WTF: Zagat’s Restaurant Inflation?

Here’s one of those things that make you scratch your head while mouthing the words WTF to yourself.

My friend and RM colleague Paul posted on the huge increase in restaurant prices nationwide (but not NYC), via a Zagat’s press release:

"While overall restaurant prices in NYC remain the highest in the U.S.
at $39.46 per dinner, that’s only three cents higher than last year.
… However, inflationary trends look quite different at the city’s 20
most expensive restaurants where an average meal now runs $143.06.
Since 2001, dinner prices at the city’s elite have soared at an average
of 11.6% per year, from $84.45 to $143.06."

There’s a small problem in this press release: While among all New York
restaurants, the average cost of a meal has risen only three cents
since last year’s survey — to $39.46 from $39.43,nearly 60% of survey participants say they spent more per meal this year than last year
(and we assume its more than 3 cents).   

How can this be?

Let’s look into the various aspects of that, to see if there is — or isn’t — inflation in restaurants.

To begin with, the Zagat’s are well known gourmands who are big promoters of the dining
industry. That they found prices only moderate doesn’t surprise. They are hardly neutral, skeptical observers. Perhaps
the more critical eyes of our readers here can help us delve beneath the press release to
discover if restaurant prices are actually flat. (Some people call this lawyering, I prefer to think of critically reviewing BLS or press releases as analysis; you can make your own decision).

There are a few possibilities we can explore — perhaps prices are flat, maybe its something else (I don’t honestly know). My own personal experience — and I dine out quite frequently with clients, friends and family — is that prices appear have increased substantially. We know food costs are up, rent is up, energy costs are up — and yet, overall prices, according to the Zagat’s, are flat.

To begin with, the Zagat guide is a self-reported set of reviews, where diners submit their views on food, decor, service as well as price. Since people are reporting what they spent, perhaps this is reflecting their own self-imposed budgets, rather than actual restaurant pricing. If a Zagat reviewer is limiting themselves to only spending $50 or a $100 on a meal out — perhaps they are skipping dessert, not ordering the premium dishes/specials, or not ordering beverages — then this may not be fully reflecting what restaurants charge. Instead, it reflects what the diner spent — a subtle but imprtant difference. 

Then there is the question of what the restaurants themselves are doing. As these paragraphs from the press release suggest, the restaurateurs are trying to keep costs down in a variety of ways:

Small Is the New Big: Small-plate menus are cropping up all around town including those at
L’Atelier de Joel Robuchon, Degustation and Perbacco, despite the fact that
75% of those surveyed think traditional standard-plate menus provide a better
value
. Additionally, smaller, more intimate neighborhood restaurants like
Cafe Cluny, Insieme, Klee Brasserie, Morandi and Waverly Inn are outpacing
last year’s theatrical, mega-restaurants such as Buddakan, Craftsteak, Del
Posto and Morimoto. [getting alot less for a little less money? sounds like inflation]

Dressed-Down Dining: The rise of these neighborhood restaurants has led to another trend – the
dressing down of dining out. White tablecloths and dress codes continue to
lose ground with the loss of fine dining establishments like Alain Ducasse,
Lenox Room and March, with not a single formal restaurant among this year’s
crop of 234 newcomers
. (emphasis added). [getting less for the same money? inflation]

Prix Fixe:  A number of top restaurants offer relatively affordable prix fixe
lunch and dinner menus, and the popular biannual Restaurant Weeks,
which we helped to create in 1992, allow diners to sample some of the
city’s finest at greatly reduced prices. [I can't speak to elsewhere in the US, but in NYC, Prix Fixe meals are typically the less expensive dishes; the "better" dishes come with a surcharge] 

Smaller portions, "lesser" prix fixe entrees, eliminating expensive accessories — perhaps diners are paying the same amount, but getting less. That sounds like inflation to me.

Headline_onflation

courtesy of Jim Picerno

For a more generalized overview on inflation, Jim Picerno says "Don’t Write Inflation’s Obituary, Just Yet"

>

Sources:
Where the Dollar’s Still King
By NINA ZAGAT AND TIM ZAGAT
October 10, 2007; Page A20
http://online.wsj.com/article/SB119198373154954370.html

Average Meal Cost Holds Steady, Prices at High End Soar
Zagat 29th Annual New York City Restaurants Guide
PRNewswire via COMTEX, 12:01 AM ET Oct 10, 2007
http://tinyurl.com/yt86vm

Category: Commodities, Economy, Federal Reserve, Financial Press, Inflation

Thin Trading: Fed Fund Futures and Antique Watches

Yesterday, Traders embraced the release of the FOMC minutes. Indices were flat up until just before the 2:00pm release, and then took off, with the Dow gaining near 1%.

The thinking behind the Fed action was clearly revealed in that release. The emphasis was on the subsequent impact of credit on the entire system. The WSJ reported:

"Federal Reserve officials worried that credit-market
turmoil could reinforce slower growth at a time of "particularly high
uncertainty," leading to their half-point interest-rate cut last month,
minutes from the meeting show.

Without a cut, there was concern that "tightening
credit conditions and an intensifying housing correction would lead to
significant broader weakness in output and employment," the
rate-setting Federal Open Market Committee said. The minutes, released
yesterday, also showed members worried that market turmoil "might
persist for some time or possibly worsen."

They offered no clues about
the direction or timing of the Fed’s next move."

That last sentence is quite intriguing. Understanding whether or not a rate cut is forthcoming impacts yields, stocks prices, etc.

Given the significance of the Fed’s action, one would suppose that the markets which trade the Fed Futures would be, if not prescient, than at least telling about their future price action. One of the more fascinating aspects about this, however, has been the way the Fed Fund Futures have functioned over this time. They have been wildly wrong, forecasting an imminent rate cut since January 2006. I thought it might be instructive to look at why this maybe so, and what it might mean . . .

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Distributed Content Blog Advertising Model

A few people wrote in to ask me about yesterday’s Nielsen/Media Matrix rant.

-Some pointed out (privately) the flaws in these systems, noting they have been very error-prone in other media — radio, television, newspapers — for years.

-A few told me I was wildly wrong, and this is just a standard measuring approach. (I don’t buy that, as its easy enough to measure EXACTLY how many ads are actually served or clicked on. The aggregation/assignment approach, is a recipe for inaccuracy and abuse).   

-Several media people told me that the anarchy of the blogosphere terrifies the MSM, and this was an attempt to make it more acceptable (a "clean well lit place" one wrote).

-A major advertising executive asked a question that was most intriguing: "Why do you care, and what does it matter anyway?"

That’s a thought provoking question, worthy of an answer. Here’s mine:

There is little doubt that Blogging is changing how people get information, analysis and opinion. Major Media has recognized that there is a certain aggregation of readers, many of whom are not represented in the MSM readership. This means their advertisers are not reaching these consumers.

Based in part on this, I made a proposal to a large media firm over the summer, describing what I saw as an opportunity to create a new advertising structure for a large magazine or newspaper.

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