An economist on menu choices

[Nathan]

"If you are in a good restaurant, try something that doesn't sound appealing. If it seems bad to most customers, it is on the menu for some other good reason, such as how it tastes."

http://marginalrevolution.blogs.com/

[Joe Blowe]

Direct link here.

Even more direct link here.

Speaking as a graduate in economics (whoop-dee-do), if you're in a good restaurant and you're not familiar with their menu or the cuisine, order the steak. Lowest markup (usually) of any item on the menu.

[BryanZ]

Direct link here.

Even more direct link here.

Speaking as a graduate in economics (whoop-dee-do), if you're in a good restaurant and you're not familiar with their menu or the cuisine, order the steak.  Lowest markup (usually) of any item on the menu.

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As a student of economics, I take issue with that statement. At a good restaurant you're not necessarily looking to maximize value via minimum mark-up over raw ingredients. Rather you're paying for the chef's ability to conceive novel flavors and the cooks' abilities to execute them at a high standard. In terms of utility, it's not coming from "value" in the colloquial sense, but more likely from a desire to enjoy food in a new and valuable (in the economic sense) way.

So I would tend to side with Nathan, if we ignore periphery factors such as diminished relative freshness due to slower product turnover. Besides, in a truly good restaurant that shouldn't really be an issue anyway.

[JasonTrue]

More precisely, the highest-priced items on the menu tend to have the lowest margin.

If the cost of ingredients is, say, $50 it's usually a hard sell to demand the usual 20-35% cost of ingredients, but you might sell that item for $100, and the pasta or salad that costs $2.00 in ingredients can sell for $10 or even $12.

Fast food is sometimes an even worse value, if you're looking from a cost of ingredients perspective.

However, I don't pick items on the menu based on "value." If I did, I'd stay home. I am usually buying a complete experience, not just food. On my "I'm just too tired to cook but not too tired to eat" nights, it might not be a very extravagant experience, and maybe I'll be price sensitive, but I'm not weighing the cost of ingredients heavily. On more celebratory occasions, I'm buying someone else's creativity, their indulgence, hopefully the conscientiousness of their staff, and leasing space and time, all at once.

[Carrot Top]

It's not only the food and service that have an value placed on them as defined by cost.

If you go to a very high-end, "talked-about" restaurant, you can preen yourself----oops I mean talk about it, with everyone that is interested (or even those who are not, if there is a high enough determination to do so ).

If you then order the most expensive thing on the menu, you get more bang for your buck in the stories you can tell. I think the term for this is "the reflexive jealousy factor".

(There actually used to be a saying . . ."he would dine out on his stories" or something like that. Perhaps economically, the dinners one can get invited to, and the cost of those dinners, based upon the stories of these more expensive dinners, would prove the initial dinner a tiny thing overall? )

[Nathan]

"If the cost of ingredients is, say, $50 it's usually a hard sell to demand the usual 20-35% cost of ingredients, but you might sell that item for $100, and the pasta or salad that costs $2.00 in ingredients can sell for $10 or even $12."

This is easily seen in wine markups.

As a general rule, the lowest priced wines are marked up the most....although many restaurants will mark up extremely well-known bottles less (to give the appearance of lower markups).

As the price of the bottle increases, the markup percentage usually decreases. In fact, it's not uncommon to see bottles at the very very high end ($800 plus) that are actually priced on the restaurant wine list at below retail. (the restaurant is still making money as they didn't pay retail)

[BryanZ]

If you then order the most expensive thing on the menu, you get more bang for your buck in the stories you can tell. I think the term for this is "the reflexive jealousy factor". 

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In the foodie community, however, this isn't the case. If we derive utility, however shallowly, from jealousy of others, then this would still tend toward Nathan's original post. An eG reader would probably be more interested in hearing about the duck testicle ragout than the surf and turf.

[Fat Guy]

"If you are in a good restaurant, try something that doesn't sound appealing.  If it seems bad to most customers, it is on the menu for some other good reason, such as how it tastes."

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Seems like a basic example of the contrarian principle at work. As Jack Lang recently observed, if you like pig's trotters chances are the butcher won't even charge you for them. This applies is all sorts of other contexts, for example if you want to get a reservation at a popular restaurant, usually all you have to do is be willing to dine at 5:30pm on Monday. If you actually prefer to dine at 5:30pm on Monday, that's even better.

[tsquare]

" As Jack Lang recently observed, if you like pig's trotters chances are the butcher won't even charge you for them."

Except when they are written about in all the newspapers and they are marked up to $4.99 per pond...

Edited January 17, 2007 by tsquare (log)

[highchef]

Joe wrote: "Speaking as a graduate in economics (whoop-dee-do), if you're in a good restaurant and you're not familiar with their menu or the cuisine, order the steak. Lowest markup (usually) of any item on the menu."

as a graduate in economics as well, it would not have crossed my mind to try to value a steak without some firsthand knowledge of what sort of steak I was getting. I've had 'like buttah' steaks that were (imo) terribly undervalued, and shoe leather that whatever the cost, was too much. Value is so much more than the listed ingredient, it's preparation, quality, skill...and that's just for the meal. start factoring in the other variables (another graph please!!) overhead (high end locale?) local employment factors...geeze. It becomes an instinctinal (sp?) thing after a while. It either works together to create a sustainable business, or it does not. With all the variables, it doesn't take much to throw the whole mess off, does it?

However, I do like the premise of trying the less popular dishes. But it wouldn't take much for me to resort to the tried and true. I'd really have to know and trust the chef!

Hey, they don't call economics the dismal science for nothing!

Edited January 17, 2007 by highchef (log)

[Shalmanese]

I always went with this principle when I went out dining. I figure, if a chef is willing to put something daring on the menu, that usually means he believes in it and it's got a special place in his heart. Most of the time, I've been pleasantly suprised. A couple of times, the chef is clearly deluded and his pride and joy tastes horrible but those are the lumps.

I don't think I've ever ordered steak at a restaurant for maybe 5 years now. If I'm going to a restaurant, I want interesting, exciting food. I can make a damn steak at home, I know what a steak will taste like, give me something new. Also, my perception has always been that steak is the token safe food to placate groups with fussy eaters. It's something they put on because they have to, not because they want to.

I have been playing a game lately though of collecting overly florid names for what is essentially steak, potatos and gravy. Theres lots of "gaufrette potatoes" and "port reduction" blah blah but it's pretty much the same dish the world over.

[Joe Blowe]

Perhaps I should clarify/expand upon my little blurb:

Behaviorally speaking, I agree that experimentation (at a restaurant, in bed, whatever) is what makes our lives worth living. So I don't necessarily disagree with with everyone's take on the original post.

However, speaking as a dyed-in-the-wool "economist" from an early age (I guess that's why it was my major), I am always seeking to maximize utility at any given chance. (This does conflict with being "food-obsessed" from time to time (not to any great extent), and causes my wife great distress most other times! I'm not talking about being cheap, or even frugal, I'm talking about getting the best bang for the buck on any given meal and not feeling ripped off or duped as a consumer.)

Now looking back at my first post, I automatically assumed that I've found myself in a restaurant and I have no reliable background information on the establishment and/or chef. So, if I were to find myself in such a situation (which would be damn near impossible with the omnipresent Internet), I would resort to meat. It satisfies me almost everytime. I know that it's harder to get "ripped off" when going with meat (markup wise), that my odds of getting the best bang for the buck are high (c.p.) and that I might regret going with the shmeh shmeh with frou frou reduction.

Of course all this is moot because, as I've already alluded to, I almost never find myself in a restaurant these days without knowing every picayune detail about the place.

[BryanZ]

At some place whose reputation I know nothing about, I would rather order the cheapest and/or simplest (which it this case COULD be steak, but given MY preferences wouldn't) thing of the menu. If the restaurant is in fact good you'll derive some excess satisfaction/utility out of the item with minimal financial risk/investment. If the restaurant is known to be "good" then I still side with the original post.

I've also been doing some reading that, given equal quality (an important assumption), it's still better to offer fewer choices than more on a restaurant's menu. Obviously we're talking about some optimum between 1 and, say, a rational 20, but that optimum will be closer to the minimum than the max. With fewer choices the process of choosing becomes easier for the consumer; this leads to a more enjoyable, less frustrating experience. Additionally, there is less chance of the consumer experiencing post-purchase feelings of regret if there are fewer items.

[Shalmanese]

I've also been doing some reading that, given equal quality (an important assumption), it's still better to offer fewer choices than more on a restaurant's menu.  Obviously we're talking about some optimum between 1 and, say, a rational 20, but that optimum will be closer to the minimum than the max.  With fewer choices the process of choosing becomes easier for the consumer; this leads to a more enjoyable, less frustrating experience.  Additionally, there is less chance of the consumer experiencing post-purchase feelings of regret if there are fewer items.

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Welcome to the wonderful world of behavioural economics. People actually are happier when faced with less choice but they think they would be happier faced with more. So if asked people to choose between 2 restaurants, all elese being equal, they'll choose the one with the larger menu. So if you want to bring people into your restaurant, then you need to expand your menu beyond what's actually good for making them happy once they're there.

[BryanZ]

I've also been doing some reading that, given equal quality (an important assumption), it's still better to offer fewer choices than more on a restaurant's menu.  Obviously we're talking about some optimum between 1 and, say, a rational 20, but that optimum will be closer to the minimum than the max.  With fewer choices the process of choosing becomes easier for the consumer; this leads to a more enjoyable, less frustrating experience.  Additionally, there is less chance of the consumer experiencing post-purchase feelings of regret if there are fewer items.

←

People actually are happier when faced with less choice but they think they would be happier faced with more. So if asked people to choose between 2 restaurants, all elese being equal, they'll choose the one with the larger menu. So if you want to bring people into your restaurant, then you need to expand your menu beyond what's actually good for making them happy once they're there.

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While I've found that this is generally true in the literature I've read, I've yet to read what is the better overall business decision. I was talking about this seeming disconnect with a professor of mine and she suggested that it's still better to offer fewer choices. Although the perceived difference in the experience is perhaps marginal, hold food quality constant, and you may get fewer customers "in the door," if the restaurant's aim is in fact to cultivate great dining experiences and long-term relationships with its clientele, few options are still better.

[Joe Blowe]

People actually are happier when faced with less choice but they think they would be happier faced with more.

Which handily explains the success of In-N-Out -- to this day they only serve only three types of burgers, in addition to fries and drinks. That's it. No chicken sandwiches, turkey wraps, salads, etc.

Another local example I can refer to is the Japanese ramen chain, Santouka. They serve just a few variations of shoyu, shio, and miso ramen. But those are the only soup flavors they serve. And people stand in line for 30 minutes at time just to get a bowl.

Obviously we're talking about some optimum between 1 and, say, a rational 20, but that optimum will be closer to the minimum than the max.

So, in my mind, the magic number is three