Because I Can

Bryan Caplan posed interesting questions regarding takeout food from restaraunts, namely

Almost every restaurant does take-out these days. Funny thing is, they usually charge as much for take-out as they do for dine-in. How is that possible? Dine-in requires servers and a lot more real estate. Shouldn't it be cheaper? As it stands, the only thing you save by doing take-out is the tip.

The comments section on his and Arnold Kling's reply are good. Kling had this to say:

I'll make my guess. In restaurants, the analogy with "follow the money" is "follow the beverages." For example, if you eliminated sodas at fast food restaurants, my guess is that the profits would disappear.

My guess is that high-end restaurants make most of their money on wine. If they could get you to take out wine at the same price that they charge for dine-in, they would do take-out. In reality, they can't force you to take out wine with your meal, but they can discourage you from bringing your own bottle. So they prefer dine-in to take-out.

Caplan later adds his original hypothesis with Cowen, relating to advertising. I wanted to mention everything, but I need to make my own blog post for that, just to be fair.

First off, I'll remind my reader that I'm a college student, and therefore do not eat out a whole lot, but I did a bit at home. The main reason we would eat out or get takeout would be that we didn't have time to and/or didn't feel like cooking, which seems logical enough. Occasionally, we'd also do this to celebrate something, but mostly it was for convenience. When someone was too tired or we wanted to stay home, we'd just get some takeout, usually Chinese or Vietnamese. Typically, we'd got to the kind of restaraunt where we would get free refills on soft drinks, although if we went for Chinese food, we'd just go with water. The exception of course would be Cracker Barrell, but we'd never get a second pint of Stewart's Root Beer or Orange & Cream with our meal.

Of course, nobody in my immediate family drank anything alcoholic, so that would affect prices quite a bit. Shortly after turning 21 I discovered how pricey some of that stuff was; some places it's $3 for a beer at a restaraunt, and it's $4.50 for a Foster's at Outback. Even the soft drinks add up if you don't get free refills, yet you behave as though you do. Wine certainly seems to be something to lose money on as well. The same could be said for mixed drinks; although there is some cost in holding the liquor, the fact is that they have quite a markup. The realization to make with these drinks, though, is that this is different from normal beverage consumption patterns. Typically, if at home, I would drink water or milk with meals, not sodas, and certainly not 4 rounds of sodas, or anything alcoholic. So that is one cost there.

Another cost is the cost of service. Restaraunts have a low fixed cost here; waitstaff typically make a very small hourly wage and make most of their money off tips. This tip is an additional 15-20% added onto the bill, typically, and can add up to a good bit.

I would hypothesize that there are a couple of social pressures with restaraunts. First, there is the pressure for everyone to order an entree, even though they might be big enough that you would split it if you just ate at home. Additionally, there is a sense that proper table manners, etc, must be employed in a restaraunt, and it is more comfortable and relaxed at home (I will concede weakness in this argument, particularly since people don't really dress up all that much). The biggest performance, if you will, would be if you have children. People with children in restaraunts cannot be left alone. If they are very young other people will want to say hi and wave and smile and in general not leave you alone. If they are poorly behaved, people will talk about you behind your back or perhaps even directly to you. If they are well behaved, then people will come to you in amazement and talk to you if the kids are young. Also, the nicer the restaraunt, generally, the less the kids will like the food.

Why aren't there high-end takeout restaraunts? Well there's not just signaling for the restaraunt, but for the customer too. The customer at the high-end restaraunt has to consider what eating at these high-end restaraunts signals about him. When other people are involved is where this has the greatest signaling power, probably. When it comes to taking someone to a high-end restaraunt, typically this is not done for the food, so it falls under a similar category to giving gifts.

Well, that's some food for thought.

Labels: Economic Stuff