Chapter 3
The Restaurant Business
Copyright © 2010 by John Wiley & Sons, Inc. All Rights Reserved
THE RESTAURANT BUSINESS
• The word “restaurant” covers a broad range of
types of operations
• The term “food service” is even more far
reaching and will be more clearly defined in
later chapters
• The most important thing for you to take away
from this module is how different restaurant
types are classified and characterized
THE VARIED FIELD OF FOOD SERVICE
• Restaurants are those public places that specialize in
the sale of prepared food for consumption on- or offpremise
• Sometimes, it is not even easy to discern what is and
what is not a restaurant
• Restaurants (and the larger food service industry)
represent an important part of North American society
– for most of us it is an everyday activity
• Think of your last “restaurant occasion” Breakfast?
Lunch? Dinner? Coffee? Snack?
THE VARIED FIELD OF FOOD SERVICE
• Together, Americans spent over $550 billion in
food service establishments in 2009, which is
double the amount spent some 20 years ago
• That represents 48% of American’s “food
dollar” (or food budget)
• This amount is expected to increase into the
foreseeable future as Americans continue to
seek convenience and activities that suit the
typical lifestyles
THE VARIED FIELD OF FOOD SERVICE
• There have been some recent “dips” in food
service performance but overall the industry
has shown steady growth for the last 10-15
years
• Some of the major trends that are occurring are
increases in “off-premise” dining, new and
emerging segments (such as “fast-casual”), and
a blurring of the commercial and on-site sectors
• Overall, the industry continues to grow and is
striving to meet consumers ongoing needs
THE VARIED FIELD OF FOOD SERVICE
• Some segments of the industry with which you
should be familiar include:
• Quick-service restaurants (QSR)
• Fast Casual
• Casual dining
• Fine dining
• Others include ice cream, coffee shops, food
courts, etc.
CLASSIFICATIONS
• There are many ways to classify
restaurants in the industry. We can classify
them by price, service level (of type),
menu, etc.
• In the next segment, we
will classify them into
“dining” and “eating”
THE DINING MARKET VS. THE EATING
MARKET
• Restaurants serve both social needs (dining) and
biological needs (eating); some restaurants serve
one or the other while some serve both markets
• The dining market is defined as including those
restaurants that primarily serve our social needs
• People will eat in restaurants (that makeup the
dining market) to escape from boredom, to
socialize, to be waited on, to have a different
experience, and for convenience
THE DINING MARKET
• Certain elements of the dining market
distinguish these restaurants from the eating
market: the importance (and sophistication) of
service, the customer, and the occasion as well
as others
• The most obvious example of a restaurant type
that makes up this market is fine dining
• Fine dining restaurants tend to be characterized
as: full-service, small, independent, high-quality
food and service, nice ambience, and expensive
THE DINING MARKET
• Largely due to the economy, the demand for
fine dining has decreased, resulting in the
increasing popularity of “casual upscale” dining
• In addition, some well-known fine dining
restaurants have even closed
• Casual upscale restaurants are characterized by
sophisticated menus, excellence in food, strong
management (typically run by chains), and
good wine lists but are slightly less expensive
and more casual than traditional fine dining
restaurants
THE DINING MARKET
• Examples of casual upscale chains would
include Houston’s, Mimi’s, Cheesecake Factory,
and McCormick & Schmick’s
• Because of their ambience and the overall
experience that they provide, many of these
concepts appear as if they are independent
restaurants
• Interestingly, because of the success of these
chains, they have been the targets for
acquisitions by other companies
THE EATING MARKET
• The eating market is differentiated from the
dining market in that it caters more to meeting
biological needs
• The best (and most obvious) example would be
quick-service restaurants or QSR
• The other primary segment is the family dining
segment which offers table seating and full
service (examples, Denny’s, IHOP, and Cracker
Barrel)
THE EATING MARKET
• The eating market can be sub-divided into (1)
on-premise and (2) off-premise dining
• Off-premise can be further classified into:
– Takeout (or take-away)
– Drive through
– Delivery
• Together, these three areas have grown
tremendously as a result for customers’
demand for speed and convenience
CONTEMPORARY POPULAR-PRICED
RESTAURANTS
• When we use the term contemporary popularpriced restaurants, we are referring to the
restaurants that cater to the eating market
• As you will recall, the two primary segments in
this market are QSR and Family Dining
restaurants
• We will also include casual restaurants which
provide a bridge between the eating and dining
markets
THE EATING AND DINING MARKETS
Vending
QSR
Upscale
Casual
Family Dining
Fast
Casual
Casual
Dining
Fine Dining
QSRS
• The Quick Service segment is a very unique
segment for a variety of reasons
• QSRs have a very long history, are among the
most productive types of restaurant operations
in the entire industry and have a history of
leading the industry in terms of innovation
QSRS
• Even though many believe that QSR begins and
ends with McDonald’s, it is generally believed
to have begun in the 1920s with White Castle
and then began to develop in the 1940s with
Carl’s Jr. and In-N-Out
• The industry has undergone many changes in
the past 60 years including the domination by
chains and the emergence of McDonald’s as the
leader
QSRS
• The QSR industry is characterized by a variety
of things including:
•
•
•
•
•
Location
Limited menus
Sales volume
Fast service
Types of employees
(many part-timers)
• Use of unskilled labor
• Key roles for unit
managers
• Highly competitive
menu prices
• Chain domination
• Simple unit, complex
system
QSRS
• Some changes have occurred over the last few
years including:
•
•
•
•
•
Going more “upscale”
Companies diversifying (changing again?)
Introduction of healthy items
Expansion of menus
Nontraditional locations
FAST CASUAL
• Full-service quality in a quick-service format
• Hybrid that combines convenience with higherquality ingredients
• Examples include Panera Bread, Baja Fresh, and
Qdoba Mexican Grill
MIDSCALE RESTAURANTS
• Midscale restaurants include those restaurants
that have simplified production systems
(requiring lesser skilled employees), specialized
menus and moderately priced food
• This category of restaurants include:
• Family restaurants
• Cafeterias and buffets
• Pizza (sit-down)
CASUAL RESTAURANTS
• Casual restaurants are a “step-up” from
Midscale Restaurants
• These restaurants have become more popular
in recent years driven by their popularity with a
number of demographic groups
• These restaurants are characterized by a
relaxed atmosphere, more varied menus and
reasonable prices
CASUAL RESTAURANTS
• Casual restaurants include:
• “Mainstream” casual restaurants such as
Applebee’s, Chili’s, Ruby Tuesday, and Friday’s
• Specialty restaurants such as those focusing on
steak (Outback), seafood (Red Lobster) or pasta
(Semolina’s)
• Ethnic restaurants include, among others,
Chinese, Italian and Mexican
• Theme restaurants including Hard Rock Cafe
HIGH CHECK AVERAGE RESTAURANTS
• High check average restaurants also known as
fine dining restaurants, have a special place in
American society
• Fine dining restaurants are solidly established
as serving the dining market
• The “average check” begins at about $30.00
and goes up from there – a notable $200 meal
in New Orleans comes to mind
HIGH CHECK AVERAGE RESTAURANTS
• These restaurants are typically found in high
income and densely populated areas (although
there are exceptions)
• Several large US cities are known for fine dining
including New York, Chicago, and LA
• They are also typically found in large tourist
areas such as New Orleans, Vail, and Las Vegas
HIGH CHECK AVERAGE RESTAURANTS
• Although this type of restaurant is in decline,
some are as popular as ever: Excelsior,
Restaurant L, Seasons, Aujourd’hui, Julien, and
L’Espalier
• They cater to people going out for special
occasions (birthdays and anniversaries),
celebrations (end of the school year) and
business meals
• Even some of these have become more casual
(although not necessarily less expensive)
RESTAURANTS AS PART OF A LARGER
BUSINESS
• The restaurants in this category do not really fit
neatly into another category
• These restaurants exist to serve another
business or businesses
• Examples include: restaurants in retail stores
such as Nordstrom and Lord and Taylor, and
restaurants in shopping malls
• We differentiate these because they are not
“free standing”