Why was El Bulli losing so much money?

by on February 13, 2010 at 6:36 pm in Economics, Food and Drink | Permalink

Leigh Caldwell offers an analysis.  Here is one bit:

…why is it losing so much money when demand is so high? The 48-seat restaurant has a six-month season with about 8,000 covers a year. It receives 300,000 applications for those seats [though this article says a million and this one two million], selling out the whole year's reservations on the same day that bookings open for the season. Why wouldn't they bump up the price from 230 to 330 euros, to simultaneously manage demand and eliminate the losses? Price elasticity can't be that high.

My hypothesis is that the restaurant was never intended to turn a profit, but rather it was a loss leader for book sales, endorsements, lecture fees, TV contracts, cookware lines, and so on for Ferran Adria.  Even if higher prices could bring in a twenty percent rate of profit, it wouldn't — at this point — be worth keeping the place up and running.  Adria already has a reputation as the world's greatest chef, running the world's greatest restaurant.  It's best to quit while ahead and branch out into food-related money-making ventures.

The low prices make going a hard-to-obtain event, open up the restaurant to more people than just the very wealthy, and maximize the publicity value of Adria's name.

He won't and can't stop cooking forever, but cooking six months a year is probably not an optimum for him at this point.  The real profit and loss calculation for El Bulli has to include the shadow price of his labor as an important variable.

1 Rahul February 13, 2010 at 6:51 pm

Did anyone notice that the closing horizon is two years ahead? Dec 2011??! Isn’t that too far ahead for a restaurant? That’s how people close power-plants.

If it’s making a loss why not close right away? Two years might be enough time to turn it around by changing operations. What if it shows a profit by then accidentally?

[ of course, the argument’s academic if the loss-leader theory is assumed ]

2 Grant February 13, 2010 at 7:43 pm

I hypothesize that long lines signal high status more than high prices do. Adria’s status sells his brand, as Tyler pointed out.

3 James February 13, 2010 at 8:20 pm

There’s a fairly new HBS marketing case that asks those same questions, and mostly comes up with the same answer as you: http://hbswk.hbs.edu/item/6105.html

4 Scoop February 14, 2010 at 12:03 am

What does El Bulli’s closure say about the life of a professional chef? Food enthusiasts glorify chefs, but it seems like most chef who get a chance to leave the kitchen jump on it the moment they can. Now Adria can’t even hack cooking six months a year? I don’t know why I care but it seems sad.

5 James February 14, 2010 at 5:12 am

I’m not sure I buy the line about “The low prices … open up the restaurant to more people than just the very wealthy.” €230 is already a high enough price that it will scare away all but the most passionate and monied foodies. Are there really many potential clients who would pay €230 but are priced out at €330?

6 Andrew February 14, 2010 at 6:08 am

How ’bout offer one thing on the menu priced so ridiculously that only celebrities could afford. Book every night with a different celebrity group and post it on the internet. Then the hoi palloi would line up to dine in the presence of their favorite celebrity.

7 E. Barandiaran February 14, 2010 at 6:39 am

Tyler, this interview with Ferran Adrià posted today (Sunday, February 14) in elpais.com

http://www.elpais.com/articulo/portada/Bulli/volvera/ser/mejor/restaurante/mundo/elpepusoceps/20100214elpepspor_7/Tes

makes clear that the NYT reporter misunderstood what Adrià told him. I understand that today in other Spanish media Adrià was reported as saying that the NYT report on the permanent closing of El Bulli was wrong. Anyway, it’s amazing that you and so many other people are willing to believe whatever the NYT publishes without confirmation, and to make things worse that you are willing to speculate about Adrià‘s motivation, plans and fortune.
I believe that the idea of “food as intellectual pleasure” is BS (I know well the Basque Country where you can find several of the best world chefs like Arzak and Berasategi and the government is setting a Basque Culinary Center as a university!!!). You can bet that the above interview with Adrià reinforced my belief. Regarding your speculations about Adrià, from the above interview I conclude: 1) he’s doing very well, most likely much better than all of your readers; 2) he’s so rich and well regarded that his only problem is how to allocate his time among the many things he ‘d like to do; and 3) regardless of what he decides to do with El Bulli after 2014, his decision will make a tiny difference in no more than a thousand people (including reporters that write food/cuisine columns).

8 E. Barandiaran February 14, 2010 at 7:35 am

Gary Leff,
There are several questions related to what will happen with El Bulli in 2014. For example this one:

¿Pero seguirá dando de comer en elBulli en 2014? Rotundamente, sí. Este oficio sin el feed-back de la gente no se puede hacer. Así de sencillo. Ahora bien, ¿qué …

Adrià is asked if El Bulli will be serving food in 2004 and he replies “absolutely yes”.

9 Huck Finne February 14, 2010 at 9:51 am

There’s a Guardian video A day at El Bulli (http://www.guardian.co.uk/global/video/2008/oct/16/el-bulli-ferran-adria) where Adrià pretty much explicitly states that the restaurant is a loss leader for all his other products.

10 Geego February 14, 2010 at 10:31 am

From the “El País” interview:

When it reopens in 2014 ¿will El Bulli be still a restaurant?

I can’t tell you, because I don’t know. But I know something of what it won’t be. It won’t be only a restaurant, the way it only wasn’t [a restaurant] these last years. That is, formation and divulgation work on cooking will remain important and will integrate better in the new structure. And one more thing: it won’t be back the best restaurant in the world.

(…)

But will you still serve food at El Bulli in 2014?

Absolutely yes. This job without the feed-back of people can’t be done. So simple. But now, what people? How many? Will they be eight a day, like Tokio’s Mibu? 100, 200, 1000? I don’t know. And maybe they won’t be pay constumers. If there’s funding, several possibilites can be studied.

11 Rahul February 14, 2010 at 11:06 am

Thanks! I just have this problem where it’s hard to bin my pleasures into “intellectual” and “non-intellectual” ones. 🙂 What’s your yardstick?

12 Shane February 14, 2010 at 2:37 pm

Geoff, why don’t you just look it up instead of speculating what he does in the 6 months off?

He spends it at his workshop in Barcelona developing techniques and conducting experiments. It’s in the same Spanish province, within the same country. I’m not sure how much tax difference there is, but I wouldn’t assume it’s much.

Arguing from hypothetical evidence is probably the most common intellectually dishonest method to advance one’s ideology.

13 Elijah Hamilton December 15, 2010 at 7:04 am

The restaurant surely didn’t know how to manage the money it had. I’m sure nobody would want to work in vain, and with the chef there, this shouldn’t have happened. Maybe they should use easy saver or something that can help them with a better investment in the business.

Comments on this entry are closed.

Previous post:

Next post: