The old 80/20 rule – 20% of customers drive 80% of sales – doesn’t apply to restaurants where 20% of customers represent 60% of the trips to eat out and generate 66% of the overall spending according to a study by Cardlytics.
That’s why tourism is so important to restaurants because $1 out of every $3 in food and beverage sales nationwide is visitor generated. The ratio is even higher in communities such as Durham, North Carolina, which have earned reputations as “foodie” destinations.
The 80/20 rule is more like 60/20 for other visitor-reliant industries as well include shopping, groceries, convenience and gas.
Even with locals though, the study reveals that frequency is not the same as loyalty. In dining, for example, high frequency customers tend to dine at several favorites, while customers who dine less frequently may use one particular restaurant.
The analysis shows that overall, 56% dine at the same restaurant less than half of the time and 44% dine at the same restaurant more than half of their dining trips out.
There are few more complicated businesses to run, especially the locally-owned, independent restaurants that contribute to making communities distinct.
Even the franchises, which tend to eat away at sense of place by making communities the same, are no piece of cake to run, which may be the reason these businesses seem so prickly when it comes to shouldering their fair share of the cost of creating community visitor appeal.
In Durham, out-of-town franchisees have sought to undermine our billboard ban and ordinances to reduce sign blight. They invested heavily to defeat a 1% prepared food tax that, in part, would have helped clean up the litter they generate. Nationwide they are among the first to fuss about the minimum wage or providing affordable healthcare.
I agree with several restaurateurs in Durham who believe that business models in many visitor-related industries that rely on low wages are flawed. Franchise owners, which an observer recently equated to sharecroppers seem to be the most virulent in opposing to paying a living wage or even increasing the minimum wage.
In late 1967, as a teenager with a newly minted drivers license, one of my sisters went to work part time at a cookie bakery for $1.40 per hour.
Adjusted for inflation though, she was making $11 an hour today. Back then the minimum wage was enough to lift three people out of poverty, today, it is barely enough for one.
Today’s minimum wage is nearly $4 lower than in 1967.
Several dozen studies now show that increases to the minimum wage have a nominal effect on jobs or prices. Restaurants are a minor exception. Researchers have found that for every 10% increase in the minimum wage, there is a 0.7 cents increase in restaurant prices.
So the increase to $10.10 currently under discussion might result in a less than a 28 cent increase in restaurant prices. Oh my! I am sure at the margins some economist will find a sliver of a fraction who won’t eat out because of the increase, but that will be overwhelmed by the number who will dine out more because they can afford it.
It reminds me of the brouhaha in New York just as I retired a few years ago from a career in visitor centric economic development, when that city required all cabbies to accept credit cards. What happened? Cab revenues went up 13% and tips rose from an average of 10% to 22%.
Now, technology is not only disrupting businesses such as cabs with services such as Uber just as Airbnb is disrupting economy lodging, but it is also now making cash registers and check out lines obsolete as well as changing what we know about tipping.
In fact, the app Square, which allows anyone, including a far greater number of employees in stores and restaurants to check people out, saving time for consumers and employees.
In its fourth year since launch, the company already has enough information to break down tipping rates and participation by state and even down to some large metro areas.
Square gives an individual or business user the ability to set screen buttons with a range of tipping options, and there is evidence it is increasing tipping as a practice and the amount tipped.
The average tip nationwide is 16.1% compared to North Carolina where I live which ranks third among states at 16.7%. But keep in mind that more than 46% tip nothing at all, a percentage of “stiffers” that climbs to 6-in-10 in some states.
Before getting too judgmental, it is important to note that tipping is a learned behavior. If you didn’t learn how from your parents, a good guide to follow the example of how people in service industries tip one another.
Tipping in some service industries began as a way to incent service, but unfortunately underwent a sort of “bait and switch” in some business models as an excuse for owners and managers to pay less than minimum wage.
I lean toward a mandatory minimum wage but I know it isn’t a panacea and I can empathize with those who have a distaste for anything mandatory. But this is an area where the free market is inefficient.
As an alternative, maybe like-minded businesses could also borrow something from the coffee sustainability movement spearheaded from Durham-based Counter Culture and begin to brand themselves as “Fair Pay” or better yet “livable wage” businesses.
Fairness is a shared value among Americans. It is just that some of us think of fairness as distributive, some of us think of it as proportional and some of us think it should be both.
I agree with many who believe this issue isn’t going to go away. I also agree that paying a fair minimum or livable wage should not enable or be an excuse to retain disengaged workers. That is an entirely different and equally important issue. One is macro, the other micro.
I keep coming back to a study published a few months ago by researchers at Cornell and Stanford entitled, Residential Segregation by Income, 1970 – 2009. The span begins shortly after my sister took that job for $1.40 at the cookie bakery.
In that span, the percentage of families living in middle class neighborhoods fell from 65% to 42%. A few moved up, the vast majority fell back to low income and poor areas.
That big a shift is something that should concern all of us.
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