Are restaurants too expensive? It’s a question people all over the world always ask. And there is no good answer except perhaps for this: Yes, sometimes.
The funny thing is that many of the restaurants people regard as being much too expensive actually make the least money: Often they are unprofitable. To earn three stars from Michelin, a restaurant has to keep a certain distance between tables (i.e. fewer guests); there must be a huge number of servers (so, high salary bills); it must use the best ingredients (so, very high food costs) and usually it has to be located in a desirable area (so, high rent).
As a consequence, despite the high prices such restaurants charge, they rarely make very much money: Some actually operate at a loss. This is why many chefs have returned the stars that their restaurants have received, telling Michelin that they would rather run simpler establishments.
But there are many restaurants that practice what is called demand pricing: They charge whatever they think the market will bear. And experience has demonstrated that if there is enough hype around a restaurant, people will pay huge prices even if the food is not good.
The most quoted example of this practice are the restaurants run in the name of Nusret, a Turkish chef whose steakhouses have attracted a dedicated following from non-foodies, football players, gullible tourists and trend-hungry wannabes
Though his Istanbul restaurant (horrible) has been going for some years, Nusret only achieved global recognition after he opened in Dubai (not a bad restaurant). Since then he has set up restaurants all over the world, much to the fury of foodies and critics who are astonished that he can charge such high prices: A single steak can cost £1,000 pounds sterling.
In London, for instance, his Knightsbridge steakhouse has been described as an ‘idiot-magnet’ but the bad reviews make no difference because the restaurant thrives on a clientele of tourists, millionaire Arabs and people who don’t read reviews. In New York, when a Nusret hamburger place closed down recently, you could almost hear the critics cheering.
While the steaks and burgers at Nusret can sometimes be good, they are priced much, much higher than they need to be. The difference between the revenues and the actual cost of running the restaurant is a vast amount of money that is pure profit.
Foodies find this sacrilegious. But I have a slightly more philosophical attitude to demand pricing. If you buy a designer bag, the chances are that the actual cost of the handbag will be about 15% of the selling price. Likewise, with perfume from big designer brands. If people think this is acceptable and are happy to pay inflated prices, then why crucify restaurants when they follow the same policy?
You can argue about restaurant pricing, but there is one area when the prices charged to customers have nothing to do with the actual costs of the operation: The so-called trendy clubs and bars which can charge pretty much what they like for food and drinks. Sometimes the most overpriced bars actually have long queues of people waiting to be allowed in so that they can be ripped off.
But are they really being ripped off? In terms of normal accounting: Yes. But how does one put a price on trendiness or on the ‘place-to-be-seen’ factor? People who run clubs take the line that a drink is worth whatever someone is willing to pay for it. The actual cost of the alcohol is irrelevant.
So, I am always careful not to be too judgemental about demand pricing. I wouldn’t waste money on a drink at a so-called trendy bar. And I think people who pay Nusret’s prices are nuts. But it’s their money and their choice. Who are you and I to decide what is fair pricing?
Even in the high-quality restaurant space, where France used to set the norm, the popularity of top-class Japanese dining all over the world has changed all the rules.
The best restaurants in Japan are places that you and I will never hear of. They are so exclusive that they don’t give bookings to people they do not know well. It is very unusual for a non-Japanese to even get to eat at one of them.
Because they are nearly impossible to get into it, Michelin will not list them, let alone give them stars. Which suits these restaurants fine: They don’t want recognition from the western world. If you are allowed into one of these restaurants, then it is assumed that you are so rich that price does not matter.
Is this just demand pricing? Well, there is some element of demand pricing because often these are small, sushi-counter restaurants and space is limited. But the people who do eat there do not feel that they are being ripped off. This is only partly because the ingredients used are so expensive.
It also because they are paying for the chef’s skill and experience. In this kind of restaurant, a chef will spend 15 years learning how to make the perfect bowl of rice. It will take as long to learn how to slice a fish perfectly.
And then, there is the chef’s instinct. In great Japanese restaurants, the chefs disregard the western notion that all fish must be absolutely fresh. They believe that fish needs to be aged until the chef thinks it is ready to be eaten. (It’s the same principle as ageing a steak).
How does a chef know when a fish is at its best? Instinct and experience. How do you put a price on that?
None of this applies to India where there are few Japanese chefs of any consequence. In fact, in our country, we often don’t value the chef’s skills enough when it comes to Indian food. Great Indian food is only partly about recipes. Mostly it is about the chef’s eye and hand. How do some chefs make soft rotis every time? How does a chef know at which stage to add which spice? How does he decide that the meat for a kabab has been marinated enough? These are instinctive decisions and because we don’t value the chefs who always get them right, our restaurant prices rarely reflect our appreciation of the chef’s skill.
The French understand the distinction. At the very top level, French food is about imagination; skill is taken for granted. But, ask any French chef which cuisine he respects the most (except for his own) and the chances are that he will express his admiration for Japanese cuisine, because of the skills of the chefs who function at the highest levels.
To some extent, the West is now beginning to understand why it is worth paying so much for the skills of a Japanese chef. In London, the most expensive restaurants are now Japanese places and foodies have begun to marvel at chefs who know when a steak is ready to be taken off the fire only by the way it sizzles: They have cooked so many steaks that the sizzle now talks to them.
In India, our most expensive restaurants tend to be at five-star hotels. And with a few exceptions (say, Bukhara) they are really not worth the prices. As the standalone sector explodes, you can eat better outside of deluxe hotels at half the price.
That’s a welcome change. The next step is for us to learn to pay for the skills of the chef, not for fancy surroundings or perceived trendiness.
But never forget the golden rule: Expensive is not a synonym for good. So always be suspicious of places that charge too much money.
