From Vladimir’s Blog

So this was a comment I posted on Vladimir’s, a very nice Young Man’s blog, about the fragmentation of the food industry. I was thinking about it recently anyway because right before my younger and only Brother had gone to college*, my only living grandparent had taken us out to dinner. And the place was empty during peak hours. What made this all more interesting is:

1. My Family is a bunch of Kosher Keeping Jewish people. So is my mother’s extended family who is still talking to each other. (that’s the vast majority of people). (Don’t ask about me please, I’m complicated and going through life shifts, and am thinking a lot, but that’s not for this space)
2. This Restaurant used to be franchised. All the other ones had failed recently. This one looked as if it were about to.
3. There was another restaurant near by, also franchised, in a small way, that was packed.  It started in the area that I grew up in, in a hole in the wall, and now replaced the space where the place I was eating at that night had a branch in my area.  I was there recently.  Again, it was packed to the gills.  It’s as I keep say, pseudo-mexican.
4. The municipal district that I grew up in has some interesting laws about the opening and closing of restaurants in my area, because the sewer system is old and can’t handle food oil sludge and they can’t raise taxes, won’t/can’t raise bond notes, and as a result, no new restaurants can open unless an old one closes.  I think the law includes expansions as well.
5. The school district that I grew up in, if anyone read the post about how I am angry at Google for giving over private information and setting precedence, is about 55% to 60% Orthodox Jewish people.  This means those opening and closing restaurants in my area are mostly kosher restaurants, which have to appeal to the local kosher authority’s standards. Usually the standards are going to be in certain ways stricter than the average kosher keeping home in the US.  Further, they are going to be either an only meat restaurant, or an only dairy restaurant.  (not that they won’t serve you veggies or bread, it’s things like knives, pots and pans we’re concerns about mixing with the dairy or the meat)
6. Kosher meat and dairy is more expensive than their non-kosher counterparts, for a wide variety of reasons, some silly, some not, even if you are respectful of religious belief  The overhead for ingredients therefore is more expensive, with no guarantee of like quality or of replacement quality.
7. There are also a number of bloggers in this community, and communities like this one, who are willing to discuss the financial health of how it all works.  As well as organizations who want to look at the books for social justice reasons.  So you can actually slowly obtain information if you really want it and are really curious.
8. As a result, you happen to have a really good test case of what happen with fragmented niche food joints and what works and what doesn’t, especially in a downturn.

Here is the post.

Vladimir, if you really want an answer, come visit my hometown in the next week or two. For a variety of reason, there are large amounts of controls in this area that makes it very clear what people will buy and what they won’t, and at what cost, and how they will buy it. Further, people openly blog about the cost of living in this area. So you can get a rough handle on the numbers and why people will chose what.

People apparently like eating what they feel they can afford. It isn’t nicheness, it’s sticker-shock to nicheness/coolness. People like nice things, they like feeling cool, they feel a need to impress other people with fun stuff, but not at an overblown price (up to a point, and it depends on what). If something better, cooler, and can fit into a lifestyle at a cheaper price comes along, it will push out whatever else is there. The sandwich joint that is awesome thing works because it’s overhead should be low since the ingredients that appear on the menu are going to be repetitive and are going to be filler ingredients. As a result, the highest costs should hopefully be the fixed costs- the rent, the labor(hopefully this should be stable), the kitchen gear, and hopefully the gas/oil/electric bill( this should hopefully also be stable as a seasonable average). Such I have discovered by observing my town, with its weird food community, in action.

Remember, my school district that I grew up in has past the tipping point of private school students because of the amount of Orthodox Jewish students. So there are more Kosher restaurants than not. Because they are strictly kosher, there are only restaurants that serve dairy or meat products, never one that serve together. One further note: The cost for kosher dairy products tends to be higher depending on the standard one keeps. Kosher meat in general has high prices, because the majority of meat is rejected during kosher inspections as part of the slaughter. Restaurant standards are high because they have to appeal to the entire community. They are higher than my parents house (when they cook), so the cost of food goes up in a restaurant than in a house.

There is also a municipal rule, due to old sewage systems that are really hard and expensive to replace, that unless an old restaurant closes, you cannot open a new one, nor expand (I think, very complex law). In this area, the amount of restaurants, both kosher and non-kosher, is fixed by the town. There have been two (or is it three) restaurants that closed down in this area. Another older one expanded, and I think there is a new one that opened recently. Hard to tell, I don’t go restaurant hunting.

Here is what I have noticed:

Subway is officially the largest kosher franchises in the US. We have one. We also have at least three stores/grocery counters in kosher supermarkerts that sell deli that they make with secret recipes! So how does Subway cut a profit in an area where the margins are much closer, and they have numerous competitors who they know offer superior products at a slightly higher price, (at least just deli).

Well the same way that all the other restaurants that are doing well in this area are. Either they are
A) lux and are charging through the roof. (My favorite bagel place is famous for this and their attitude. Really expensive and really good bagels compared to the price of making a bagel) People like treating themselves depending on the lux factor (bag of bagel, nova, and cream cheese for your family once of month versus expensive pair of shoes….)

B) Filler. Lots and lots of filler, at a high margin. The actual price of filler is cheap. The most popular reservation in this area that is Kosher is pseudo-mexican. Burritos don’t have much meat. And their hamburgers are thin. Meanwhile, the Hamburger place imported from Israel, popular a year or two ago, with really big burgers, is suffering because their prices are slightly higher to compensate for their space and the cost of the meat. And that same pseudo-mexican place pushed out the “low end steak place” It was a chain. I was in the last location in queen during what should have been the busiest hours. They had cut the menu in half, no one was there, and the prices looked ridiculous for a low end steak that one felt like they could do at home. We passed by a branch of the same pseudo-mexican place. It was hopping full. That’s what happens when you charge $5-$15 for a main versus $10-$30.

And non one believed me in the car ride home. It’s why luxury coffee, to a point, do really well. Most people don’t realize that $3 a day is a lot. Or even $1.50 But the margin to make the coffee and buy the pastries for the coffee place is great.

*I suspect a lot of people might be sending children or going to college for the first time themselves.  Bring a small First Aid kit with Band Aids.  Nearly Everyone Forgets.