Forward markets in everything, restaurant edition

by on February 28, 2008 at 2:18 pm in Food and Drink | Permalink

Jason Kottke relates:

The Riverdale Garden Restaurant in the Bronx is trying out a novel way of staying in business: they’re asking for their regulars to pledge $5000 in exchange for a year of free dinners.

The problem of course is obvious.  First, you probably won’t get your money back.  Second, if everyone paid up, the restaurant has a weaker incentive to serve good food.  And which customers do you think will receive the best treatment?  The ones who put up nothing per each meal?

anomdebus February 28, 2008 at 2:31 pm

I suppose it makes a difference whether they intend to either stay in business or need a second beg-a-thon.

Byrne February 28, 2008 at 2:55 pm

A better plan: they should sell one-year memberships, individually negotiated, and then sell their food at marginal cost. The membership price should approach consumer surplus, depending on how hard they negotiate.

Adam Hyland February 28, 2008 at 3:02 pm

I think that shares in Farmer’s markets are different than this. To me, a Farmer’s market that relies on same day purchases has a strong incentive to produce more impulse goods. They will sell more tomatoes, basil, and corn. They will sell fewer squash, sprouts and root vegetables. Of course, buying shares doesn’t compel them to produce these less popular items, but it lowers the relative incentive to do so.

But I agree with the basic claims about restaurant service and prepayment in the summary.

OneEyedMan February 28, 2008 at 4:04 pm

We already have a way to spread risk and reward in companies we believe in, joint-stock companies.
Why not just sell equity shares in the company, and make food discounted for shareholders.

Student February 28, 2008 at 4:36 pm

It is about bargaining power. Wages are paid after, rents are paid upfront.

Mark N. February 28, 2008 at 7:09 pm

Reputation and repeat sales might prevent the restaurant from giving the subscribed customers shabby service.

Geego February 28, 2008 at 7:35 pm

You pay in advance services which have a fixed price, while you pay after the service when the price depends on your use.

Jeffrey Deutsch February 28, 2008 at 9:34 pm

Hello Peter,

That may be because the Mayflower Madam had a different kind of reputational incentive for its equally upscale (read: prominent) clientele….

Cheers,

Jeff Deutsch

Thomas February 28, 2008 at 11:22 pm

This looks like an unregistered and nonexempt public offering of securities to me.

Pat Mathews February 29, 2008 at 10:05 am

Has anyone noticed that people on prepaid plans don’t get quite the service that people who can choose to walk out without loss get? Sorry – I wouldn’t bother with that restaurant. I likes me options, I duz. Or why I loathe cell phone contracts.

d.cous. February 29, 2008 at 11:33 am

This reminds me of the compulsory participation in the meal plan for all full-time students at the Liberal Arts college I attended. It was a voluntary exchange, I had to buy the meal plan (yes, even after moving out of the dorms) in order to get the education, so I can’t say it was unjust per se, though I did gripe about it.

Not that this is exactly the same, since the restaurant isn’t bundling the meals with anything else, but the food was awful.

Thomas February 29, 2008 at 9:06 pm

Jeff, I’d note a couple of differences from the other offerings you describe. First, the possibility of profit sharing. Second, typically when you sign up for a gym membership it isn’t conditioned on 49 others doing the same. That fits the test set out in the seminal Howey case: 1. investment of money due to an expectation of profits arising from 2. a common enterprise 3. which depends solely on the efforts of a promoter or third party.

Matt H March 2, 2008 at 12:43 am

Re: Adam Hyland’s comment.

I think your prose is a bit confused here; I don’t quite get both halves of the contrast. Anyway…

At Farmer’s Markets in most of the country, farmers have limited (some, but limited) ability to produce more corn, tomatoes, basil, etc. at the expense of squash, beets, etc. They can bring the former to market when it’s in season (mid-to-late summer) and the latter when it’s in season (fall into early winter, though winter with proper storage.) A farm that gave up all its acreage to sweet corn would be left with nothing fresh to sell in October.

More on CSAs versus buying a la carte at a farmer’s market:

* The cost of a CSA membership, pound for pound, is much less than buying the same items a la carte. In effect, CSA members trade off flexibility and choice (both from a per-week and whole season POV) in exchange for a better price. It works for the farmer ’cause it lowers otherwise substantial transactional and marketing costs, up-front guarantees aside.

– The only comparable benefit a community-supported restaurant would get is up-front guarantees.

* Your CSA share comes week after week whether you want it or not. The farm doesn’t rely on you taking less-than-full-advantage (like, say a gym does), nor is it in a position where you could show up so frequently that you lose the business money (again, like you can do to your gym.)

* CSA membership fees provide for capital expenditures on the farm up-front. Seed capital, literally. Costs for the year are similarly front-loaded (and even those that aren’t are usually no more than 6 months out and have foreseeable impact and cost.)

There are enough differences that this isn’t really an applicable model. Something that might work a little better would be something like my wife’s pre-natal yoga classes, where she paid upfront for a 10-session course. Similarly, a restaurant could offer a daily prix fixe and presell it in packs to regular customers. This way, the diner trades away flexibility for a (probably slightly better) price, and the restaurant gets up-front predictability and slightly lower transaction costs. It could work.

Without the prix fixe, though, no two diner-meals would ever be remotely uniform. If my prepay plan gives me the run of the menu, there’d be nothing to prevent me from ordering the lobster every time.

Or, now that I think about it, a hybrid plan could work. I’d get the run of the menu but have to pay out-of-pocket above a certain amount on my check. Interesting distortions could abound, but it’s not a total non-starter.

nancy May 13, 2009 at 10:46 pm

Is it realistic?

shilina May 13, 2009 at 10:48 pm

have a good day~! it is not bad

Comments on this entry are closed.

Previous post:

Next post: