnicki]

J.W. - I'm not citing any particular reason for her doing it. The fact that she would like to do it, and the fact that she can afford to do it, and the fact that Mondays are slow enough to do it are all discreet facts. Yet they are subsumed within each other upon her reaching a conclusion. If her lease was up and her rent was being raised by a factor of four, she might feel differently about it, or she might be forced to change her policy regardless of her personal desires. I'm just pointing out that it takes more then personal desire to achieve many of these things. The ducks need to line up as well.

Fat Guy - You're just saying that worth it should never be defined by anything else then the market value at the time the question is asked. Like Marcus said, that's a simplistic view. There has been a ratio the dow jones average and luxury items like wine for a century. If that ratio changes, asking why is a valid question. For example, right now the stock market is in the crapper but the price of first growth Bordeaux has stayed high, even gone higher and the ratios are off. It's the same with real eatste. And the answer as to why is that people have pulled there money out of the market and invested it in hard goods and real estate. So those prices are inflated compared to the historical ratios. You either want to realize that or you don't. And when Marcus and I use the word "worth," that is what we mean.

[marcus]

Fat Guy -- I don't think that any of us really understand the economics of 3 star restaurants and I don't believe that analyzing hearsay is going to get us there. I would comment that despite Veyrat's famous debts he still has managed to open a second restaurant, keeping each open only 6 months of the year, which is truly a deluxe situation for him. My main point remains the same, pricing to the highest point that the market will bear is not good economics. You need to consider your total customer set over time. You know that repeat business is essential. You may keep the restaurant full for some period, but the backlog may erode, regular customers may go elsewhere and suddenly the restaurant isn't full any longer, and you can't get your customers back.

[cabrales]

Not so. There are three-star restaurants like Taillevent where the chef is undistinguished relative to his three-star peers. And there are tons of two-star restaurants with chefs who are talented enough to produce food at a much higher level than Taillevent, but nobody wants to fund them in three-star ventures.

Steven -- Taillevent is the *only* three-star in France where the chef is not as important as the owner/dining room supervisor. Even at Grand Vefour and Ledoyen, with their histories, there are significant chefs. And Le Squer of the latter and J-G Klein of L'Arnsbourg are only less well known because they are relatively new three-stars.

That many two-stars have better cuisine than Taillevent only suggests that Taillevent should be demoted, like many other three-stars. It does not suggest that two-stars should be elevated. Obviously, a chef cannot rely on obtaining three stars -- see Dutournier, Roellinger to date, Chibois -- from Michelin, as your earlier post so directly suggested. As to your reference to talent, that is in the eye of the beholder. And your reference to there being "tons" of two-stars chefs who would be sufficiently talented is amusing to me. You appear to have a more generous notion of who is talented, with respect to culinary matters, than I do.

[Fat Guy]

Marcus: I agree with that. It's not a situation of taking each customer, sitting him down before the meal, and saying, "Okay, let's talk about what this meal is worth to you." You have to pick a price that will be sustainable over a certain period of time. Even within the microcosm of a week you have to make sure you can keep your restaurant full on Tuesday and not just Saturday, and within the context of a year you have seasonal variations but you usually stick with one price. So yes, the good businessperson takes the long view, but when you take the long view it's still the same question: What's the most I can charge?

[cabrales]

As I have mentioned previously, profit maximization does not necessarily require that a restaurant be full. For example, using even rudimentary economic principles, where a restaurant is not facing perfect competititon, but is in oligopoly or monopoly mode (the latter, if one assumes that a cuisine can be unique), the profit maximizing price is determined under different criteria than if one were under perfect competition. Even under perfect competition, the number of covers that is ideal may not match the number of seats available in a restaurant.

[Fat Guy]

Cabby: I said "talented enough to produce food at a much higher level than Taillevent." I don't see that as being difficult at all. Any chef currently installed in a restaurant with even one Michelin star should be up to the task. Ducasse stamps out three-star restaurants with 30-year-old sous-chefs at the helm. I simply don't believe it's the case that the number of three-star restaurants is limited by the available pool of chef/restaurateur talent. It's limited by a lack of investment capital and by the number of customers willing to spend that kind of money. Talent plays a role in the creation of a three-star restaurant, no doubt, but there are more talented chefs in France than there are three-star restaurants.

[marcus]

Fat Guy -- I still don't agree. The question is not what's the most that I can charge, but how can I best conduct my business. Look at restaurants like Astrance and Regalade. Both could easily charge more and remain full, even over the long haul. But both realize that they are building up tremendous backlogs of good will and very large satisfied customer sets. One can correctly claim that customer satisfaction has long term financial value, but it still remains a different approach than profit maximization.

Cabrales -- I am sceptical that the statistical assumptions that underlie economic theories relating to profit maximization apply to a single small business providing a non-essential and non-standard product operating in one location with a limited customer set.

[Fat Guy]

Look at restaurants like Astrance and Regalade.  Both could easily charge more and remain full, even over the long haul.  But both realize that they are building up tremendous backlogs of good will and very large satisfied customer sets.

Good will is nice. A lot of good will is nicer. But there's a point at which building good will becomes gratuitous.

[cabrales]

Cabrales -- I am sceptical that the statistical assumptions that underlie economic theories relating to profit maximization apply to a single small business providing a non-essential and non-standard product operating in one location with a limited customer set.

marcus -- Your description of a single supplier providing a product (it is not critical that the product be essential) that has some demand and that is non-standard (i.e., for which there are no meaningful substitutes) and of some customer set (the customer set need not be large) is a good example of a monopolistic situation under basic economic theory. I am not saying that simple models apply to the three-star restaurant context, but just that these models suggest that the quantity of the product offered should be below the quantity that would apply if there were multiple suppliers of a standardized product (one of the conditions for perfect competition).

Again, at the risk of being repetitive, my point is merely that there is an undue focus on whether a restaurant is at its capacity. That does not necessarily guarantee profit maximization. A restaurant could very well (and legitimately) choose to price higher, earn a greater margin per customer and serve fewer customers (in absolute number, regardless of restaurant size).

Separately, I would like to take issue with the notion that restauranteurs should be "generous". It is nice if they are, but an absence of gifted dishes and low pricing relative to demand should not be held against a restaurant. Why should chefs not charge what the market supports, including prices that might dissuade some diners from visiting the applicable restaurants? We never ask Prada why dresses are priced relatively expensively, nor JP Todd why its bags are not more reasonably priced. Why demand that a chef provide more than what the diner ordered, or provide low prices? A restaurant has to maximize profits, like any other business. If a chef chooses not to select that as his goal, the more power to him. However, to expect anything other than profit maximization is to demand more of chefs than from any other segment of our products/services sector.

[vivin]

I am still trying to go thru the various sub sets of discussions going on here, but as to the original query:

My friends quote me saying - I would rather eat at under 10 USD per person or over 100 USD per person. Nothing in between is worth it. These are not hard limits, of course (these days even a Subway meal is close to 10 dollars). The 100 USD would be 150 except for the existence of Babbo (that continues to serve 4 star food at 2 star prices). What allows higher end places charging a lot more to deliver a much better food/service experience ? I do not think the reasons are that hard to see.

What is the upper limit of what I am ready to pay - For a once in a long time experience (like at the ADPA earlier this year) - I would not blink at rather large sums. My wife thinks that if and when we hit the 1000 USD per person figure, she might start to worry.

We would rather pay big sums of money for great food experiences than blow 10K for a set of drapes. The same argument applies to high-end music equipment. The kind of money people see fit to spend on expensive cars is much more than what we spent on our music collection and equipment. However, the same people who buy BMWs look at us like we are nuts. It is just that we choose to spend our money somewhere else.

[Fat Guy]

Exactly, Vivin. For example, I have no appreciation of cars whatsoever. I'm a car ignoramus. It doesn't bother me. I happily accept the designation. I have no innate appreciation, and I've never bothered to acquire it. Some people are like that with food; I'm like that with cars. I say things that make car people cringe, like how I have a used Plymouth Voyager minivan and I can't understand why people think their fancy SUVs are better. I mean, my minivan has got to be the most pragmatic and versatile vehicle on the road. It's comfortable, it handles well enough, and it gets decent gas mileage. The dog loves it. I can park it on the street in Manhattan and nobody will steal it and I don't care if people put dents in it because it's going to the junkyard in a few years at which point I'll get another one for under $10,000. Lucky for me I don't envy people with high-end SUVs, so I can use my money elsewhere. Sports cars I sort of see the appeal of, though it's just not that great for me. When I was more affluent I had a bright red car with many, many horsepower and chrome wheels that everybody commented on. It didn't offer me appreciably more gratification than I get from my minivan, and the trunk was too small. Maybe I'd like to drive a Dodge Viper for half an hour, but it wouldn't be worth anything to me to do it -- I wouldn't pay, say, $50 to do it. And with the $50,000 or so price differential between my minivan and, say, a loaded Toyota Land Cruiser, my wife and I could eat two three star meals a week every week for a year.