My wife and I vacation in the Hamptons at the end of each summer, namely East Hampton. My brother-in-law, John, has a very nice house there. On the second morning of this year’s trip, John’s friend, Glenn, offered to take us all to breakfast.
“Have you two ever been to Babette’s?” He asked. Babette’s is a small, cozy restaurant in East Hampton in the middle of the village.
With a smile on my face, I stated that “Yes, we’ve had the $50 breakfast.”
My wife chuckled, as did Glenn.
Shortly thereafter, we were seated at a lovely outside table at Babette’s. We were lucky to get it, as the place was packed. As we were reading our menus, Glenn pointed out that the “Two Eggs Any Style” was $15.95, or basically $16. “That’s an $8 egg. How can they do that?” How much does a carton of eggs cost in the grocery store?”
“I think about $2.50.” I replied. “I’m sure you get more than just eggs, but not much more. Plus everything here is organic.” A carton of organic eggs runs around $4.50 in a grocery store. That’s $0.37 per egg retail, they’re paying wholesale.
“Wow” He said. I smiled. And continued to read my menu.
Why did the $8 egg inspire me? To be honest, I’ve had writers block, which happens. The $8 egg, along with Glenn’s response, got me thinking. Babette’s charges basically $16 for two eggs. Many people would consider that absurd. How can they do that? How can they charge $16 for two eggs? The immediate answer is simple, they charge $16 because they can. We’re in the Hamptons, good food is the norm, and nothing is cheap. (Now, as I get into this piece I want to make something clear. I am not trying to disparage Babette’s in anyway. I love the place. The food is great, and so is the coffee. You will not get a better breakfast in East Hampton. If you are ever in the area, it’s certainly worth the visit. It’s a true Hamptons experience. My personal breakfast favorite is the Smoked Salmon Benedict: Crispy roasted potatoes, smoked salmon, poached eggs, and champagne hollandaise sauce for $27. And the price is worth every bite.)
Here is where I’m going with this, one of the reasons Babette’s is successful is because the owner understands two very basic things; who they are, and where they are. As I previously stated, Babette’s is a true Hamptons experience. That experience is what they created. They know their market, they know who lives and vacations there. And they know exactly who they are. They are a small eclectic place with fantastic food, where people also go to be seen.
Restaurants don’t sell food, they sell an experience. You can go to the grocery store and get food. It’s amazing how often my students get the question wrong when I ask “What does a restaurant sell?” “Food” is always the answer they shout out without thinking first. The fact is, you go to a restaurant to have an experience. The food is part of that experience, but the entire experience is why you are there.
The experience is made up of many aspects. The type, taste, and quality of the food, the lighting, the furniture and décor, the smells emanating from the kitchen, the level of service, the type and volume level of the music, and the menu pricing all play a factor in the experience. They all blend, and making that happen in just the right way is difficult. Guests experience restaurants, they don’t just eat there. And they don’t consciously acknowledge every little factor. They take in the total feel of the place. Ever suggest a restaurant and have someone reply “Nah, I just don’t like the place.” Odds are it wasn’t the food, or just the food, that turned them off. There were aspects of the experience they did not like: the music, décor, lighting, the price, etc. They may not remember exactly why, but the place did not appeal to them. But what they do remember is that they don’t prefer the place. This is a restaurant owner’s nightmare. The guest didn’t dislike it enough to complain, but they are not returning.
Pricing can quickly turn people off. It is the hardest aspect of all. Pricing a menu item, or any item for that matter, is an art, not a science. I don’t care what your accountant tells you. Your accountant will tell you it’s easy. Just take the total cost of your menu item in dollars, and divide it by your desired food cost percentage for the restaurant, and bingo, you have a menu price. But it’s not that easy. That formula tells you what you need to charge to cover your costs and hit your desired profit margin. It’s a good starting point. But what if the calculated price is lower than what you can actually charge in your market? Or sometimes it’s higher, and you have to scrap the item. The formula does not calculate what you can charge for that item. It does not take your market into consideration. Who lives there? Who visits there? What’s the income level? What is the average age? Are there mostly families in the area or singles? Who is your competition and what is their pricing? All these factors play into the decision. This is where Babette’s got the $8 egg. Not from a mathematical calculation alone, but from an understanding of their restaurants atmosphere and market.
My wife and I were recently in Pittsburgh, PA. I grew up about 30 minutes west of the city, and my father’s family is from there. My sister lives in the city, so we often visit. On our last trip we decided to go into the Strip District, a downtown open market area with shops and restaurants, to have some breakfast and get in some shopping. We had breakfast at DeLucas. DeLucas is a classic diner, with green vinyl booths and an open kitchen that looks fifty years old. We sat at the counter, and were lucky to get seats, as the place was packed. I got the Farm Fresh Eggs Breakfast. It came on a large 12”oval plate. It had two eggs over-easy, a pile of hash browns, 4 strips of crispy bacon, and toast. It was delicious, but I couldn’t finish it. To be honest, it could have fed a family of four. The total cost, $8.79. You can’t charge $8 for an egg in Pittsburgh, PA. But you can charge $8 for an egg in East Hampton, NY. Both restaurants understand who and where they are. That’s the key.