The Season of the Switch, Part Two

[robert brown]

Before February 17 of this year, the day that the euro became the sole legal tender of France, the media raised the possibility that many businesses would use the changeover to take advantage of consumer confusion and unfamiliarity with the new coin of the realm by using this once-in-a-lifetime opportunity to raise prices. When I was briefly in France six weeks after the changeover, I felt a noticeably increase in the prices I was paying for food, both in the markets and in restaurants. Now that I have returned to France for an extended time, the increase in prices, irrespective of the fall in the U.S. dollar, feels more palpable and insidious than ever. To describe this new form of inflation, I coined the expression “Eurocreep. To describe the cheats who engage in it, I modified it slightly to “Eurocreeps.”

For us Americans, switching from francs, liras, pesetas, and so forth to euros is relatively easy given the similarity to dollar amounts. For a French person, especially an older one, the transition can be difficult, especially when one has to multiply by 6.5595 to arrive at the precise value in francs. On the shopkeeper level, I think this opportunity is what motivated the rise in prices we felt when shopping at the outdoor food markets.. In the haute-cuisine sector, however, my wife and I suspected that some chefs and restaurateurs, being given the opportunity to change their prices from francs to euros, said to hell with making an exact transition from francs to euros; let’s just make new prices in euros since nobody will know what our old franc prices were.

In order to document as best one is able how restaurateurs behaved in terms of prices in the transition from francs to euros, I selected several restaurants in Paris and compared their prices in 2001 in francs in terms of what would have been the price in euros to their 2002 prices in the new currency. To do this, I used this year’s and last year’s Guide Michelin and noted the price of the most expensive “menu”, as this was the only cost that is a constant one, unlike an a la carte meal that varies from diner to diner. For the sake of consistency and as a check, I also noted the price that each restaurant reported to the Guide Gault-Millau.

I restricted my survey to well-know Parisian restaurant; all of the three-star establishments except L’Ambroisie, which does not offer a prix-fixe menu, and a few bistros and other restaurants that eGullet members like to go to:

1. Grand Vefour. This three-star restaurant somehow went from 990 francs (150.92 euros) to 221 euros. However, the Guide Gault-Millau lists their most expensive “menu” for 2002 at 178 euros. Who knows what to believe? Did the restaurant up the price considerably or add a more ambitious menu?

2. Carre des Feuillants. A two-star restaurant that kept its “menu” price the same (134 euros) according to Gault-Millau, but raised to 158 euros, according to Michelin.

3. Chez Pauline is a classic bistro without any stars, but frequented by many tourists. It raised its menu from 28.11 euros to 40.

4. A Souseyrac, a well-know bistro serving cuisine of Southwest France virtually held steady, going from 28.20 euros to 30 euros.

5. Helene Darroze, a one-star, actually lowered its top “menu” price from 129.58 to 109.75 euros.

6. Arpege. The three-star restaurant of Alain Passard reported the same 214 top “menu” price to both guidebooks. Wait, however, until you go there. (More about this below).

7. Jules Verne. This two-star restaurant in the Eiffel Tower kept their 2001 110 euro menu unchanged this year.

8. Petrossian, a one-star restaurant, had a 600 franc (91.50 euros) “menu” that jumped to 136 euros in the Michelin, although they reported a price of 53 euros to Gault-Millau. Why would they have done that?

9. Taillevent, the revered-by-Americans three star, seems to understand the economic times. Their “menu” price is unchanged at 130 euros.

10. Lucas-Carton. The classic Art Nouveau restaurant of Alain Senderens upped the ante for its top prix-fixe from 129.58 euros to 229.

11. Alain Ducasse at the Plaza-Athenee. He must count on Americans as he actually lowered his “menu” cost a bit from 259 to 250 euros.

12. Ledoyen. The latest Parisian three-star (this year) raised its “menu” cost from 109.75 euros to 192 (195 in Gault-Millau), but with wine included this year. No doubt there is a “third-star” premium involved.

13. Pierre Gagnaire. The three-star chef may have started thinking about when he went bust in St.-Etienne. His most expensive “menu” price took a nosedive from 366 euros to 215 in the Michelin and 168 in the Gault-Millau. What’s going on? Perhaps he thought over 300 euros for a prix-fixe was no longer a good idea.

14. L’Astrance. Only one star, but the hottest thing going in Paris. In 2001 they reported a 57 euro menu with wine included (not very good wine if my meal there a few weeks ago is an indication). This year they reported 75 euros. But wait until you read further on.

15. Guy Savoy. Along with Ledoyen, a newly-crowned three star in Paris. It posted only a three euro increase in its top “menu (171) to Gault-Millau, but 200 euros to Michelin. Savoy must not have known a third star was coming when he sent his information to Gault-Millau.

16. La Regalade. This revered bistro devoted to food from the Basque region kept its price of 30 euros unchanged.

The Eurocreeps may have seemed, on paper at least, busy at work, and as bad as they appear, here’s some more disheartening information gathered fresh from the field. Every restaurant I have been to in the past month, with the exception of La Regalade, has raised its top “menu” price since the publication of the 2002 Guide Michelin. The expensive menu at Arpege is 300 euros, not 214; the “menu surprise” with wine included at L’Astrance is now 90 euros instead of 75. In Nice, Le Chanteclair restaurant at the Hotel Negresco reported a top “menu” price of 90 euros. We paid 115; and the Hostellerie Jerome reported their “menu”(it has only one) at 44 euros when, in fact, they are charging 50 euros. (It almost goes without saying that they raised everything else they serve as well).

If I were a journalist being paid by a newspaper or magazine to research this matter, I am sure that every chef I would question about this insidious form of inflation (or price-gouging) would say that they are offering more in their menus than they did last year. I cannot believe this is happening now. Any chef who does it in these conditions (especially with their bread and butter Americans staying home) is a very bad businessman. Should the tourism decline continue, this could be very bad for serious dining in France. It appears that many chefs have painted themselves into a corner by offering less and charging more. Areas in which to cut back seem few. Meanwhile those of us whose lives are completely denominated in dollars are the ones truly getting less for more. However, there may be a short-term remedy whose implications are striking; indeed I can hardly believe that something so obviously placed and so unnoticed or remarked about exists. But if my reading of it is correct (and I see no other way to interpret it), its implications are profound.

Now turn to Part III: The Guide Michelin Price Policy: Can It Make Chefs See Red?

[cabrales]

Robert -- It's unclear to me that the Michelin Guide Rouge 2002 would offer an appropriate measure of post-euro-introduction prices. On page 4 of the 2002 Guide, there is a statement that "[l]es prix indiques dans ce guide, etablis en automne 2001, sont donnes en euros . . . ." (the prices indicated in this guide, established in the autumn of 2001, are furnished in euros . . . .). Given the timing of the later introduction of the euro (in 2002), the price increases from the 2001 Guide Rouge to the 2002 Guide Rouge likely reflect adjustments made without a desire to use the euro introduction as a shield.

[robert brown]

Cabrales, some of the price increases are so egregious that they have had to be done with malace aforethought even a few months ahead of the Euro-conversion day. It is hard to know, as I intimated with one or two restaurants in the list, if the jump was from adding a larger "menu" and pricing it higher, or if people were taking advantage of the conversion. It has to be the latter to a much greater extent. The fact of the matter is that some of these chefs have gotten greedy. What is really telling is the continuous raising of prices after Euro Day that I saw in every restaurant but one that I have been to this past month. These restaurants have bumped their heads against limits; they have no room to manuever. They can't raise prices and all they can do know is offer less service or use cheaper products.

[Beachfan]

Thanks for some great posts.

While the first post brought a smile (less Americans) the second one brought a tear to my eye. I had been factoring in the increase in the euro since last year (about 15%), but given these price increases, it seems more like 40%-50% in dollars.

Are these comparable menus? Including wine vs. excluding wine may not be the best comparison. It's hard to imagine a shift to sufficiently more luxurious menus warranting the price increase.

As someone whose gusto exceeds his budget, I choose a couple of places for a fabulous lunch (Le Grand Vefour is my current favorite). Any comment on prix fixe lunch prices at top places?

Given the raves, L'Astrance at 90 euros seems like a good bet vs. some of the other, more starred places.

It's hard to assess value at the top end. But since you seem to know prices pretty well, what would be your dining suggestions on a $500 per person splurge meal budget in Paris, assuming I want to go to 3 places at least. (it doesn't have to be strictly $500, that's ball park).

[Bux]

Of all the restaurants mentioned, l'Astrance is the one where a big jump was to be expected. The menu prices when it opened were exceptionally low and diners had to be aware they were getting the bargain one might hope to get from a new restaurant desparate to attract a following. Most of the others have no excuse.

We should note that Robert reports from areas that live on high flying tourists. We were in the Bas Languedoc for exactly one week and did not experience major increases. There's a lot of tourism in the region, but most of it is in the form of summer residents with second homes of a modest nature. We did not eat in a starred restaurant and several of our restaurants were not listed in Michelin. Some were new--at least one opened the week we ate there. Thus it was impossible to notice any gouging. As many of our menus ran about twenty dollars for a prix fixe three courses, I could only marvel at what we got even when it was just fair quality.

I did notice that prices were always in nice round numbers and that even the tolls on the highway were in ten cent increments. I assume some rounding up all over had to be in effect if only for simplicity if not out of greed. In Spain where we spent a little more time and money on food, we found it remarkable how exactly many restaurants may have calculated their prices. Some places seemed to round up to even numbers, but it was not uncommon to see dishes listed at 19.83, 15.03, 33.06 and a menu at 57.10 euros, (7% tax not included) for instance, at l'Esguard or similar pricing at both neighborhood restaurants such as l'Olive and starred restaurants such as Jean-Luc Figueras in Barcelona. Looking at the cartes right now, I can see some of those same numbers repeated. Obviously they are the exact conversion from some nice round number in pesatas. None of this was any surprise after stopping to pay tolls of a buck fifty-four, I mean 1.54 euros. Actually the 1.04 euro toll as the oddest I think I've ever paid--it cam out to $0.99 on my credit card bill. Fortuantely these tolls could all be paid by credit card at an automatic machine no different than an ATM and I didn't have to fling pennies in a basket or wait for change.

[tony h]

In the year or two before the change over a substantial number of businesses/shops displayed both territorial and euro specific prices simultaneously to allow peope to get used to the new sensible system. Does anyone know if restaurants did the same?

[Bouland]

For a French person, especially an older one, the transition can be difficult, especially when one has to multiply by 6.5595 to arrive at the precise value in francs. On the shopkeeper level, I think this opportunity is what motivated the rise in prices we felt when shopping at the outdoor food markets. In the haute-cuisine sector, however, my wife and I suspected that some chefs and restaurateurs, being given the opportunity to change their prices from francs to euros, said to hell with making an exact transition from francs to euros; let’s just make new prices in euros since nobody will know what our old franc prices were.

During the transition to euros, banks, stores, and other business gave away small disposable calculators for converting francs to euros and visa versa. No one had to calculate the exchange in their head. I don't think the complexity of the conversion caused the "eurocreep".

Except hypermarchés, gas stations, and a few other outlets, most prices in the pre-euro days were in whole francs. I think stores have taken the opportunity to round the conversions up to the nearest whole euro with the excuse that it simplies the transaction.

As your hard work shows, high end places have taken the opportunity to become even more high end. Being a reluctant believer in the free-market system, I think that some of these restaurants may in the end price themselves out of existance. Out in the countryside where there may be a smaller tourist trade, the locals are less likely to support massive price increases, especially if their income isn't increasing at the same rate.

[Jonathan Day]

What follows is anecdote rather than systematic research. But George Stigler said that "the plural of anecdote is data", so it may be worthwhile.

My impression is that the prices of ordinary goods and services in France increased sharply as a result of the conversion to the Euro: bread, fruit and veg, meat, dry cleaning, newspapers and the like.

I was there over the introduction of Euro notes and coins, at the start of 2002. For awhile, prices were simply translations of Francs into Euros, and something that had sold for FF 100 was now EUR 15.24. The autoroute toll from Nice to Cannes had been FF 15.50; I think it went to EUR 2.36. I heard that some government ministry was monitoring prices to make sure that shopkeepers didn't take advantage of the Euro to increase prices.

Initially the locals complained that the Euro was inconvenient -- in part because it was tricky to get hold of the currency, especially coins, in part because the new coinage was badly designed (the 1, 2 and 5 cent pieces are almost identical), and in part because the prices of things were in new, smaller units.

By Easter, when I returned, there were plenty of Euros in circulation, and people had grown used to the new currency. And prices had been rounded, almost always upward, and not just to the nearest whole Euro but sometimes up to the next unit of 5 Euros. That autoroute toll was now EUR 2.40. Everything seemed more expensive. Later that spring I was in Germany, Belgium and the Netherlands; there was widespread complaint about the same behaviour. Apparently the ministry of Euros had closed its doors.

My guess is that competition will eventually reduce prices for ordinary expenditures, though this could take a long time. For "destination" restaurants it is less clear. These are not substitutable goods: it isn't as if you can find an Astrance in Hackensack, New Jersey, so the choice is not "do I go to a cheap Astrance or an expensive one?" but "do I go at all?" Hence you would expect so-called price inelastic demand: within some interval, changes in price don't result in equal changes in demand for the product.

It is also not easy to compare prices at "destination" restaurants, since the products are so different. Is a menu at the Grand Vefour the same as one at Arpège, so that price comparisons between the two are meaningful? Probably not.

Finally, I would guess that the decision to visit "destination" restaurants involves a complex bundle of purchases. After all, the definition of 3 Michelin stars is "it's worth travelling a long way to this restaurant". If you are sitting in Chicago or Marseille contemplating a week in Paris with a focus on top restaurants, you will add up the price of flights, hotels and the like. The restaurant price is usually not the major factor here, especially for the Chicago traveller, and that leaves some scope for price increases.

[robert brown]

JD and Bouland, thanks for your perceptive and cogent comments. You are both on the money in what you have written. I would just like to reiterate, if I didn't put it across clearly, that while euro price increases in themselves may not deter an Anglo-Saxon from dining at fancy Paris restaurants, I was baffled to see on-going price rises in restaurants in an environment where there is:

A decrease in the purchasing power of the dollar overseas.

A fear of flying in light of terrorist activities and the threats of them.

A boycott of France by the religious group that partakes ardently in its gastronomy.

And a world-wide destruction of wealth (or feeling of wealth) that is causing many miliions of people to rein in their personal travel and entertainment spending.

[Steve Plotnicki]

Robert B. - My comments on France having bad PR isn't limited to their poor relationship with Jews at the moment. I think the entire Le Pen fiasco did more damage by making them look like a bunch of intolerant racists. The French already had a reputation for being xenphobic and being intolerant to Americans which displayed itself as rudeness. The whole Le Pen thing just tipped it over the edge and it brought certain feelings that people surpressed because France is such a wonderful place to visit to the surface. The Jewish issue was just a specific set of feelings by a defined group of people.

But in addition to this, I think that the reputation of Europe as a whole took a turn for the worse with the American public for many reasons including their lukewarm support for our efforts in Afghanistan, and their failure to be clear about objecting to the use of suicide bombing as a diplomatic tool. And the fact that neo-conservatives were getting a large percentage of the vote all over Europe didn't help them at all. Add to that stories about the increases in petty crime and you have an atmosphere that is rifer to make people want to stay away. Plus there is always the been there done that factor as most people have already been to Europe.

[cabrales]

Cabrales, some of the price increases are so egregious that they have had to be done with malace aforethought even a few months ahead of the Euro-conversion day. It is hard to know, as I intimated with one or two restaurants in the list, if the jump was from adding a larger "menu" and pricing it higher, or if people were taking advantage of the conversion. It has to be the latter to a much greater extent.

Robert -- Under your revised theory, dining consumers would be deemed rather inept at discerning price changes even when they are made in Francs. This notion of pre-euro-introduction price increases would generally be more easily detected by French and non-French diners, as all then applicable prices would have been in Francs, no?

On two of the restaurants for which you drew prices from the guides:

-- Carre des Feuillants: As of February 2002, shortly after the introduction of the euro, the Menu "Idees de la Saison" (the only menu degustation shown) was at 138 euros. It included, among other things: Capuccino de chataignes a la truffe blanche d'Alba (chestnut capuccino with white truffles from Alba), Gateau de Topinambour a la Truffe Noire (Jerusalem artichokes cake-like item with black truffles) and Brie de Meaux Truffe.

-- Neither Michelin nor G-M was necessarily very accurate with respect to Guy Savoy's menus. The Menu Prestige Autumne 2001 was 1150FF or euro 175. It included, among other things: Soupe d'artichaut a la truffe noire, brioche feuilletee aux champignons et beurre de truffes (signature artichoke soup with black truffles), and homard breton et pommes de terre au corail, saveurs de Condrieu et petite brochette de legumes (Brittany lobster and potatoes with corail, flavors of Condrieu wine and a little skewer of vegetables). However, the more expansive Le Festin 2000 (it's called that, but this was taken in 3Q/4Q 2001) was at 1500 FF or euro 229. This price remainded largely unchanged during 1Q 2002. It included the artichoke soup, Ragout de Lentilles et Truffes (ragout of lentils and truffles), foie gras de canard poele aux Chanterelles, jus au grand caraque, croustillant aux poivres et amandes (pan-fried duck foie gras with girolles, jus, crunchy elements with pepper and almonds). During 1Q 2002, the menu "Autour de la Truffe" was 290 euros.

I have performed an analysis of L'Ambroisie, which I visited both during Dec 2001 (when the menu was the Autumn 2001 menu, with both FF and euro prices) and during end 1Q 2002 (when the menu was the Winter 2001 menu, when only euro prices were shown and after the euro introduction):

-- Before: Feuillantine de langoustines aux graines de sesame, sauce au curry (langoustines with sesame and curry sauce) 440 FF or 67.08 euros

-- After: Same dish, 71 euros

-- Before: Fricasse de homard aux chataignes, coulis de potiron et sauce diable (Fricasse of lobster with chestnuts, pumpkin-like coulis and sauce diable) 680 FF or 103.67 euros

-- After: Fricasse de homard sauce civet, puree Saint-Germain (Fricasse of lobster with sauce civet, puree Saint-Germain) 110 euros

-- Before: Soupe cremeuse de noix de Saint-Jacques a la melisse et au lait de coco (Creamy soup of scallops with lemongrass and coconut milk) 410 FF or 62.50 euros

-- After: Soupe de noix de Saint-Jacques en parisienne de legumes (Soup of scallops with a parisienne of vegetables?) 68 euros

-- Before: Carre d'agneau de Lozere en croute de noix, poelee d'artichauts (Lamb from Lozere with a crust, pan-fried artichokes) 480 FF or 73.18 euros

-- After: Carre d'agneau en nougatine de truffe, etuvee de legumes d'hiver (Lamb with a nougatine of truffles, vegetables of winter) 80 euros

-- Before: Filet de boeuf de Salers poele aux echalotes grises, bordelaise a l'anchoise (Filet of Salers beef, pan-fried with grey shallots, bordelaise sauce with anchovy) 530 FF or 80.80 euros

-- After: Same dish 82 euros

-- Before: Fromages frais et affines (Cheese) 160 FF or 24.39 euros

-- After: Same item 26 euros

-- Before: Tarte fine sablee au chocolate, glace a la vanille (Chocolate dessert, vanilla ice cream) 160 FF or 24.39 euros

--After: Same dish 26 euros

-- Before: Assortiment de desserts et patisseries (Various desserts and patisseries) 200 euros or 30.48 euros

-- After: Same item 34 euros

Based on the above, I would be comfortable concluding that the price increases at L'Ambroisie were very minor around the time when the euro was introduced.

Also, note that economic theory (as you know, highly simplified for this purpose) suggests that pricing at the marginal cost of providing a product is not generally profit-maximizing when conditions that prevail are not those indicative of perfect competition (e.g., fungible products). Restaurants are likely analogous, again simplified, to oligopoly (unduly simplified, mutually dependent producers with somewhat differentiated products) or perhaps, in the extreme for a small group of diners, a monopoly (a sole provider). In either scenario, the profit-maximizing price is higher than that under perfect competition, and the profit-maximizing quantity of the good/service to be offered is lower than that under perfect competition.You might view profit maximization as an inappropriate objective for a restaurant; it might be inappropriate as the sole purpose of a restaurant, but it is not inappropriate, in my mind, as a primary purpose.