Just plant the seed …

The food business has even more startups than the tech business: Every new restaurant, coffee cart, farm, dairy, and butcher shop is a story of micro-entrepreneurship. (In the case of restaurateurs who think very small, the advantages are clear.) The model is pretty straightforward: Come up with the idea, find the space, get the money, find your ingredients (preferably local and/or organic), sell your value-added product. But a new breed of owners are flipping the equation.

The most interesting large-scale food entrepreneurs are those who are building huge supply chains from scratch, and creating vertically integrated concerns that span the globe from farmer to consumer. They’re finding the ingredients and building the farms with millions of dollars worth of capital, then opening retail locations that will sell what they grow. The idea of growing a crop and then shepherding it through various processes and countries all the way to the final consumer is hardly new, of course. But it’s not generally how people start. It’s hard enough opening up a single restaurant or coffee shop; it seems crazy to try to do that while also creating dozens of other operations at the same time, especially when the failure of just one of them could doom the whole shebang.

Usually people in the food business try to nail down one aspect before moving on to the next. Steakhouse chain Le Relais de Venise, for instance, was founded by Paul Gineste de Saurs to provide an outlet for his family’s Château de Saurs winery, but only after the family had already mastered the wine-making part.

If you’re a Broadway and Hollywood star with money and a dream, however, there’s no need to go slow. Hugh Jackman’s Laughing Man Coffee & Tea does everything from growing coffee beans in Ethiopia to serving up a flat-white coffee (made with the same beans, naturally) on Duane Street in Tribeca, all while trying to build a business that will eventually generate substantial sums for educational charities. Jackman told Grub Street back in October that he hopes Laughing Man can grow into a brand as big as Newman’s Own, all started with a trip to a coffee farm in Ethiopia.

Maybe the most ambitious project to take this approach is Cacao Prieto, from Daniel Preston, an inventor who served as the CTO and CEO of Atair Aerospace until 2008. At its core, Cacao Prieto might appear to just be a chocolate company that started when Preston set up Brooklyn Cacao, which is devoted to designing, building, buying, refurbishing, fixing, selling, and generally dealing with the machinery needed to turn cacao beans into chocolate. Preston also set up a huge copper still to make what might be called the world’s first farm-to-bottle cacao-based rum. (You can buy it from Astor Wines, in fact.)

But while he was working on Prieto, Preston also set up Cacao Biotechnologies, a company that explores the antioxidant capabilities of cacao; and a farm in the Dominican Republic called Project Coralina that Preston thinks will revolutionize cacao farming in that country. (The country currently only produces 1.4 percent of the world’s cacao.) The whole operation is so massive, in fact, that it has nearly $10 million in equity holdings — $5 million of which was raised from outside investors — and has a formal filing with the SEC.

By growing their own raw ingredients from scratch, control-freak owners also cut out third-party purveyors. They have total command of their product’s quality from the very beginning, meaning they won’t have to worry about fluctuations affecting their supply.

Of course, to start a hugely ambitious project like Laughing Man or Cacao Prieto, it helps if you’re a millionaire aerospace executive, or one of the world’s most well-paid movie stars. But there’s something in the air right now, a feeling that with money cheap, it’s a good time to gamble. Banks like to play it safe in this industry, but there are lots of equity investors out there with the idea that there’s a small chance of hitting biotech gold. Which means the timing could be just right for a certain kind of food entrepreneur, the kind who thinks way big. Rather than building a business slowly with debt capital, they can build it fast with other people’s equity.

The risk-reward scenario on these kinds of projects is obviously much grander in scale than it is for the person who hopes to open a coffee shop in Brooklyn. Failure means potentially burning through tens of millions of other people’s dollars, and possibly ruining part of another country’s ecosystem. But success means a whole business built on a very solid foundation. Instead of the Chipotle model — building the successful business, then seeking to use size to influence more responsible farming practices — the sorts of businesses that are literally built from the ground-up can dictate their own supply initiatives from the get-go. If they’re successful, they might help change the way that food businesses get started — and help save the world while they’re at it.

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You start with meatballs, you end with an empire.

Opening and running a restaurant is very, very difficult: From a financial standpoint, the chance of failure is incredibly high. You have very little control over how much your raw supplies will cost, or how much people will willingly pay for the finished product. On a personal level, you trade your social life for years of long hours, little sleep, and almost no chance of a raise. But there is a way to eliminate many of these headaches: just sell one thing.

There’s no shortage of restaurants that focus all of their attention on one item, or a very small handful of similar items. In New York alone there’s Pommes Frites, Little Muenster, Macbar, Rice to Riches, Luke’s Lobster, Porchetta, Puddin‘, the Meatball Shop, the Meatball Factory, Peanut Butter & Co, and many others — not to mention an endless list of dumpling, pizza, and cupcake places. Their proliferation is so great that I’m surprised nobody has coined a phrase for this type of restaurant yet. Let’s just call them single-serving restaurants, or SSRs.

To understand the appeal of the SSR model, it’s worth noting that all restaurants make money through what economists call the Value Chain: A restaurant takes raw ingredients, adds “value” to them by cooking them, then sells the finished dish at a markup. (Mario Batali put it more succinctly in Bill Buford’s Heat: Restaurants “buy food, fix it up, and sell it at a profit.”) A restaurateur can’t do much about the nuts and bolts required to run a restaurant — rent, insurance, accountants, lawyers, the gas bill, all the other necessary but unglamorous stuff. Food is the value-added commodity, and it becomes a lot easier to add value when there’s only one kind of food that needs to be fixed up.

The single-item focus serves an important signaling function for customers, as well. S’Mac (home of “New York’s best Macaroni & Cheese”) is tucked away in a storefront space on 12th Street, and the shop’s owner, Sarita Ekya, says it needs to get noticed by passers-by to succeed: “We really do depend on volume, getting the numbers through the door.” If there were a nondescript bistro in the space, most people could pass it a dozen times without noticing. But a bright-orange mac-and-cheese shop? People see that and remember it. And customers can assume that the mac and cheese is most likely going to be pretty good at the bright orange shop that only sells mac and cheese. They know intuitively that the place wouldn’t exist if a lot of people didn’t keep on going back there.

In other words, an SSR is already several steps ahead of the competition before a customer even sets foot inside, and the advantages don’t stop there: Training staff is easier and cheaper, because there are fewer things for the staffers to do and remember. Dealing with a small number of vendors is much easier, too: S’Mac, for instance, has fewer than ten in all. Francis Garcia, co-owner of This Little Piggy Had Roast Beef (as well as of SSRs Artichoke Basille’s Pizza and Led Zeppole), told me he gets great prices on beef because he buys so much of it. “And,” he adds, “since we sell mostly roast beef at high volume, there is very little spoilage, if any.”

The trick, of course, is finding a single item that customers will want again and again. Looking at the list of SSRs above, it’s obvious that traditional comfort foods work best with this model: meatballs, sandwiches, French fries, etc. It’s food that people grew up with and crave. (There’s probably a real opportunity for someone who makes amazing meatloaf sandwiches, but not necessarily someone who specializes in liver-and-onions.)

Plus, once an SSR starts serving its better-than-all-the-others item to the public, that place becomes associated in customers’ minds with the item it’s selling. So, for example, when a customer who lives in the East Village is in the mood for a lobster roll, Luke’s Lobster becomes the only place that customer even thinks about, creating a kind of snowball effect for the business.

Of course, the final, potentially most appealing advantage of opening an SSR over a traditional restaurant is that the businesses are more easily scalable: Once an owner has a success on his or her hands, it’s not as complicated to reproduce the same restaurant. S’Mac opened a kiosk last year and is about to open its third outpost; Artichoke Basille’s Pizza has three outlets and is opening more nationwide; and shops like the Hummus Place, the Meatball Shop, Mama’s Empanadas, and Snack Dragon all have second or third branches.

To really see the advantages of SSRs versus traditional restaurants, look at Danny Meyer’s Union Square Hospitality Group: There’s only one Gramercy Tavern, even though it’s one of the most successful restaurants in the country. And when Meyer expanded Union Square Cafe to Tokyo, it was the result of a licensing deal with a company called Wondertable. But Meyer’s Shake Shack, which sells a pared down menu of burgers, hot dogs, and milkshakes, is already up to seven locations in New York, two in Washington, D.C., with others in Miami Beach, Westport, Saratoga Springs, Dubai, and Kuwait City.

The SSR business model is so compelling, in fact, that venture-capital firm Sequoia Capital has invested something north of $10 million in a grilled-cheese concept called the Melt, with plans to open 500 locations over the next five years.

As Francis Garcia told me, “There’s a guy out in Coney Island who only sells hot dogs and makes a fortune. I think his name is Nathan.”

Felix Salmon is the finance blogger at Reuters.

Earlier: Gastronomics: Why Blowout Feast Reservations Are In

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Filed Under: gastronomics, artichoke pizza, s’mac, shake shack, the meatball shop, this little piggy had roast beef

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Rich people, eating richly.

New York City is full of extravagantly expensive restaurants, places like Per Se and Le Bernardin, where dinner for two costs hundreds of dollars and a bottle of wine can fetch more money than the average American household makes in a week. Given the amount of cash it takes to eat at such places, it stands to reason that they’re all full of rich people, right? Actually, it turns out that’s not really the case. In fact, the city’s most expensive restaurants are far more egalitarian than you might think, which also might be the reason why they’re so good in the first place.

Here’s how we know: The good people at Bundle — a company I’ve talked about before, with access to an anonymized database of credit- and debit-card spending data — decided to identify the city’s luxury spenders by looking at where people shopped. They put together a list of high-end shopping destinations — Barneys, Bergdorf Goodman, Harry Winston, ABC Carpet, you get the idea — and then identified the New Yorkers who shopped at those places on a regular basis. It might not be an ironclad way to track the city’s highest earners’ every move, but conveniently, those New Yorkers whom Bundle identified as luxury spenders constitute just under one percent of people in the entire Bundle data set (although of course they account for much more than one percent of all spending).

Once they identified those one percenters, Bundle’s team created a kind of league table of restaurants with the highest percentage of those high-spending customers. All of a sudden, we’re able to see which restaurants have the highest percentage of rich people. The most relevant results are mapped below: Blue tabs indicate restaurants where 6 to 15 percent of the clientele are luxury diners; red tabs are more than 15 percent:

At the very top of the list is Eli Zabar’s Vinegar Factory — grocery shopping for the Cartier crowd. Fully 34 percent of the people buying there are luxury spenders. Right on its heel is Sushi Hana Delivery on 78th Street and Second Avenue — the place that the rich call when they don’t want to actually go out to eat — with 32 percent. And in third place, with 27 percent, is Sant Ambroeus on Madison Avenue — a lovely place to sip a $20 glass of Chardonnay during afternoon tea, while picking at a $22 arugula salad.

In fact, all of the places whose clientele consists of more than 15 percent luxury spenders are on the Upper East Side, and all are low-key places like Mezzaluna and Bar Italia — not to mention a surprisingly large number of neighborhood sushi spots.

It’s interesting that no Tribeca restaurants show up here, but while Tribeca is the richest NYC neighborhood per capita, the Upper East Side still has bigger wealth concentration (check out this helpful wealth map to see a full geographic breakdown of the city’s household median incomes).

Perhaps even more interesting is the fact that the percentage of luxury diners at the city’s super high-end restaurants don’t even come close to ranking among the top. For instance, just 3 percent of Per Se’s clientele comes from the luxury crowd; Eleven Madison Park is at 2 percent. Even Le Bernardin, pretty conveniently located on 51st Street, gets only one percent of its customer base from the one percent of luxury spenders. (I guess it’s on the wrong side of Fifth Avenue.)

Head to downtown’s most popular “expensive” restaurants and the numbers are even lower: Babbo, Momofuku Ko, Blue Hill — all get about 2 percent of their business from the luxury spenders. Jewel Bako and Hearth: one percent.

What’s going on here? Well, one obvious explanation is that the kind of people who shop at Bergdorf are social X-Rays who think of Momofuku Ko’s tasting menu as more of a challenge than a pleasure. And the rich, even more than the rest of us, place a high value on convenience. If you’re not budget-constrained when it comes to restaurants, then, sure, sometimes you’ll go out for a special occasion. But more often, you’ll meet a fellow Upper East Sider for lunch or for dinner, and you’ll go somewhere mutually convenient rather than schlep somewhere noisy and trendy and well reviewed downtown or (heaven forfend!) in Brooklyn or Queens. Proximity trumps quality, even when you have a car and driver.

But even Sfoglia, the sole “trendy” Upper East Side restaurant that pops up in Bundle’s list, has one of the lowest percentages of luxury clients. So the question then arises: Why don’t ambitious restaurateurs follow the money and open interesting new places where the free-spending rich people are? In a free market, wouldn’t good food drive out the subpar?

Part of the reason it doesn’t work that way is that diners downtown, or in Brooklyn, have become accustomed to cutting-edge food. Just as New York has districts for garments and flowers, downtown Manhattan is the established place to go for interesting food; the Upper East side, the opposite.

This creates a self-fulfilling prophecy for restaurants: Momofuku Ssam Bar on lower Second Avenue is a roaring success; open the same concept 60 blocks north and you’d probably fail miserably. Gourmands and food writers naturally flock to the new and interesting, but the rich tend to be neither gourmands nor food writers. (It goes without saying that food writers tend not to be rich, too.)

Reinforcing that theory is the fact that for the rich, the combination of high prices and unadventurous food acts as a sort of invisible velvet rope. Besides being handily located on the Upper East Side, a restaurant like Nello can charge $26 for mediocre beet salad, or $40 for a plate of uninspired mushroom risotto, because to its customers, the money matters as little as the actual food does. But the 99 percent won’t go there, because when they do splurge on food, they want an adventure to remember.

When diners do spend hundreds of dollars on dinner at a restaurant in the East Village (maybe after waiting in line, since no reservations are accepted), this data shows us it’s likely a significant investment. And the only way a restaurant will keep customers like that coming back is to offer them an exceptional experience with cutting-edge food.

In other words, restaurants downtown that cater to a slightly less well-heeled crowd have to be more interesting than restaurants uptown in order to attract new customers and convert them into regulars. Meanwhile, the one percenters on the Upper East Side are probably perfectly happy when their restaurants aren’t a destination for New York’s culinarily adventurous masses.

Earlier: Gastronomics: Exactly How Much Do People Spend at New York’s Top Restaurants?

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Filed Under: gastronomics, eli’s vinegar factory, hoi polloi, one percent

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It’s true that money doesn’t grow on trees, but it might just grow in the ground.

As the farm-to-table movement ramped up, so, too, did the idea of restaurants printing their purveyors’ names on menus as some sort of badge of locavore honor. But what began as callouts to Lynnhaven goat cheese or Allan Benton bacon have turned into ever-more-meaningless stamps like “market” and “local.” But even as the qualifying terms have become more vague, their ability to increase a restaurant’s bottom line has gone up.

Take this list of six dishes. Three are real dishes; three are satirical. Can you tell the difference?

1. Raw diver scallops, market grapes and lemon verbena
2. Gratinized beet, hazelnut, baby greens and endive salad
3. Free-range rabbit with Oregon morels
4. Celery root risotto with rutabaga, Klug farm grapes, nasturtium, black walnut
5. Market strawberries and juice with mint, lime, meringue, sour cream-poppy seed sorbet
6. Fresh endive soup

The fake dishes — 2, 3, and 6 — are taken from menu recitations in American Psycho, wherein Patrick Bateman gets served the likes of “radicchio with some kind of free-range squid” or “peanut butter soup with smoked duck and mashed squash.” (The latter even comes with a verdict from New York Magazine: “a playful but mysterious little dish.”)

The real descriptions are from temples of locavorism: The scallop and strawberry descriptions are served at the James Beard winning ABC Kitchen in New York; the celery root risotto is from Lula Cafe in Chicago. But these two restaurants are hardly alone.

What on earth is it supposed to mean, for instance, when Andrew Carmellini puts “local blueberries” on the menu at The Dutch? What’s so special about the “City Farm lettuces” being served at Nightwood in Chicago? And when both Freemans and Peels feature something called “Keepsake Farms mixed greens” on their menu, are we supposed to believe that the mixed greens from Keepsake Farms are somehow superior to the mixed greens from anywhere else?

Actually, yes, we are. What we’re witnessing when we read menu items like “Cabrillo Brussels sprouts, roasted Pinnacle shallots, County Line chestnuts, aged sherry vinegar, sieved Capay farm egg” (that’s from Origen, in Berkeley, by the way) is an attempt to get customers to value — and pay premium dollars for — basic ingredients like Brussels sprouts, shallots, and chestnuts. Mind you, we’re not talking about perfect, plump heirloom tomatoes in the middle of August, or super-rare Iberico ham. What are the chances that winter produce like shallots and chestnuts would taste noticeably different if they came from the Safeway down the street? Pretty much nil. But we diners are naturally cowed by the authority of chefs, and willingly suspend our disbelief.

I blame farmers’ markets in general, and the Union Square farmers’ market in particular, for the way in which this phenomenon is reaching endemic levels in New York. When you see a farm named on a menu, you might never have heard of the supplier in question. But any name next to a listed ingredient is meant to bring to mind those piles of super-expensive veggies, and tales of organic farmers struggling mightily to make ends meet.

The genius of farmers’ markets is that they turn thrift into a guilt trip: Anybody looking to pay less money for a pound of carrots must also want to cut the income of hardworking farmers! And when menus name their suppliers, even unto the purveyors of broccoli or scallions, they’re effectively trying to make their diners as price-insensitive in the restaurant as they are in the farmers’ market.

Artisanal veggies serve another purpose, too: They can cut the amount of money that a restaurant spends on food. Yes, the restaurant might be doubling the amount of money it would otherwise spend on such ingredients. But the fact is that even when they’re relatively expensive, carrots and cauliflower are still a lot cheaper than beef and salmon. And if you can get away with building a dish around artisanal turnips, it’s one less expensive protein you have to put on your menu. Those Brussels sprouts at Origen cost $9.50, their burger only costs 50 cents more; on the other end of the scale, Thomas Keller’s Per Se and French Laundry somewhat famously charge the same amount for their vegetable tasting menus — $295 and $270, respectively — as they do for their lobster- and steak-including chef’s tasting menus.

Kitchen costs are centered around two major categories: food costs and labor costs. Often, the more chefs spend on one, the less they have to spend on the other. You can teach a 16-year-old kid to grill expensive steaks (and pay them next to nothing to do it), but you’re going to have to find someone skilled, or spend time training them, to turn cheap ingredients like flour and butter into a world-class sauce. The rise of bespoke bok choy represents a lucrative third option: Take inexpensive ingredients, do very little to them, and sell them as premium products worth savoring in their simple purity. (The ne plus ultra of this: The rack of raw vegetables served on spikes as part of the tasting menu, which ranges in price between $108 and $208, at Blue Hill at Stone Barns.)

When you think about it, this can feel like a bit of a scam — why should we suddenly gush over a $10 bowl of lima beans in a restaurant when we’d never do so at home? Is putting the names of suppliers onto the menu a way of making us concentrate more on the ingredients, or a way of getting pretentious about some of the most basic and commonplace foods in the world? It’s probably a bit of both. But either way, it’s good for the restaurant’s bottom line.

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Filed Under: gastronomics, abc kitchen, blue hill at stone barns, french laundry, per se, the dutch

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“Let me just get my tip calculator out … “

Megu, the giant Japanese restaurant in Tribeca, is an “expensive” restaurant, but exactly how expensive? Is a meal there going to cost $200? $300? People who spend time eating out probably have some ballpark figures in their heads for the cost of various restaurants around town. But now, a new start-up called Bundle allows us to pinpoint precisely how much people spend at any given establishment.

Bundle, which compiles real spending numbers for restaurants and other businesses, is backed by Citigroup, and has access to an enormous database of Citigroup debit and credit card transactions, covering more than 20 million households. That anonymous data, it turns out, is incredibly detailed. For the first time, we can actually see exactly how much people spend at various restaurants.

Why would anyone but the most hard-core stat geeks want to look at a bunch of charts about how much people spend at restaurants? There’s the voyeurism element, but there’s also the fact that the charts provide an illuminating look at how certain restaurants actually make their money. Customers can see how much their peers are really spending, and restaurant owners can, for probably the first time, get a very real sense of how their competitors are doing.

So let’s take a look at what I mean. (All of the restaurants below serve only dinner, so lower-spending lunch charges aren’t factored into this data.) Let’s first look at the charge date from Megu, since it gets lots of customers, and therefore generates a lot of datapoints.

Illustration: Jen Cotton

The range of expenditures at Megu is enormous. More than 4 percent — one in 25 — of the charges are for less than $20. And at the other end of the spectrum, more than 1.5 percent of the card charges are for more than $800. In fact, according to the Bundle data, people are just as likely to spend over $800 at Megu as they are to spend between $600 and $800. Most interesting is that the median expenditure at Megu is $126.87. Or to put it another way, statistically speaking, if someone is charging money at Megu, there’s a 50 percent chance that they’ll charge more than $126.87, and a 50 percent chance that they’ll charge less.

Compare that to Megu’s Tribeca competitor Mr. Chow, whose spending chart looks remarkably similar:

Illustration: Jen Cotton

At Mr. Chow’s Tribeca outpost, Zagat says a typical meal will run you $77. Bundle says the “real price range” is $210 to $220. The median amount charged to a card there is actually $145. And 2.1 percent of customers spend more than $800, while 17 percent spend less than $70. One thing’s for sure: Anyone who thinks the diners at Mr. Chow are some homogenous mass of Hollywood scenesters (depsite — or perhaps because of — their appearances) is mistaken. At least as far as spending habits are concerned.

Another thing this data allows us to do is compare restaurants in whole new ways. For example, how do diner spending habits differ among some of New York’s upper-echelon restaurants? Let’s start with Babbo:

Illustration: Jen Cotton

What we can see from the chart is that a diner at Babbo has a pretty good chance of coming up just about anywhere between $60 and $270 (though there’s a noticeable spike at $200). For a restaurant commonly considered one of the city’s “best,” and thought by many to be one of its most expensive, this is a relatively affordable number. There is also a noticeable absence of any really big-ticket, four-figure checks. We can probably surmise from this data that plenty of people go to Babbo for a drink or a nice dinner, but few go there for a big blowout meal.

For the blowouts, let’s look at the histogram for Per Se, which Sam Sifton this week calls the city’s best restaurant. There, most diners — minus those who partake in the restaurant’s limited salon menu — order from fixed-price menus, with service included.

Illustration: Jen Cotton

Interestingly, the range of charge amounts here actually has a larger spread than at the less expensive restaurants, with plenty of check amounts coming in far under the $295 per person (before tax) that Per Se charges just to eat in the dining room. (It might come as no surprise, then, that Le Bernardin recently added an option for lounge dining to its restaurant as well.) But look at how many more people are spending over $1,000 at Per Se than are at Babbo. Indeed, Per Se gets fully 10 percent of its overall dining revenues from checks for more than $3,000, even though they represent less than 2 percent of the payments run by the restaurant.

And what about fellow heavy hitter (and recently reanointend Michelin three-star restaurant) Daniel?

Illustration: Jen Cotton

The median spend here is $401.70, which is more than double what people spend at Babbo, and more than triple what they spend at Megu. But it’s still nowhere near $768.07, which is the median spend at Per Se. So even though Daniel is every bit as “good” as Per Se according to almost all reviews and criticisms, it is also noticeably more affordable.

Of course the big takeaway is that customer spending in New York is all over the place, which must make it daunting for restaurateurs to come up with successful business plans. Perhaps that’s why the city’s successful restaurants aren’t just run by the city’s most talented chefs, they’re also run by the ones most adept at adapting to an extremely broad range of customer desires.

Felix Salmon is the finance blogger at Reuters.

Earlier: Gastronomics: How Pop-ups Went Boom, and Why They Should Go Bust

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Filed Under: gastronomics, babbo, bundle, daniel, megu, mr. chow tribeca, per se

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No, it’s fine … we totally have a permit.

Restaurant cooking is evanescent by design. Food is created so that it may be eaten up. There are recipes, of course, but the experience of eating a specific dish created by a specific kitchen cannot be replicated at home. This understanding is at the core of the pop-up restaurant phenomenon. Because of the specificity of the experience, people will clamor to get in; but because that experience is designed to last only a short period of time, it doesn’t have to be good enough to bring customers back.

While most restaurants work hard to replicate the same experience night after night — one of Mario Batali’s essential principles for the Babbo kitchen is that “if someone has a great dish and returns to have it again, and you don’t serve it to him in exactly the same way, then you’re a dick” — pop-ups are defiantly transitory enterprises that are designed to exist for only a few days, or, at most, months. There are no million-dollar investments here, no plans to create an institution. Instead, there’s something light and rough around the edges, with a freedom to experiment that’s unavailable to the restaurateur paying rent on a twenty-year lease.

The attractiveness of this idea to restaurateurs and chefs — even established, name chefs like Bill Telepan — is clear: Without the burden of a long lease, rents are cheap. As Frank Bruni reported in the Times, John Fraser’s What Happens When paid a rent that was “well below market rate,” since the landlord was looking to get some cash flow until something more permanent came along, or until the building itself was demolished. In the case of promotional pop-ups, such as the Roberta’s stand at the BMW Guggenheim Lab, or the James Beard–sponsored LTD pop-ups in Chelsea Market, a corporate sponsor is footing the bill.

Because upfront investment is low, a pop-up can quickly turn profitable over the course of its limited existence, often by charging high prices that are usually associated with established restaurants. What Happens When is a good example: It charged $58 for a three-course meal, even though it seated patrons on $10 chairs (now for sale, by the way), offered a limited selection of just five wines, and even asked customers to assemble their own place settings from drawers of cutlery. (By comparison, Danny Meyer’s Untitled, housed in the Whitney, charges $46 for a similar three-course dinner.)

Other examples of high pop-up prices: Most small plates at Zak Pelaccio’s Fatty Johnson’s were in the $14 to $17 range; Bill Telepan’s Tribeca pop-up charged $45 for four courses; some dinners held at the LTO pop-up series broke the $100 per person mark; and dinners at the James Beard–associated LTD series in Chelsea Market were $100 per person on weekends and $75 per during the week.

Clearly what’s going on here is a far cry from the classic restaurant transaction, where customers simply pay for food and service. Projects like What Happens When feel more like a membership, with overtones of philanthropy. Customers are asked to pay for food and service, but they’re also asked to cover many of the business’s start-up costs — sometimes literally. Before What Happens When even actually happened, Fraser raised $24,207 via Kickstarter.

Another advantage for chefs is that the pop-up model is an easy way to generate a certain amount of hype. If someone opens something for just a day or two and long lines form in the process, it can act as a great way to gin up the interest of potential backers for a more permanent project. (Or at the very least provide a chef with some welcome buzz.) It can also give a jolt of good press to chefs whose restaurants have been around for a while and are thus off the media’s collective radar.

For diners, the benefits aren’t as clear-cut. When looked at with coldly rational eyes, it’s clear that pop-up restaurants are best avoided. Prices at pop-ups tend to start in the $45 to $50 range (booze, tax, and tip excluded, of course), and rise from there. As a result, diners often pay triple-digit sums — comparable to those at “real” restaurants — to sit in spaces that have often been hastily constructed, eating food by kitchen staffs that, by definition, haven’t had the time to polish and perfect their recipes.

How, then, to explain pop-ups’ popularity? First, the semiotics of pop-up restaurants all scream, This is a great deal. Haphazard service, cheap chairs, liquor-license issues: Diners see these things and think they must be getting a bargain price. Second, there is the fleeting nature. Pop-ups are manufactured scarcity, a perfect draw for New Yorkers’ constant desire to find the new new thing.

There are even stealth pop-ups, which adhere to the pop-up model while seeming to have the outward trappings of a “real” restaurant. The soon-to-close M. Wells is the perfect case in point: Whether by design or not, the restaurant will have barely lasted a year when it closes this month, owing to a short lease agreement. Even if the landlord had agreed to a renewed lease, its low prices and high staffing levels make it hard to believe it was ever profitable — Michael Idov, who wrote a profile about the restaurant in New York Magazine, says it “felt more like a showcase than a business.” And a very successful showcase it was: M. Wells’s owners have generated massive amounts of hype and goodwill with customers, so they should find it relatively easy to partner with a big backer and open something more permanent, whether that’s at P.S. 1 or elsewhere..

(On the flip side, there is a restaurant like Thomas Keller’s Ad Hoc in Napa; it was designed to be a temporary placeholder while another restaurant was developed for the same space. But it proved so popular that it became permanent, spawning its own cookbook and fried-chicken mix in the process.)

Perhaps the demand for pop-ups is a sign that people really do value evanescence in restaurants and are willing to pay for it. Maybe Molto Mario was wrong, and predictability in restaurants (even predictable greatness) is no longer a virtue but a disadvantage. It’s possible, I suppose, but I doubt it. For all their hype, pop-up restaurants account for a tiny minority of restaurant visits in New York. If the jammed reservation line and packed dining room at the thirteen-year-old Babbo are any indication, it stands to reason that pop-ups are a bit like stock-market volatility: They’re generating a lot of heat and noise at the moment, but are best ignored over the long term.

Felix Salmon is the finance blogger at Reuters.

Earlier: Gastronomics: Why Blowout Feast Reservations Are In

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The suckling pig dinner at the Breslin is actually a pretty good deal.

Excess at restaurants is nothing new: having an excuse to eat and drink too much is often kind of the point. And restaurants are of course happy to oblige. There are the multi-course tasting menus, like the $500 Collezione menu at Del Posto, or, for that matter, the $420 option to order one of every single dish on the menu at Alta. But lately, another type of feast has sprung up at restaurants around the country: the kind where you get a bunch of friends together and eat a whole animal.

In New York, Nuela, the Breslin, and DBGB all offer a whole roast suckling pig, while Daisy May’s BBQ has a “whole pig” option that will set you back $480 and feed “up to 12”. Meanwhile, Momofuku Ssäm Bar practically pioneered New York’s idea of the so-called “large format” meal with its Bo Ssäm, and just last week the restaurant introduced a $140 whole-duck menu option.

The interesting thing about these whole-animal grazing sessions is that they seem to present a scenario where restaurant and diner both come out ahead from an economic standpoint — and a lot of it is because the feasts may have finally given restaurants a legitimate way to charge for reservations.

But first, don’t be fooled into thinking that diners win because they’ll get economies of scale by ordering so much food. At the Breslin, the pig will set you back $65 per person while a lamb feast is $80: It’s not easy spending that kind of money from the à la carte menu. The same is true at DBGB, where a party of eight is very unlikely to spend $495 on food alone, before tax and tip.

From the restaurant’s perspective, then, these feasts are fantastic deals on many levels. First of all, they force people to come in large groups — and large groups always drink more than small groups. People are less inhibited, when it comes to drinking, in large parties, and they don’t feel that if they drink less they’ll save any real money. (They’ll just end up paying for everybody else’s drinks instead of their own.) So they all just drink more — the highest-margin behavior a restaurant patron can ever engage in.

A whole-animal feast also solves the problem of a kitchen having to coordinate and cook lots of different dishes for large parties: One animal means one dish to cook, and it’s a dish that ends up being visually stunning, advertising the restaurant’s full capabilities to everyone in the dining room.

In other words, the restaurant is getting more revenue from the food, more revenue from the alcohol, and lots of free marketing, all for less work than it takes to serve a standard large group. It’s a no-brainer.

But then, does this mean that these feasts are a bad deal for customers? Not really. To be sure, if the animal comes at a fixed price, then it’s worth maxing out the number of people eating it. If you order a $495 pig for “up to 8 guests” but only six people end up being able to make it, then your price per person has already jumped from $62 to $82.

But diners get real value out of these things, too. There’s the theater, for starters: Tearing into a whole animal is unique and memorable in a way that yet another restaurant meal probably won’t be. Very few of these feasts end up undocumented on some kind of camera or cell phone. Let’s not also forget that having eight different people order 24 different courses is not much more fun for the diners than it is for the servers. Taking away the problem of what to order allows the group to relax and have fun, rather than trying to remember who got the linguine.

And of course you’re special when you order one of these. You’re very likely to be seated at one of the best tables in the house, and you’ll probably meet and talk to the chef — you’re the guest of honor tonight. Which feels pretty good.

But there’s another benefit that can make these feasts even more appealing. At some places, like the Breslin, the feast comes with an extremely special embedded perk — a guaranteed prime-time reservation. At Momofuku’s SSsäm and Noodle bars, ordering one of the “large format reservations” doesn’t get you a prime-time resy, but it does get you a resy, which is something that’s not otherwise available.

Reservations at hot restaurants are something that are nearly always underpriced. For reasons that aren’t entirely clear, reservations themselves always have to be free. This doesn’t make much sense when you think about it: Clearly a reservation at a hot restaurant at 8 p.m. on a Saturday night has real value — and significantly more value than a reservation at the same restaurant Monday at 5:30 p.m. But the Saturday diners get the same menu, at the same price, as the 5:30 p.m.-on-a-Monday diners, and they don’t pay a premium for the reservation itself.

I’m not the first person to realize this: A host of websites has come and gone trying to change this, either with or without the knowledge and consent of the restaurants concerned; none of them have met with much if any success. Next, in Chicago, does charge different prices according to time of day, but the conceit is rendered moot by the fact that they all sell out immediately in any case.

Restaurants do have time-tested ways of monetizing prime-time tables; they’re just not particularly democratic. They might refuse those tables to all but celebrities, journalists, or known big spenders, or give privileged access to hotel concierges whom they can count on to fill less desirable time slots.

Which is what makes the premium paid for these feasts worth it. Something like the Chef’s Table at the Breslin is an elegantly masked way of being able to buy a much-coveted reservation on the open market. You’re ostensibly paying for the food, but in reality, a large part of the four-figure check is going to pay for the fact that you were able to reserve that table in the first place. It’s basic economics: Something scarce is going to sell for a premium. And there’s only one Chef’s Table at the Breslin.

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Oh, I hope he likes the sauce!

In April 2010, New York’s Robin Raisfeld and Rob Patronite gave a glowing five-star review to Torrisi Italian Specialties, calling it “a tremendous bargain, and a serious delight.” Two weeks later, Torrisi hiked the price of its tasting menu by 10 percent, to $50. It seems like it must happen all the time: A restaurant gets a rave review, and next thing you know it jacks up its prices.

It stands to reason that a great review increases demand and the amount that diners are willing to pay. But in fact it doesn’t really work that way.

Of course, some restaurants hike their prices after a rave. But others hike their prices after a bad review, or after no review at all. It turns out there’s very little correlation at all between good reviews and price hikes.

None of this is easily apparent: Restaurants, especially at the high end of the market, can be unforgivably opaque when it comes to prices. David Bouley’s website, for instance, offers no pricing information for his restaurants. The web helps, of course. Sites like New York’s own MenuPages constantly update pricing info, and recently Ryan Sutton, Bloomberg’s restaurant critic, launched thepricehike.com to keep an eye on such things. His first scoop: Chef’s Table at Brooklyn Fare raised the price of its menu from $165 to $185 just two days after Sam Sifton’s rave review in the New York Times.

Sutton also maintains a list of the priciest three- to five-course set menus in New York. Up until recently, the top two restaurants were Eleven Madison Park, at $125, and Del Posto, at $115, and it was natural to draw a causal relationship between those ultrahigh prices and the four-star reviews that both restaurants recently received from the Times.

But it’s not as simple as that. Eleven Madison’s five-course tasting menu was $125 even before Frank Bruni’s review, and although Del Posto did raise its prices after Sifton’s rave, its prices are still lower than they were in 2008, when the restaurant had three stars from Bruni.

And look which restaurant just vaulted to the top of Sutton’s list: Gordon Ramsay at the London, with a $135 tasting menu priced solely owing to the power of Ramsay’s global brand. (Never mind the fact that Ramsay no longer actually owns or operates the universally panned restaurant.) That said, $135 for three courses looks like a veritable bargain compared to the $135 bowl of soup at Milos, where reviews aren’t bad so much as nearly nonexistent.

So even at the very top of the market, it’s possible for restaurants to charge extremely high prices without any ratification from restaurant reviewers at all. And at the other end of the spectrum, very well-reviewed restaurants can be downright cheap, especially if they’re Chinese. Whatever it is that spurs restaurateurs to raise their prices, it isn’t reviews.

This can be seen visually, too. With the help of New York intern Ray Rahman, I recently collated every review from Sam Sifton and Adam Platt over the past year. Sifton’s reviews ranged from zero stars to four; Platt’s from zero to three. The charts show that restaurants are constantly recalibrating their prices, and that reviews from influential critics have almost nothing to do with it.

It makes sense: Food prices and diner behavior are complexly dynamic, and while a review may loom large in the public’s perception of a restaurant, it’s only one of a multitude of factors at play. The most stable and profitable places may have the luxury of keeping prices unchanged for long periods of time, but everybody else is constantly tweaking: Appetizer prices go down while entrees go up; cheaper entrees go down while steaks go up; tasting menus go up but add extra courses; the tasting menu goes up in price while entrees go down; high-end items get added to menus or taken off — that kind of thing.

Looking at the restaurants Sifton and Platt reviewed, most of them made inconsistent changes to their menu prices: Some items went down, others went up, but there weren’t many across-the-board price hikes.

A minority of restaurants did have obvious post-review price hikes, but they were middling reviews, not raves. Lavo got a no-star, “fair” review from Sifton in November. Back then, the pizza and pastas topped out at $38 with the entrees ranging up to $48; now the pastas are as much as $45 and the entrees can set you back $55.

It’s worth noting that a good review is profitable for a restaurateur even if prices stay flat — if business picks up, the restaurant is likely to make a lot more profit. Why mess with a formula which has been proven to work? On the other hand, if you get a bad review you won’t be getting much new business, and you might have to start raising prices on the few customers you already have.

Fundamentally, the restaurant business is a highly capricious one. Well-reviewed restaurants struggle, and dreadful ones can sail on for decades if they have a loyal local clientele. Food reviewers nearly always care much more about food than most diners, who go out for a multitude of reasons.

From a consumer perspective, the lesson here is that price is no particular guide to food quality, as measured by reviewers’ stars or anything else, nor do rave reviews mean that a restaurant will soon be hiking its prices. Some great restaurants are very expensive, but many mediocre ones are, too. And sometimes food quality is simply irrelevant. The Four Seasons will always be booked solid, no matter how much money it charges, and pretty much regardless of how the dishes taste or what reviewers might say.

Restaurateurs, especially at new establishments, undoubtedly lose sleep about how many stars they’re going to get from Sifton and Platt. But reviews rarely make as much of a difference as we might suspect — at least when it comes to the check.

Felix Salmon is the finance blogger at Reuters.

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Do you mind if I just scoot by?

At some point, everyone’s left a restaurant feeling ripped off. The true cost of restaurant dining can often be fuzzy at best, confusing and frustrating at worst. For diners, there’s rarely any real rhyme or reason to the price of a meal, beyond the feeling that it either costs what it “should,” or it doesn’t. But how much should any given meal actually cost? Welcome to Gastronomics, where, each month, Felix Salmon will break down the economics of eating out. In our first edition, he wonders: Why do people flock to restaurants that treat their customers like crap?

Dining out should be a pleasurable experience. But why does it often feel as though it’s all about pain? In a weird inversion of service culture, the most popular places to eat are increasingly the venues that do the best job of maximizing discomfort, inconvenience, and noise.

AA Gill does a masterful job in this month’s Vanity Fair exposing Paris’s hugely popular L’Ami Louis as “the worst restaurant in the world,” a haven for bad food, exorbitant prices, and atrocious service, which is nevertheless packed full of people. “Why do Americans and English come here?” Gill asks. “The only rationally conceivable answer is: Paris. Paris has superpowers; Paris exerts a mercurial force field.”

Gill is funny, but he’s wrong about this. In fact, what’s going on here has very little to do with the mercurial pheromones of Paris, as a glance at overpriced restaurants all over the world will attest. Are there compelling cultural connotations driving people to, say, Harry Cipriani?

These restaurants have perfected the art of creating Veblen goods — items where demand increases as the price goes up. In this rarefied world, high prices are a feature, not a bug; they’re status symbols that alert others to the fact that the patrons can pay $26 for something as basic as a spinach salad. They also serve to keep out the riff-raff. If L’Ami Louis cut its prices so that they were commensurate with the quality of the food and service, no one would go there anymore.

What’s interesting about the latest bout of culinary masochism, however, is that it’s taking place at sub-luxury levels where Veblen goods have historically been very hard to find. L’Ami Louis and Harry Cipriani might have bad service in reality, but at least they aspire to providing the best service in the world. Further downmarket, by contrast, as Diane Cardwell reports, “New York has spawned a breed of hard-line restaurants and cafes that are saying no.” Chefs are refusing customer requests, even as they ask higher prices for traditionally low-cost food. At Burger King, a Whopper costs around four dollars, and you can famously “have it your way.” At the Spotted Pig, a burger costs $17, and you will have it their way, or not at all.

Saying no is bad service; it boosts the egos of the restaurateur and chef, and makes the diner feel snubbed and unhappy. It also signals to the customer that they will have to bend to the will of the restaurant, not the other way around. So why do restaurants do it? What’s the economic justification for upsetting your customers?

To help answer that question, get a falafel from the Taïm Mobile truck in midtown one day. Try a Wednesday, on 51st Street between Sixth and Seventh Avenues. Chances are the line will be an hour long — which means that for the midtown office workers getting their food, the amount of time they spend waiting for their lunch will be significantly more valuable than the falafel platter itself, which is priced at $9.50. Standing in an interminable line for a falafel is no one’s idea of fun — there’s a real cost to that wait. But hundreds of people suffer it gladly every day.

Of course, it’s not just trendy food carts that require inordinate amounts of waiting around. Popular restaurants like the Spotted Pig or Momofuku Ssäm Bar have never taken reservations and can easily ask would-be diners to wait well over an hour before they’re likely to get a table. It’s here that the concept of being overpriced overlaps most clearly with the concept of bad service: New Yorkers’ time is valuable, and they waste far too much of it at restaurants that refuse to seat them at the time they want to be seated.

Economists call this a negative externality: The amount of extra money that the restaurant makes by always being full and never saving tables for customers is lower than the cost to its customers of waiting to eat. So from an overall cost-benefit analysis, the policy doesn’t make sense. From the point of view of the restaurant, however, the customers bear the extra costs while the restaurant gets all the benefit — so it goes ahead and implements a no-reservations policy.

But here’s where the economic model breaks down. In theory, a no-reservations policy creates, in economic terms, a huge price hike for the restaurant’s customers: The cost of their wasted time and increased inconvenience has to be added to the amount at the bottom of the check. Such a policy should therefore result in less business for the eatery in question. In practice, however, things seem to work the other way: The more that a restaurant makes its customers wait, the more popular it becomes.

If we’re not talking about luxury Veblen goods here — and, clearly, we aren’t — then what explains this phenomenon? The answer comes from an internalization of other economic concepts. First of all, there’s the idea that if something is selling out, it’s underpriced. There’s an hour-long line for falafels? In that case, they must be a bargain! People are waiting for over an hour to eat at Al di Là or Shake Shack? That must be an indication of quality!

What’s happening here is that restaurants are making their popularity visible and turning it into a signaling device. If you take reservations and you’re very popular, all that happens is that it becomes harder to get a reservation. If you don’t take reservations and you’re very popular, then everyone can see how popular you are — and all those people are likely to be curious as to what all the fuss is about. (David Chang figured out how to make a reservation policy a signaling device, too: Every time you log on to Momofuku Ko’s reservation website, all those red X’s remind you just how popular the restaurant is.)

There’s also a behavioral-economics perspective to this: The more you invest into something, the more you tend to get out of it. That’s why expensive wine tastes better than cheap wine, even if you would have preferred the cheaper wine in a blind tasting. A $79 foie gras appetizer in Paris tastes that much better for being expensive. And once you’ve waited an hour and half just to be seated in a restaurant, you’re going to be more excited to eat its food — not to mention hungrier.

Even when you’re aware of the phenomenon, you can’t escape it. One of the best meals I’ve eaten in the past year was at Vij’s in Vancouver, a spectacular Indian restaurant with a no-reservations policy and a permanently long wait to get in. Would I have appreciated the meal as much if I’d been able to saunter into a half-empty restaurant and get served immediately? Quite possibly not. The quality of the food more than justified the two hours I invested waiting for a table. But at the same time, the two hours I invested waiting for a table probably also improved the perceived quality of the food.

Felix Salmon is the finance blogger at Reuters.

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