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What Is an Economic Moat?
Understanding economic moats, creating an economic moat.
- Economic Moat FAQs
The Bottom Line
- Fundamental Analysis
How an Economic Moat Provides a Competitive Advantage
:max_bytes(150000):strip_icc():format(webp)/image0-MichaelBoyle-d90f2cc61d274246a2be03cdd144f699.jpeg "buffet business model")
The term "economic moat," popularized by Warren Buffett , refers to a business's ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share . Just like a medieval castle, the moat serves to protect those inside the fortress and their riches from outsiders.
Key Takeaways
- "Economic moat" is a term that refers to a business's ability to maintain a competitive edge over its competitors.
- The analogy relates to the moats that would surround medieval castles and act as a barrier of protection.
- Ways in which a company can create an economic moat include creating advantages in size, intangibles, cost, and high switching costs.
- The term economic moat was made popular by legendary investor Warren Buffett.
Moat: My Favorite Financial Term
Remember that a competitive advantage is essentially any factor that allows a company to provide a good or service that is similar to those offered by its competitors and, at the same time, outperform those competitors in profits.
A good example of a competitive advantage would be a low-cost advantage, such as cheap access to raw materials . Very successful investors such as Buffett have been adept at finding companies with solid economic moats but relatively low share prices .
One of the basic tenets of modern economics , however, is that, given time, competition will erode any competitive advantages enjoyed by a firm.
This effect occurs because once a firm establishes competitive advantages, its superior operations generate boosted profits for itself, thus providing a strong incentive for competing firms to duplicate the methods of the leading firm or find even better operating methods.
Example of an Economic Moat
Let's return to the example of a low-cost advantage. Suppose you have decided to make your fortune by running a lemonade stand. You realize that if you buy your lemons in bulk once a week instead of every morning, you can reduce your expenses by 30%, allowing you to undercut the prices of competing lemonade stands.
Your low prices lead to an increase in the number of customers buying lemonade from you (and not from your competitors).
As a result, you see an increase in profits; however, it probably wouldn't take very long for your competitors to notice your method and employ it themselves. Therefore, in a short period of time, your large profits would erode, and the local lemonade industry would return to normal conditions again.
Other common financial analogies include referring to the stock market as a casino, bonds being the anchor of a portfolio, and having no financial plan is like skydiving without a parachute.
However, suppose you develop and patent a juicing technology that allows you to get 30% more juice out of the average lemon. This would have the same effect of reducing your average cost per glass of lemonade.
This time, your competitors will have no way of duplicating your methods, as your competitive advantage is protected by your patent. In this example, your economic moat is the patent that you hold on your proprietary technology . In this case, if your lemonade company was a public firm, your common stock would probably outperform that of your competition in the long run.
As you can see, a company's economic moat represents a qualitative measurement of its ability to keep competitors at bay for an extended period of time. This translates into prolonged profits in the future.
Economic moats are difficult to express quantitatively because they have no obvious dollar value , but are a vital qualitative factor in a company's long-term success or failure and in the selection of stocks.
There are several ways in which a company creates an economic moat that allows it to have a significant advantage over its competitors. Below, we will explore some different ways in which moats are created.
Cost Advantage
As discussed in the lemonade stand example, a cost advantage that competitors cannot replicate can be a very effective economic moat.
Companies with significant cost advantages can undercut the prices of any competitor that attempts to move into their industry, either forcing the competitor to leave the industry or at least impeding its growth.
Companies with sustainable cost advantages can maintain a very large market share of their industry by squeezing out any new competitors who try to move in.
Size Advantage
Being big can sometimes, in itself, create an economic moat for a company. At a certain size, a firm achieves economies of scale . This is when more units of a good or service can be produced on a larger scale with lower input costs. This reduces overhead costs in areas such as financing, advertising, production, etc.
Large companies that compete in a given industry tend to dominate the core market share of that industry, while smaller players are forced to either leave the industry or occupy smaller "niche" roles.
High Switching Costs
Being the big fish in the pond has other advantages. When a company is able to establish itself in an industry, suppliers and customers can be subject to high switching costs should they choose to do business with a new competitor. Competitors have a very difficult time taking market share away from the industry leader because of these cumbersome switching costs.
Intangibles
Another type of economic moat can be created through a firm's intangible assets , which include items such as patents, brand recognition, government licenses, and others. Strong brand name recognition allows these types of companies to charge a premium for their products over other competitors' goods, which boosts profits.
Soft Moats
Some of the reasons a company might have an economic moat are more difficult to identify. For example, soft moats may be created by exceptional management or a unique corporate culture. While difficult to describe, a unique leadership and corporate environment may partially contribute to a corporation's prolonged economic success.
Economic moats are generally difficult to pinpoint at the time they are being created. Their effects are much more easily observed in hindsight once a company has risen to great heights.
From an investor's view, it is ideal to invest in growing companies just as they begin to reap the benefits of a wide and sustainable economic moat. In this case, the most important factor is the longevity of the moat. The longer a company can harvest profits, the greater the benefits for itself and its shareholders.
What Is an Example of an Economic Moat?
One example of an economic moat is economies of scale. As a company achieves economies of scale, it can produce each unit for less than it could before, meaning that it can charge less for that product in the marketplace, which would attract customers and undercut competitors.
What Are Some Ways to Identify an Economic Moat?
When evaluating a company and its economic moat, a few questions should be considered, such as, what are the sources of revenue for the company?; of these sources, which is the cash cow?; what is the industry of the company?; who are the competitors in this industry?; and what is the company doing to stand out out from its competitors?
What Is Apple's Economic Moat?
Apple has a few economic moats, the primary one being creating products that did not exist before, such as the iPod, the iPhone, and the iPad. After the creation of those products, Apple's economic moat has consisted of its marketing, its design, and its user-friendly interface.
An economic moat is a metaphor that refers to businesses being able to maintain a competitive advantage over their competitors in order to preserve market share and profits. Any method that a company uses to maintain a competitive edge can be considered an economic moat.
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12 Major Steps to Opening a Successful Buffet Business
Introduction.
The foodservice industry in the United States is worth over $700 billion, no wonder that there has been such an increase in the number of buffet businesses. Opening a buffet is not an easy task, just like any other business venture, it requires hard work and dedication to make it successful. Putting together a checklist to ensure that the correct steps have been taken and all necessary aspects have been considered can be a great help. Here we have compiled a checklist of the 12 major steps to help you open and launch a successful buffet business.
It is important to not underestimate the amount of planning and execution required for starting a buffet business. This guide will help you develop a comprehensive business plan, strategize an optimal financial model, secure necessary funding, obtain the required permits and licenses, create a menu, select a prime location, source reliable suppliers, train the staff, promote the business, and test the restaurant process before the launch. It is essential to build a foundation of excellent customer service that will remain consistent throughout the life of the business.
Create a Business Plan
Creating a business plan is the first and most important step when starting a buffet business. This plan will be the foundation of your business and it should include all of the elements that you need to make your business successful. Here are some tips for writing your business plan:
- Research your competition: Look at what other buffet businesses are offering in your area and use this information to inform your own business plan. Try to differentiate yourself from your competition and create something unique.
- Create a budget: Estimate the cost of opening the business and outline your expected income. Make sure to include all of the necessary expenses and factor in the cost of labor and supplies.
- Outline your goals: Create short-term and long-term goals for your business. Make sure to include realistic targets such as sales targets and customer satisfaction goals.
- Be realistic: Be honest about your ability to manage the business and create realistic plans and goals that you can achieve.
Creating a business plan is a crucial first step in starting a buffet business. It will give you the foundation you need to make sure that your business is successful.
Creating a business plan is essential to starting and operating a successful buffet business. A business plan should include the goals and objectives of the business, a description of the services offered, an analysis of the competition, an action plan, and a budget. It should also include a market analysis, an organizational structure and staffing plan, and financial projections.
When creating a business plan for a buffet business, here are some tips and tricks to keep in mind:
- Be realistic in setting goals and objectives. Consider the size and scope of the business, the market conditions, and the financial resources available.
- Conduct market research to determine the size of the potential customer base. This will help you determine pricing, menus, and other factors.
- Analyze the competition. Consider the location, pricing, menus, and other factors that may affect your business.
- Create an action plan that outlines the steps necessary to launch the business, including marketing and promotion.
- Develop a budget that includes start-up costs and operational costs. Include a contingency fund for unforeseen expenses.
- Include financial projections for the first year, three years, and five years. This will help you plan for future expenses.
Creating a comprehensive business plan is essential for launching a successful buffet business. With careful planning and research, you can create a plan that will help you achieve your goals and objectives.
Develop A Financial Model
Creating a financial model is essential to starting a successful buffet business. It will help you to predict the profitability of your venture and plan your budget accordingly. Here are some tips to help you develop a financial model for your buffet business:
- Assess your start-up costs. Calculate how much capital you need to open your buffet and how much you need to sustain operations.
- Forecast your revenue. Estimate the number of customers who would visit your buffet, the average cost per meal, and the percentage of repeat customers.
- Estimate your expenses. Consider the cost of ingredients, labor, insurance, rent, utilities, and other overhead costs.
- Create a timeline of your cash flow. Determine when you will receive payments for meals, and when you will have to make payments for supplies.
- Calculate your break-even point. This is the point when your revenue is equal to your expenses and you start to make a profit.
- Analyze your financial model. Evaluate the assumptions that went into your model and make adjustments if needed.
Creating a financial model will help you to make informed decisions when starting your buffet business. Be sure to review and update your model regularly to ensure the success of your venture.
Arrange Necessary Funding
When it comes to opening a buffet business, the necessary funding is perhaps the most important step. Without sufficient funds, it will be impossible to move forward with the project. Therefore, it is essential to take the time to research the best options for capital, as well as to create a solid financial model that will help you to evaluate the cost and profitability of the venture.
Here are some tips to help you arrange the necessary funding for your buffet business:
- Create a detailed business plan. This will help you to outline the project, as well as to make a case for the venture to potential investors.
- Research different types of funding sources. These can include traditional lenders, venture capitalists, and even crowdfunding.
- Explore grants and loan programs. Many local and state governments offer funding programs that can help you to secure low-interest loans or grants.
- Make sure to understand all of the terms and conditions associated with any loans or investments. This will help you to avoid any surprises down the line.
- Keep accurate records. This is essential to ensure that all of your funding sources are aware of your progress and that all financial obligations are being met.
By taking the time to research the best options for capital and to create a detailed financial model, you will be able to arrange the necessary funding for your buffet business and move forward with the project.
Obtain All Required Permits And Licenses
Opening a buffet business requires obtaining permits and licenses from the local regulatory authorities. These permits and licenses vary by state, and it is important to research and understand the local regulations. In some cases, you may need to obtain multiple permits and licenses.
Here are some tips to help you obtain the necessary permits and licenses:
- Consult an attorney or a legal expert to understand the process. This can help you save time and money.
- Apply for the permits and licenses well in advance, as the process can take time and you may need to submit additional documents.
- Make sure you have all the necessary documents before you start the application process. This includes business documents, tax documents, and other relevant documents.
- Check the requirements of each permit or license, as they can vary by state. Some permits or licenses may require a fee or additional paperwork.
- Be prepared to answer questions about your business from the regulatory authorities. This includes questions about your business plan, financial model, and other relevant information.
Outline The Menu And Create Recipes
Outlining the menu and creating recipes is an essential step in launching a successful buffet business. Here are some tips and tricks to help you get started:
- Start with the basics: create a list of the staple dishes, sides, and drinks you plan to serve.
- Research local and national food trends to determine what dishes to include and adjust your menu accordingly.
- Create a unique menu that will set your buffet apart from the competition.
- Create and test recipes for each menu item to ensure flavor, quality, and presentation.
- Determine the pricing structure for each menu item and adjust as needed.
- Incorporate customer feedback and make changes to menu items as needed.
Creating a unique and delicious menu is essential for a successful buffet business. With proper research and testing, you can create a menu that will keep customers coming back for more.
Select a Prime Location
The location of your buffet business is a key factor in its success. Customers need to be able to find it easily and access it quickly. Consider the following when selecting a prime location for your buffet business:
- Is the area busy with footfall and traffic flow?
- Is the area safe and secure?
- Are there nearby parking facilities?
- Are there any competitors in the area?
- How easy is it to access via public transport?
- Are there any restrictions and zoning laws around the area?
- What is the rental cost of the premises?
These are just some of the considerations when choosing a prime location for your buffet business. It is important to research the local area to ensure it is suitable for your business. Speak to local businesses in the area and ask for their feedback.
Before signing a lease, ensure you have a clear understanding of the terms and conditions as well as all the costs associated with the premises. This includes rent, repairs, renovations, and utilities.
Invest in The Necessary Equipment
Opening a buffet business requires a significant investment in equipment . This includes everything from the tables and chairs to the ovens and refrigerators. It is important to ensure that all the necessary equipment is purchased before opening the business.
Here are some tips to help you purchase the right equipment for your buffet business:
- Conduct research to determine what type of equipment is needed. Make sure to consider the size of your space, the type of food you plan to serve, and the number of customers you expect to serve.
- Compare prices and features from different suppliers. Consider purchasing secondhand equipment if it is in good condition.
- Make sure to select high-quality equipment that is easy to maintain and energy-efficient.
- Invest in modern equipment that will help you save time and money in the long run.
- Don't skimp on necessary equipment or forget important items. Your business will suffer if you don't have the necessary tools and equipment.
- Look for ways to save money by buying in bulk or taking advantage of discounts.
Investing in the right equipment is an important step in launching a successful buffet business. Make sure to do your research and compare prices to ensure that you are getting the best value for your money.
Source Reliable Suppliers
Having reliable suppliers is essential for a successful buffet business. You need to ensure that they can provide you with quality ingredients at the right price and in a timely manner. Here are some tips to help you source trustworthy suppliers:
- Do your research: Research potential suppliers, compare prices and services, and read customer reviews to get an idea of their reputation.
- Check for certifications: Make sure that the suppliers have the necessary certifications and licenses.
- Create a list of questions: Ask questions about the quality of their ingredients, delivery times, safety protocols, and payment terms.
- Negotiate: Try to negotiate with suppliers for the best pricing and terms.
- Form relationships: Build relationships with suppliers and try to establish long-term partnerships.
By taking the time to source reliable suppliers, you can ensure that your buffet business is stocked with the best ingredients at a reasonable cost and with timely delivery.
Hire And Train The Right Staff
Hiring and training the right staff is essential for running a successful buffet business. Here are some tips and tricks for finding and training the right staff:
- Start by creating a detailed job description and outlining the duties and responsibilities of each role.
- Use a variety of methods to advertise the job openings, such as placing an ad in the local newspaper, posting on job boards, or using social media.
- Screen each candidate carefully and check references if needed.
- Once you have selected the right employees, provide them with training on customer service, food safety, and kitchen operations.
- Make sure all staff members understand the mission and vision of your business and their role in achieving them.
- Encourage staff to provide feedback and suggestions to ensure continuous improvement of your buffet business.
Promote The Business Through Marketing
Marketing is a crucial step for launching a successful buffet business. It will help you get the word out about your new venture and attract customers. Here are some tips for promoting your buffet business through marketing:
- Develop a memorable logo and slogan that will help your business stand out from the competition.
- Create a website and use SEO (search engine optimization) tactics to make it easier for potential customers to find you online.
- Utilize social media to reach a larger audience and create a buzz about your business.
- Start an email list and send newsletters to keep customers updated on special events, promotions, etc.
- Create print materials such as flyers, business cards, and menus to promote your business.
- Partner with local businesses to cross-promote each other.
- Participate in local events, such as festivals, to attract more customers.
These strategies can help you successfully promote your business and get the word out about your buffet restaurant. With the right marketing plan in place, you can make sure that your business stands out from the competition and attracts more customers.
Test The Restaurant Process Before Opening
Before opening a buffet business, it is essential to test the restaurant process. This will help to ensure that the business is functioning properly and that all staff are properly trained. Here are some tips and tricks to help you test the restaurant process before opening.
- Conduct a trial run of the buffet process. This should include setting up the buffet, preparing the food, and serving customers. Make sure that the staff is properly trained and that the buffet is running smoothly. During the trial run, make any necessary adjustments.
- Perform a quality control check. Make sure that all ingredients are fresh and of the highest quality. Check the food for taste, texture, and temperature.
- Test the customer service process. Have the staff greet customers, take orders, and offer assistance with any questions or concerns. Make sure that the staff is friendly and helpful.
- Test the payment process. Make sure that all payments are processed correctly and that the staff is familiar with the payment system.
- Conduct a safety audit. Make sure that the kitchen and dining areas are clean and that all safety procedures are in place. Check the fire extinguishers, smoke detectors, and other safety equipment.
Testing the restaurant process before opening is essential to ensure that the buffet business runs smoothly. With the right preparation and testing, the business can be a success.
Starting a buffet business is not a simple undertaking. Every aspect of the business must be carefully considered to ensure its success. Using this checklist will put you in the right frame to open and launch the buffet business the right way. It is essential to develop a business plan, strategize a financial model, arrange necessary funding, obtain the pertinent permits, outline the menu, select a prime location, source reliable suppliers, hire and train the right staff, promote the business, test the restaurant process and build a reputation of excellent customer service such that your buffet business will have sustained success.
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How to Create a Scalable Restaurant Business Model
by Jessica Elliott | Updated Aug. 5, 2022 - First published on May 18, 2022
Image source: Getty Images
Many restaurant business models don't have much leeway when it comes to scalability. You either go all-in with a significant investment, or you don't. However, the pandemic has led many business owners to consider alternative ways to scale their restaurant so it's sustainable for the future.
Explore ways to incorporate best practices when selecting a business model for your restaurant.
Overview: What is a restaurant business model?
A restaurant business model defines your service style, menu offerings, and value proposition. While planning your business, you'll further define your restaurant’s financial model by uncovering all possible expenses and defining your pricing.
The main types of restaurant models include:
- Fast food: The fast-food business model, also called quick-serve restaurants (QSR), provides convenient menu items and lower prices without table service.
- Fast-casual: With a fast-casual or quick-casual business model, restaurateurs upgrade to higher-quality food ingredients while still delivering quicker service than traditional models.
- Family-style: Also called casual dining, family-style restaurants offer table service and affordable meal options.
- Fine dining: Fine-dining concepts deliver high-quality food, top-notch table service, and an ambient dining experience.
- Pop-up: The pop-up restaurant model uses temporary spaces to cook and serve food, such as another restaurant, chef's homes, or even a park.
- Ghost kitchen: With a virtual kitchen, business owners only provide delivery and carryout options with no on-site dining.
- Cafe or bistro: Small restaurants may focus on beverages or short snackable meals inside a smaller building.
- Buffet: A buffet-based restaurant allows the customer to serve themselves from various food choices, with pricing set as all you can eat or by weight.
What should be included in your restaurant's business model?
The ideal models start with the most profitable restaurant concepts. But figuring out which idea to select can be challenging. Your planning should look for models that provide strong profit margins , low staffing costs, and high cash margins.
This may sound like a unicorn for those in the restaurant industry. However, with proper planning, it's possible to avoid some of the reasons why restaurants fail . Ensure profitability by including these elements in your restaurant model.
Value proposition
Your business model must define how your company stands out from the competition. A value proposition describes what makes your restaurant different.
It may be a unique restaurant concept , like one that offers ready-to-heat options or provides an unforgettable experience. Brainstorm your idea by:
- Exploring the benefits of eating at your restaurant
- Defining why these benefits are valuable to your guests
- Establishing your guest's primary dining problem
- Explaining how your value solves customer issues
- Describing what makes you different from competitors
Create your value proposition by finding the sweet spot where your offer, your competitors’ offer, and customers’ needs intersect. Image source: Author
Revenue sources
The days of supporting your business only on dine-in customers are gone. It may be temporary, or we may be experiencing a shift toward more delivery and carry-out orders.
Since financial problems are the main reason restaurants fail, your restaurant business proposal should explore all possible income streams. Explore restaurant products and services such as:
- In-house dining meals
- Ready-to-heat meal kits
- Do-it-yourself meal options
- Subscription delivery meal kits
- Grocery store items
- Catering for business and personal events
- In-house beverages
- Batched cocktails or mocktails to go
- Swag, such as shirts, hats, and koozies
- Events, such as chef demonstrations
- Target market
Knowing your target market is crucial to making sure your restaurant marketing and concept hit the mark. After all, not everyone in town is your ideal restaurant guest. Think about the exact customers you'd like to attract.
Narrow your audience down by reviewing:
- Psychographics: Find out what makes your ideal guest tick, such as their lifestyle, values, and priorities in life.
- Demographics: Discover what type of people will visit your business by digging into their income and education levels, age, gender identity, and location.
- Behavior: Consider your guests’ buying and spending habits, such as what they do for fun online and offline.
Your financial projections should show every expense. It's imperative to walk through each revenue stream and list costs . For example, you won't spend much on labor when you sell cookbooks or gift cards, but you'll need financial resources to print, purchase, and track cookbook or gift card sales.
Go through each of your expenses and various situations to determine variable and fixed costs. Ordinary restaurant expenses include:
- Restaurant payroll
- Rent or mortgage bills
- Property, sales, and payroll taxes
- Food and beverage costs
- Equipment purchase and maintenance
- Marketing and public relations
- Franchise costs
- Third-party costs, such as delivery services
Service style
Your restaurant's customer service is vital to your business model. Even companies with a contactless concept, like a ghost kitchen, need to decide how they'll approach customer service. Methods vary according to your concept, restaurant layout, target market, and location.
Popular service styles include:
- Table service: Commonly used in full-service restaurants where food is served to guests at a table.
- Family-style service: Popular in family vacation spots, family-style service includes platters of food so guests can help themselves.
- French service: Used in fine-dining establishments, specific rules apply, such as serving beverages from the right side of the guest.
- Self-service: These options include buffet-style dining and grab-and-go concepts with limited restaurant customer service .
- Single-point service: Automats and fast-food business models feature a single point where guests interact with your service or products.
3 best practices for creating a restaurant business model
During your research, you should uncover potential restaurant business challenges . Doing so helps you explore gaps in your business model and find the best ways to reach your target audience.
1. Focus on sustainability and scalability
Restaurants are having rocky times. Although some business owners experienced downturns before during recessions or local emergencies, the current events are unlike what most entrepreneurs have experienced.
During each step of your small restaurant business planning, you should aim to build both scalability and sustainability into your model. Do this by:
- Weighing the costs and profits for each income stream
- Predicting if you can stay in business if you lose an area of revenue
- Identifying your break-even point after startup
- Creating a contingency plan for emergencies
2. Plan your technology investments wisely
Depending on your restaurant business model, several types of restaurant software can benefit your business. However, you may not need to purchase if you can't afford to buy all of your systems upfront.
First, determine what you consider must-have tools. For instance, you'll need to create a restaurant website and handle sales via your point-of-sale (POS) system. You may also benefit from accounting , payroll, and employee scheduling software.
But, if money is tight, start with the basics and plan for the future. Do this by investing in a restaurant management system that plays well with other technologies, meaning you can add software later and be assured it works with your POS system , thereby resulting in less administrative work.
Your POS system integrates with various devices and ordering systems to keep operations running smoothly. Image source: Author
3. Prepare for every possibility
Entering into a business is risky, especially in a volatile economy. Do your due diligence by examining the practicability of your model using a restaurant feasibility study . Once you've determined your concept will work, start working on a business plan that details your:
- Organizational structure
- External services
- Financial projections
- Marketing strategy
- Employment needs
- Competitors
- Restaurant location and design
Create a restaurant business model that works
Although starting a new company is risky, you can uncover a scalable restaurant business model with thorough planning. Create a core strategy that explains what you'll sell and how you'll sell it while defining what makes your business unique.
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The economics of all-you-can-eat buffets
Is it possible to out-eat the price you pay for a buffet how do these places make money we looked at the dollars and cents behind the meat and potatoes..
Few things epitomize America more than the all-you-can-eat buffet.
For a small fee, you’re granted unencumbered access to a wonderland of gluttony. It is a place where saucy meatballs and egg rolls share the same plate without prejudice, where a tub of chocolate pudding finds a home on the salad bar, where variety and quantity reign supreme.
“The buffet is a celebration of excess,” says Chef Matthew Britt, an assistant professor at the Johnson & Wales College of Culinary Arts. “It exists for those who want it all.”
But one has to wonder: How does an industry that encourages its customers to maximize consumption stay in business?
To find out, we spoke with industry experts, chefs, and buffet owners. As it turns out, it’s harder to “beat” the buffet than you might think.
How a $20 buffet breaks down
When you go to an all-you-can-eat buffet, you pay a single fixed price regardless of how much you consume. It doesn’t matter if you eat 1 plate or 10 plates: Each bite incurs an extra marginal cost to the restaurant, but no extra cost to you.
We analyzed the prices of 30 all-you-can-eat buffets across the country, taking into account a variety of factors: Geographic region, size of the buffet (independent vs. chain), time of day (lunch vs. dinner), day of the week (weekday vs. weekend), and age (children and seniors often get discounted rates).
All considered, our analysis yielded an average buffet price of ~ $20 .
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Like most restaurants, buffets operate on extremely thin margins: For every $20 in revenue, $19 might go toward overhead, leaving $1 (5%) in net profit .
Zachary Crockett / The Hustle
Buffets often break even on food and eke out a profit by minimizing the cost of labor .
Self-service allows a buffet to bypass a wait staff, and all-you-can-eat dishes (which are generally less complex and prepped in enormous batches) can be made by a “skeleton crew” of line cooks.
“At a typical restaurant, a cook can service 25 customers per hour — and that’s at best,” says Joe Ericsson, a managing partner at the food consultancy Restaurant Owner . “In the same amount of time, a single buffet cook might be able to prep enough food for 200 people.”
Because margins are so slim, buffets rely on high foot traffic : At Golden Corral, a buffet chain with 498 locations in 42 states, dining floors are 5k-square-feet and seat 475 people. On a typical Saturday, it’s not uncommon for 900 diners to come through the door.
The volume of food required to satiate 900 all-you-can-eaters on a daily basis can be staggering.
Each year, Ovation Brands, the owner of multiple major buffet chains, serves up 85m dinner rolls, 47m pounds of chicken, and 6m pounds of steak — 49.3B calories in total.
It is estimated that between 5% and 25% of any given dish will be wasted, either through the buffet’s miscalculation of demand or the diner’s overzealousness. Waste reduction is a key focus of any successful buffet and a frequent tactic is reusing food.
“Buffets have always been a landing spot for food scraps,” says Chef Britt. “They call them the ‘trickle-down specials’ — day-old vegetables or beef trimmings can be repurposed into a soup or a hash.”
Buffets are also able to save money by utilizing economies of scale and buying food in bulk. Using data from a wholesale food supplier, we worked out the approximate cost per serving of a few popular buffet items.
Fully prepped, starches like potatoes might only cost the restaurant $0.30 per serving, compared to $2.25 per serving for steak.
By nature, buffets attract the very customers they wish to avoid: Big eaters with insatiable appetites. Buffets seek to “fill the customer’s belly as cheaply and as quickly as possible.” To do so, they employ a number of research-backed tricks to get people to eat less food:
- They put the cheap, filling stuff at the front of the buffet line : ( Study : 75% of buffet customers select whatever food is in the first tray — and 66% of all the food they consume comes from the first 3 trays.)
- They use smaller plates . ( Study : Smaller plate sizes reduce the amount of food consumed.)
- They use larger than average serving spoons for things like potatoes, and smaller than average tongs for meats.
- They frequently refill water and use extra-large glasses.
Even higher-end buffets, like the $98 brunch at the Hotel del Coronado in San Diego, employ these tactics: “They hide the truffles, the foie gras, and the oysters,” says Britt. “You literally can’t find them.”
But what happens when a customer ignores these tricks and devours a Godzilla-sized portion of food? Is it possible to — dare we ask — out-eat the all-you-can-eat buffet?
Buffets and the law of averages
Let’s imagine that Larry, a 280-pound offensive lineman, decides to stop by his local all-you-can-eat buffet after a big game.
Larry’s got a reputation around town for being a gourmand. He’s got an appetite that puts Homer Simpson to shame — and on this particular day, he’s ready to do some serious damage.
Larry pays his $20 and proceeds to eat 5 servings of steak and chicken, far more than the average customer.
The cost of this food to the buffet amounts to $16.90. This means that after factoring in other expenses, Larry has handed the restaurant a loss of -$8.50 .
Luckily, eaters like Larry (“vacuum cleaners,” as one buffet owner calls them) are baked into any all-you-can-eat buffet’s pricing model. While the buffet might lose money on a small number of meat gluttons, it handily makes it back on those who under -consume or only eat the cheaper foods.
“Most people don’t go in and beat the buffet,” says Britt. “They eat an appropriate amount, or even less than they should, averaging out the outliers.”
Picture 3 diners: One who eats exactly the average cost of food to the restaurant ($7.40), one who loads up on cheaper carbs ($4.70), and a guy like Larry:
While the restaurant loses $8.50 on Larry, it makes $3.70 from the under-eater and still takes in its steady $1 margin on the average eater.
And there are a lot more of the latter two patrons: The buffet owners we spoke with estimated that over-eaters like Larry only account for 1 in every ~20 diners .
Of the 300 diners that might come through on a given day, this hypothetical buffet would see 255 average eaters ($225 profit), 60 undereaters ($222), and 15 gluttons (-$127.50). That works out to $320, or right around that $1 profit per customer average. Annualized, the eatery is looking at a respectable $117k in pre-tax profit.
Buffets don’t stop there: Many beef up their margins by selling soft drinks separately. At a cost of $0.12 per fill, a $2 soda comes with a 1,500% markup.
Still, buffets aren’t impervious to extreme circumstances. Larry won’t put a significant dent in a buffet’s bottom line — but imagine if he brought the rest of his team with him.
Every buffet owner we talked to had a few war stories about dealing with policy abusers. “All-you-can-eat,” it seems, comes with certain limitations.
“There are people who go to a buffet and eat for 3 or 4 hours straight,” says Anna Hebal, owner of the Red Apple Buffet in Chicago. “They’ll go to the bathroom, then come back and eat again. They don’t stop.” She has since imposed a 2-hour time limit.
Other proprietors have taken more extreme measures. Over the years, buffets have made headlines for kicking out guests who eat too much :
- A 6’6″, 350-pound Wisconsin man was removed from a buffet after downing 12 fried fish fillets (and subsequently arrested for protesting outside).
- A German triathlete was asked to prematurely leave an $18.95 buffet after consuming 100 plates of sushi.
- A woman was booted from a Golden Corral for eating all the brownies , then attempting to smuggle home extras in her purse.
To avoid these situations, some owners have updated their language to “All-you-can-eat within reason ,” or resorted to charging customers extra for food left on plates.
But the real enemy of the buffet isn’t the occasional over-eater: It’s the steady march of technological progress, and the changing consumer preferences that have come with it.
The end of the (buffet) line
According to the market research firm NPD Group, the number of buffets in America has fallen by 26% since 1998 — even as the total number of all restaurants in America has risen by 22%.
In the past 20 years, more than 1.3k buffets have shut their doors. The big buffet chains that once dotted the Midwest have been hit the hardest: Old Country Buffet is down to 17 of its 350 original locations; HomeTown Buffet has closed 217 of its 250 eateries; Ryan’s Buffet has downsized from 400 to 16.
Ovation Brands, the conglomerate that owns these chains, has filed for Chapter 11 bankruptcy 3 times since 2008.
Industry experts attribute this decline, in part, to the spread of food delivery apps. By 2030, the National Restaurant Association projects that 80% of all restaurant items will be eaten at home — a trend that buffets can’t effectively capitalize on.
Today’s health-conscious consumers have also shifted away from quantity in favor of experience-driven dining options.
Golden Corral, one of the last-standing American buffet chains, has found success by redesigning its dining spaces to be more “bright, shiny, [and] friendly,” and investing in higher-quality food that makes for better Instagram photos.
Anna Hebal, who runs a small buffet in Chicago, has a different strategy.
For 30 years, she has served guests a Polish-themed spread that includes kielbasa, schnitzel, and pierogi. Her secret? Sticking to the roots of what first made buffets popular in the 1970s: excess and variety.
“A buffet is just like life itself; you have so many choices,” she says. “It’s up to you to choose wisely.”
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How All-You-Can-Eat Buffets Really Make Their Money
If you've ever headed out for dinner at an all-you-can-eat buffet — and most of us have — you probably know exactly who in your group is going to go in super-hungry and attempt to not just get their money's worth, but eat way more than they paid for. There's always one or two, and it's such a common thing it's tough to imagine how these restaurants manage to stay in business. Add in the fact that buffets are notoriously secretive when it comes to their business practices, and it's all a bit mysterious.
It just doesn't seem to make sense. Look around at the other diners. There are always plates after plates, piled high with food. There's probably plenty of waste — it's a great opportunity for people to try something new without making a real commitment, after all — and there are probably people going back again and again. That can't possibly be profitable, right? Let's take a look at what's going on here, and at the strange bit of economics that allows AYCE buffets to not just keep the lights on, but turn a profit.
They shouldn't make money
First, let's talk about what buffets are up against. There's actually an economic theory that says AYCE buffets absolutely shouldn't be successful, and it's the theory of adverse selection. The Economic Times says it's basically a situation where the seller is confronted with probable losses they don't have any control over, and those losses can, in theory, happen for each and every customer that walks in the door.
That's a lot of risk, and Forbes says it's the same principle that's at work in things like insurance, where the seller has no control over their potential risk. With a buffet, though, the risk is typically fairly small. Not everyone is going to be able to eat more than they pay for, and even if they think they do, buffets have some other tricks up their sleeve.
There's one other thing buffets need to take into consideration, and that's walking the line of their pricing. They can't set prices too low, as they'll lose money, but if they price themselves too high, people aren't going to feel like they'll get their money's worth. It's a balancing act, and it's a lot to take into consideration.
Cutting back on overhead
One of the things buffets have going for them is an overhead different than traditional restaurants. Ask anyone in the business and they'll tell you their overhead takes up a huge percentage of their profits. But buffets have a much, much lower overheard... thanks to you. You probably don't even notice you're doing their work for them, did you?
You serve yourself, and in some places, you might even get your own drinks. This means there's next to no need for wait staff, and paying wait is expensive. Since there are no worries about fancy plating or presentation, and since the menu relies heavily on a series of regular dishes, that changes the sorts of chefs they need in the kitchen (and what they can get away with paying them). A large number of the dishes are often prepped in advance, which cuts down on how many people need to be hired to be in the kitchen throughout a service. And at some buffets — like Korean BBQ places — the customers are even doing the cooking as well as the serving.
How food costs balance with super-diners
Food costs are a huge part of running a restaurant, and buffets are no exception. Chef Jonas Mikka Luster told The Independent that food costs are generally between 30 and 35 percent the cost of the meal — and that's standard across the industry. So, if you're serving $10 of ingredients, customers should be paying $30, which covers all overhead with profit tacked on, too.
Straightforward in most restaurants, but at a buffet, they don't know how much a person's going to eat. They still stick with the same percentages and base their pricing on an average food consumption, and here's why it works. Even if a person — let's call him Frank — comes in and eats three times what a normal person would, the buffet still isn't losing money, because they've built their food costs, their overhead, and their profits into what they're charging. Frank also isn't increasing the buffet's overhead by being there, so he's not costing them anything, either. No matter who Frank goes to the buffet with, they're probably not going to eat as much as him — maybe not even as much as they paid for. That helps maintain and boost the profits.
Not everyone is capable of eating like Frank, and even if a buffet finds their average estimates are a little low, they can adjust for that and make up the cash somewhere else.
Minimizing waste
Just like you might have some ways of minimizing waste in your home, buffets have some tricks, too.
Ovation Brands owns and manages around 330 buffets across 35 states, and they have a ton of data on every aspect of their business. They monitor everything, including weekly waste amounts, and plug it into a massive computer model. That allows them to track exactly how much customers are eating and how much is getting thrown away, and allows them to adjust menus based on what's popular — and that varies throughout the year. For example, salads are in higher demand in January, and fish is more popular on weekends. Knowing that means they can plan ahead to put out what people are going to want, and in what quantities.
They also adjust how dishes are served to minimize waste. For each pan, they estimate there's going to be at least five percent and as much as 25 percent waste, so they use small pans. They've also revamped their buffets to serve more individual, pre-portioned items than panned food, and it all reflects in their bottom line.
Cheap, bulk ingredients
Psychology Today took a look at what's going in the buffet line, and they call it the "fill the customer's belly cheaply" metric. No one wants a meal that looks and tastes cheap, but buffets aren't going to make money if they're offering steak. So, they bank on variety and a ton of foods that can be made with certain types of ingredients — ones that are cheap but high-quality and versatile.
For a lot of buffets, those are things like vegetables. You're likely to see a ton of veggie dishes on a buffet, because they can buy veggies for pennies a pound, especially considering they're buying in bulk. Things like carrots and potatoes can be used to bulk up a variety of dishes, and cheap vegetables also have the added bonus of giving health-conscious customers a ton of options. Next time you're at a buffet, just check out how many vegetable dishes there are, then look for the rice- and noodle-based dishes. They're super cheap, too, and they're going to definitely fill the bellies of customers who pile them onto their plates.
Offering seasonal and regional specialties
Another thing you're going to find a lot of on the buffet table are seasonal and regional foods and ingredients. Psychology Today says the benefit to a menu heavy on these ingredients is twofold.
First, if something's in season, restaurants are going to be able to get it much, much cheaper — especially buying in bulk. You see it yourself in the grocery store. Take tomatoes. It's cheaper to get a bushel of those in the middle of tomato season than it is to get a handful that have been shipped in from somewhere else during the off-season, right? It's the same with locally sourced food. If a restaurant is lucky enough to be on a waterfront, for example, becoming a regular, large-scale customer of the fishermen who work the coastline is going to profit everyone involved in the long run.
And secondly, it makes the buffet look good. When they can offer menus advertised with words like "locally-sourced" and "seasonal," it makes customers feel like they're getting something special — and it'll keep them coming back.
They make a mint on drinks
Now, consider your drinks. You're not hitting the buffet without ordering one, right? Chances are pretty good they're not included in the price of the buffet, and while you might not think twice about that, it's one of the ways they're raking in the cash.
When The Motley Fool took a look at the money-making tricks of buffets, this was one of the hidden ones. They say that when buffets sell beverages, they're usually not operating with the same 30 percent food cost that's applied to the rest of the food. Instead, they can apply as much as a 90 percent markup to the sale of drinks. In fact, it's such a money-maker that buffet giant Old Country Buffet stopped their practice of including drinks in the meal price. Now, consider this: many buffets don't have self-serve drink machines and instead, employ someone to bring you a drink. That absolutely limits how many refills you can be bothered to get, raising profits even more.
Giving you smaller tools
Psychology Today says one of the biggest factors impacting your eating habits at a buffet are the tools you're given. You'll almost never see full-sized dinner plates or actual soup bowls and instead, you'll be given small plates, ramekins, and even tiny dessert bowls. Sure, they'll give you a tray to carry all those little dishes, but you're not going to be able to pile many plates on — and that cuts down on how much you can eat per trip. Restaurant suppliers know this, and buffets can even purchase tableware especially designed for buffets. That even includes silverware, which tends to be smaller — but not small enough you'd really notice.
There's a game here, too. Sure, you can make as many trips as you want, but you'll probably have to ask for silverware. Is that last trip up to the buffet worth the bother? You see it now, don't you? One of the exceptions to the rule are Chinese restaurants, but often, the only utensils they'll have readily available are chopsticks. You'll have to ask for anything else, and that's because chopsticks limit how much and how fast you can eat.
A strategic layout
Now, think of the layout of a buffet. There are a lot of similarities across the board, and Psychology Today says there are reasons why everything is laid out like it is — to help the restaurant maximize their profits.
First, you'll come to your salads, your veggies, and if you're in the Chinese buffet, your rice, fried rice, and your noodles. Those are all the cheapest ingredients, and the temptation is to start loading up your plate right away. It's only farther down the line — when you already have a decently full set of plates — that you'll find things like meat and fish.
Check out the way things are served, too. You can grab a massive ladle-full of rice and veggies, but it's tongs when it comes to those inevitably small portions of meat. They'll take longer to get on your plate, and we don't like the pressure of holding up a line, so we tend to move quickly through. Also, pans with more expensive foods are generally less full — a subtle encouragement to take less — while cheap ingredients will be served in giant, overflowing pans. There's plenty for all, and we like that.
Cheaper isn't always better
At the end of the day, buffets need to keep people happy and coming back. It might seem logical that cheaper buffets would get more customers, but there's a weird bit of psychology that says this isn't necessarily the case.
The Cornell Food and Brand Lab of Cornell University conducted an experiment to see how the price of a buffet influenced customers. They offered two groups of customers the same pizza buffet, and charged one group $4, while the other group was charged $8. The group who paid more was overwhelmingly more satisfied with the entire experience, and that says something for the longevity of a buffet.
Sure, a lower price might get more customers in the door, but the customers who paid a higher — but still reasonable — price were more satisfied and more likely to come back. That's what restaurants want to see long-term, and that means adding a few more dollars onto the price might translate to exponentially higher profits in the long run.
People absolutely get banned
So. Frank. We need to talk.
If Frank keeps going to the same buffet over and over again, they're going to notice. They absolutely can — and do — do something about it, and customers who over-eat to an extreme can get kicked out.
It happened to Bill Wisth in 2012. The Wisconsin man was cut off at his local AYCE buffet after eating so much fish the restaurant had to tell him to stop — they were running out of food for other customers. Gawker says the restaurant made it clear it's not the first time Wisth ate them out of house and home, and police were called in to help settle the matter. (Wisth was handed a warning for disorderly conduct after attempting to protest.) And also in 2012, a pair were banned from an AYCE Mongolian barbecue in Brighton after they ate so much — and for so many years — the manager had finally had enough (via The Telegraph ). At the end of the day, it is still a business and people who take advantage can get kicked out.
Las Vegas buffets have gotten a makeover
The most infamous buffets of all are the ones in Las Vegas: they're cheap, they're loaded with tons of food, and they're AYCE. Those buffets are still there, but gone are the days of the once-popular $1.99 buffet. They lasted a surprisingly long time, too — but Time reported in 2013 they were gone.
The idea was pretty simple, and it was one buffets could only pull off in Vegas. Their famous $1.99 AYCE buffets weren't designed to make money, they were designed to get people in the door. Once diners gorged themselves on the buffet, they'd hit the adjoining casinos and lose more than enough money to pay for that meal. That worked — at one time — but food trends have changed so much that people pass on the cheapest buffets and are more willing to pay higher prices for better food. As of 2013, Vegas buffet prices hovered around an average of $20 to $25, a huge jump from the $1.99 buffets popular just years before. The shift in trends has been pretty complete, and with fewer people gambling — and gamblers spending less — buffets have become one of the major ways casinos now make their money.
More From Forbes
The economics of all-you-can-eat buffets.
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What do health insurance and all-you-can-eat buffets have in common? The economic theory of adverse selection tells us that neither should exist.
Consider the case of Bill Wisth. Bill is six-and-a-half feet tall, 350 pounds, and as you can see in the amusing news story below, he's been kicked out of an all-you-can-eat fried fish buffet. What's surprising is not that this happened, but that it doesn't happen more often (ok, it's also a little surprising that Bill has decided to picket the restaurant). I will explain, but first, watch the video:
So why should this happen more often? When someone offers all-you-can-eat to any customers, those that show up should be ones for whom the amount that they can eat is worth more than the price they expect to pay. After all, if the buffet costs $10 no matter how much you eat then those who eat the most will get the most value out of it. But the average amount consumed can't exceed the price, otherwise the restaurant will lose money and go out of business. So if the average amount consumed is $16 worth of food, then the restaurant will have to raise the price to above $16. But this means those who more than $10 but less than $16 worth of food will no longer find it worthwhile to eat there, so they will stop going, and the average customer left will be those who eat more than $16 worth.
This process continues, until there is only one guy left going to the buffet, and he eats $300 worth of fish and is charged exactly $300 for it. In effect, this theory says that all-you-can-eat buffets should not exist. And yet they do, and for the most part the adverse selection problem does not cause problems. Except, it seems, for Bill Witsh.
The theory of adverse selection was first applied by George Ackerlof to the market for used cars in the 1970s. The real issue is that buyers and sellers have asymmetrical information. In the buffet example the asymmetric information is that the restaurant can't tell who is going to eat a ton of fried fish and who isn't. Which means they can't screen out guys like Bill Wisth in advance. Perhaps the most famous and common application of adverse selection theory is in health insurance. Here you have insurers who can't observe how risky their customers are, and thus everyone is charged the same. Just as in the buffet case, those who will buy the insurance are those with the greatest expected health care costs and in particular those for whom the expected costs of health care exceed the cost of the insurance. Left unable to charge risky customers for high expected costs of insuring, or screen them out all together, the insurer is flooded with costly customers and so must raise prices. This sets off a similar process as in the buffet case. In the end the model predicts that insurance markets shouldn't exist.
So insurance shouldn't exist and neither should buffets. And yet both do. So why is this? In the case of insurance, one common explanation (described here by this year's John Bates Clark winner Amy Finkelstein) is risk aversion is sometimes correlated with low risk. This means that people differ in how much they value being insured against bad outcomes, and those who value insurance the most also happen to be those who have low expected costs. You know this kind of person: very safe people who take few risks, are very responsible, and also very healthy. You also know risk takers who are likely to be crippled in a hangliding accident or mauled by a bear (because they were taunting it as part of some extreme sport) but are more likely than most to be uninsured even though healthcare companies would likely undercharge them for insurance since they don't know what ridiculous risk takers they are (unless they've been injured in high risk accidents before; "tell me again how you lost your foot?" "shark surfing, sir").
But why is it that buffets can exist? They are subject to the same adverse selection problems, and even if they could tell who is going to overeat, the PR of turning away people who "look like they'll eat too much" isn't going to be worth it. Clearly the risk premium explanation does not apply here, since consumers have a good idea how much they are going to eat in advance, they aren't insuring against the probability they will be way more hungry than they thought in any meaningful sense. So tell me, dear reader, why is it that buffets do not succumb to the adverse selection problem and cease to exist? Why aren't there more Bill Wisths?
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Business Model Buffet: Business Model Implementation Choices
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69 pages, Kindle Edition
Published January 2, 2017
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The FTC is taking a harder look at franchise practices
As some commodity costs ease, should more restaurants lower prices, delivery sales are sticking around at fast-food restaurants, even as dine-in returns, inflation takes its toll as yet another company files for bankruptcy, another big burger king franchisee declares bankruptcy, is this the end of the buffet.
It might be premature to say that the buffet is dead, but it seems likely to go into a coma for a while.
The coronavirus could well change the buffet concept as we know it, forcing a different service style or eliminating buffets altogether. Reopening regulations and consumer skittishness could force changes in the subsector that had been in decline for some time.
To be sure, all restaurants are going to reopen to a vastly different environment in the coming months, and it’s likely the environment will be quite different for some time—at least until there is a vaccine.
Yet buffets might be in a bind for a while. Federal recommendations on reopening restaurants note that they should discontinue self-service operations. That means those self-service drink stations at many fast-food restaurants will be gone for the time being.
The guidelines also mention buffets that use “common utensils or dispensers.”
That goes right to the basic model of the buffet concept, which is based on the idea of allowing consumers to get an endless supply of food whenever they’ve emptied their plates. Addressing federal recommendations would require a vastly different model than the one they’ve employed.
“The social distancing as it relates to buffets is a challenge,” said Roslyn Stone, chief operating officer for Zero Hour Health, which helps restaurant operators with food safety and health issues.
For broad-menu buffet concepts, the shutdown may well speed a complete shift away from that style of service that has been happening gradually for years.
The typical limited-service buffet concept saw unit count decline 10.3% last year, according to Restaurant Business sister company Technomic, while sales fell 9.1%.
That makes Golden Corral’s performance fairly impressive. Sales last year increased 0.8%, though unit count declined 1.2%, according to Technomic. It’s the largest player in that category, however, so it makes the numbers look even better than they are.
Competing chains Souplantation and Sweet Tomatoes have been through a bankruptcy filing, and the parent company of Old Country Buffet and HomeTown Buffet has been through multiple such filings.
Pizza buffet concepts, on the other hand, have performed better. Pizza Inn’s sales rose 1.8% last year, while Iowa-based Pizza Ranch’s sales increased 7.3%. But Cicis sales declined 1.4%. Those concepts might have an easier adjustment to the new reality.
Those chains could probably shift to a different service model more easily, and they can push takeout and delivery sales more aggressively.
Pizza Inn late last month instituted what it called a contactless buffet to-go option, offering a combination of pizzas, appetizers and desserts at three price points. The company said its sales jumped 17% in the week after the option was introduced.
Yet broad-menu buffet chains have generally struggled to adapt to the coronavirus environment.
As the virus spread in early March, Golden Corral added safeguards to its buffets . When states shut dining rooms, it shifted to takeout only. By the end of the month, its company stores were closed altogether .
Similarly, many other buffet concepts shut their doors, including Sweet Tomatoes, HomeTown Buffet, Old Country Buffet and others. Not all closed, to be sure: Sizzler is still operating with a takeout menu, for instance.
All restaurants burn through cash when they are closed. Takeout can reduce that cash-burn rate, but even with recent increases, traditional dine-in concepts are not making up for those lost sales.
Ultimately, all restaurants are hoping they can make it to the day when they can reopen dining rooms and customers return.
Broad-menu buffet concepts now face a longer timeline for that reopening. And many of them already had financial problems and limited options from potential investors from the get-go. Add it all together, and this might well be the end for a massive portion of the broad-menu buffet business.
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Home » General » Lessons from the Berkshire Hathaway Business Model
Lessons from the Berkshire Hathaway Business Model
Started by Warren Buffet, the Berkshire Hathaway business model is that of a conglomerate holding company. The company was initially a textile company that was not performing very well, so Buffet began purchasing stock in it and eventually took over a controlling interest. Now Berkshire Hathaway owns several different companies in several different industries.
Starting a business like Berkshire Hathaway can be difficult. Most of the time, this company is doing the exact opposite that everyone else is doing. When shareholders are dropping stock and hoarding money in secure assets because of fear, this company is purchasing shares as often as possible. To follow this model on a small scale, you’d use money to invest into a local business that is cheap now, like an espresso stand, and then work to build its presence up over time so that it has multiple stands and shops in your community.
Debt Can Make Or Break This Business Model
There are good forms of debt and there are bad forms of debt. Taking out a loan to have the needed capital for an investment could be a good idea, but only if your expected returns can outpace the interest that you’ll be forced to pay on the debt. If you have a loan that is charging you 8%, for example, your returns from that loan would need to be 9% in order for the debt to be considered good.
In looking at the Berkshire Hathaway business model, it is clear to see that this company looks to avoid debt as much as possible. When debt is required to further their purposes, they will only focus on long-term loans that are fixed rates. Spending money for the sake of spending money doesn’t make sense if you’re trying to build a profitable business. A loan can make for a liquid cash reserve that is nice, but pay that loan off as soon as possible.
Berkshire Hathaway Takes a Proactive Approach
Warren Buffet has emphasized a proactive business model for Berkshire Hathaway that has paid off for them immensely. At the core of this approach is an emphasis on taking every complaint seriously. Using the espresso stand example from above, if someone tells you that your cups are leaking coffee and it is causing spills, don’t wait to investigate the complaint until the spills cause someone to get hurt. Do it now, find the problem if it exists, and then fix it.
There’s also an emphasis on keeping things nice and simple at Berkshire Hathaway. This conglomerate business might have control over several hundred different companies in multiple industries, but their plan for success is always the same. They focus on being diversified and owning stock. If you want to follow a similar business model, then stick to the basics. Don’t try to be everything to everyone. If you know how to make great espresso, then just sell espresso.
Expansion and diversification happen at natural times when revenues can justify it. Even then, however, expansion only makes sense when it works with your business plans.
Do You Have Two Buckets At the Ready?
Warren Buffet describes the Berkshire Hathaway business model as a two bucket approach. The first bucket involves business operations and the second bucket involves securities that are marketable. By taking this approach, each revenue generator can compensate for the other if one is struggling. If stock prices are low, for example, the operating revenues can be redeployed into the market so that assets can be purchased at discount levels. If the stock prices are high, then a business could be sold off from Berkshire Hathaway at a price that is overvalued instead of undervalued.
The lesson to be learned from the Berkshire Hathaway business model is this: to grow your wealth, you must be willing to invest in yourself. Investing can mean growing more revenues or implementing cost-savings measures to make current revenues stretch further.
Warren Buffet has become a world leader in the field of investing and conglomerate business management, but his system is remarkably simple. It is something that can be employed by every person in residential and professional settings. By focusing on income maximization, reducing expenses, and moving against the flow of popular thought, real wealth can be obtained.
There will always be risks in doing what others are not doing, but with great risk comes great reward.
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Why Restaurants Love Buffets Even More Than You Do
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It's lunchtime on a Tuesday, and you have exactly 27 minutes before you need to be back at the office for a marketing meeting. If you have to choke down one more dry turkey sandwich from the corner deli or a tasteless salad from the hippy co-op, you're gonna cry. But what's this — the Indian place that's usually only open for dinner has an $8 lunch buffet? Score!
When it comes to food, time-crunched Americans love variety, speed and low prices, which is precisely why they love a good buffet. For decades, savvy restaurant owners have been cashing in on the buffet boom — not just all-you-can-eat chains like Golden Corral or China Buffet, but regular a la carte restaurants that choose to offer a weekday lunch or Sunday brunch buffet.
Chefs and restaurant industry consultants say that when executed right, a well-designed buffet with steady foot traffic (stomach traffic?) is a certified moneymaker. Here are five reasons why:
- Variety and Volume Make a Killer Combo
- Restaurants Save Money With a Skeleton Crew
- The House Always Wins
- You Can Get Creative With Last Friday's Fish
- Even High-end Buffets Are Still Profitable
1. Variety and Volume Make a Killer Combo
"The purpose of a buffet is twofold: to feed a lot of people and to give them choices," says Shawn Bucher, a chef, author and host of the podcast Business Chef .
Making money in the restaurant business is all about getting people in the door and turning over tables. When you load up a buffet with lots of choices, customers get excited. And since the self-service model is much faster than the waiter-and-menu system, guests are in and out quicker.
Which is also why buffets are ideal for extremely high-volume occasions. When Bucher worked in the restaurant of a large hotel in Salt Lake City, Utah, it drew big crowds for its annual Mother's Day and Easter buffets.
"We knew we were going to be feeding somewhere in the neighborhood of 5,000 people that day," says Bucher. "When you have seating for 500, trying to do 10 table turns is just unrealistic. But a buffet, which allows people to come and go quickly, works out a lot better."
2. Restaurants Save Money With a Skeleton Crew
The three main costs of running a restaurant are rent, food and labor. One of the big reasons why weekday lunch and Sunday brunch buffets are so popular with restaurant owners is that they are major labor-saving devices, and therefore cost-saving devices.
Aaron Allen is a restaurant consultant and industry analyst. He explains that a buffet cuts back on staff throughout the restaurant.
"If the guest is walking through the buffet and plating their own food and basically serving themselves, you don't need as many front-of-house workers," says Allen, referring to waiters and bussers. "And for the back-of-house [kitchen staff], you don't need to have an a la carte culinary team making items to order. Just a few cooks can make items in batches and replenish, so you can work with a smaller crew and produce more volume."
Matthew Britt , a chef and instructor at Johnson & Wales University in Providence, Rhode Island, says that lower staffing needs and the predictability of buffet cooking are a great way for an a la carte restaurant to balance risk. Britt says that with the rise of nouvelle cuisine in the 1970s and 1980s — light, freshly prepared dishes with seasonal ingredients — profit margins at restaurants became much thinner.
"There's a lot of uncertainty in a nouvelle cuisine dinner service. You don't know who's coming in or what they're going to order. You need an army of highly trained cooks to facilitate all the guests' needs," says Britt. "The lunch or brunch buffet was the answer to that."
3. The House Always Wins
Like a casino, a restaurant buffet lures customers in with the promise of a big payoff — all-you-can-eat shrimp, crab legs or prime rib — while disguising the fact that the economic odds are entirely in the restaurant's favor.
"All you can eat is a fallacy," says Britt. "Some people think they're going to take down the house, but the house always wins. You're not going to eat your way past the profit margin."
Allen says that restaurants set their buffet pricing very carefully and lay out the buffet offerings strategically to ensure that for every Homer Simpson who attempts to eat the entire steam tray of lobsters , there are 20 other customers who get distracted by the sheer variety of choices and fill up on the cheap stuff like bread, soups, salads and desserts.
In almost all buffets, the expensive proteins like prime rib and seafood are placed at the end of the line. By the time customers get to the slicing station or shrimp tray, their plate is already filled up with sides and starches.
The strategy is based on behavioral economics. A study from the Food & Brand Lab at Cornell University found that 75 percent of buffet customers took the first food offered on the buffet line, and that the first three foods encountered in a buffet accounted for 66 percent of what they ate.
Britt says that buffets also use smaller plates to further mess with the diners' minds. "When they start to get full, they'll think, I've already had two plates, so maybe it's time to quit."
4. You Can Get Creative With Last Friday's Fish
Not only are buffet customers encouraged ("tricked" is such a nasty word) to fill up on the cheap stuff, but Bucher says that "a lot of the salads and soups are generally leftovers that have been repurposed for the buffet."
It's no great surprise to anyone who's worked in a restaurant, or read Anthony Bourdain's "Kitchen Confidential," that, as Britt says, "Half the Sunday brunch buffet menu is left over from the week's service."
That's not saying that the kitchen is trying to pawn off nearly expired fish or meat on unsuspecting customers, only that buffets are excellent opportunities for chefs to stretch their creative culinary muscles. Extra prime rib, for example, can be turned into an eggy prime rib hash or a french dip sandwich. It's all about reducing waste while giving customers something new.
Britt remembers a brunch dish called Eggs Goldenrod from a restaurant where he worked as a teen, which was nothing more that leftover hard-boiled eggs in a creamy bechamel sauce.
"You put it in a chafing dish with a fancy name and all of a sudden you have something that's new and exciting and seems to regular weekday guests like it's just a brunch thing. When in reality, it's a trickle-down special," says Britt.
5. Even High-end Buffets Are Still Profitable
Buffets don't have to be cheap. Far from the quantity-over-quality philosophy of big-box buffets is a separate but equally booming market for super high-end fare. At the Hotel del Coronado in San Diego, California, brunch guests can feast on a chilled seafood bar, fill up at several carving stations, and be their own bartender at the gourmet Bloody Mary bar. The hotel's regular Sunday brunch buffet runs $98 for adults.
The Mother's Day brunch sells for $140 per adult.
The concept of a high-end buffet is the same from an economic standpoint, says Britt. The higher price point allows you to offer higher-quality items, but the overall idea is still to wow with selection while balancing less-expensive and filling choices with the Beluga caviar bar.
Cornell's Food & Brand Lab has been the source of some headline-grabbing research around food psychology and creating healthier school cafeterias, but lead researcher Brian Wansink has come under fire recently for allegedly fudging data. Some buffet studies are among those being re-evaluated , but not the one we cited, as of the time of publication.
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Best Buffet Restaurants in Santa Clara, CA
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Santa Clara Buffet Restaurants
IMAGES
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COMMENTS
To granularly drill down on his analysis, Buffett has identified several core tenets, in the categories of business, management, financial measures, and value. Buffett favors companies that...
The term "economic moat," popularized by Warren Buffett, refers to a business's ability to maintain competitive advantages over its competitors in order to protect its long-term profits and...
Creating a business plan is essential to starting and operating a successful buffet business. A business plan should include the goals and objectives of the business, a description of the services offered, an analysis of the competition, an action plan, and a budget.
The model I base on Buffett's approach likes firms to have posted an average ROE of at least 15% over the past 10 years and the past three years, and an ROTC of at least 12% over those time...
Creating a contingency plan for emergencies. 2. Plan your technology investments wisely. Depending on your restaurant business model, several types of restaurant software can benefit your business ...
Like most restaurants, buffets operate on extremely thin margins: For every $20 in revenue, $19 might go toward overhead, leaving $1 (5%) in net profit. Zachary Crockett / The Hustle Buffets often break even on food and eke out a profit by minimizing the cost of labor.
Ovation Brands owns and manages around 330 buffets across 35 states, and they have a ton of data on every aspect of their business. They monitor everything, including weekly waste amounts, and plug it into a massive computer model.
After all, if the buffet costs $10 no matter how much you eat then those who eat the most will get the most value out of it. But the average amount consumed can't exceed the price, otherwise the...
Business Model Buffet: Business Model Implementation Choices Narasimhalu Arcot Desai 4.00 1 rating0 reviews This book is written in response to requests from business model designers complaints that there was no single source that lists business model related implementation choices of several successful companies.
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The typical limited-service buffet concept saw unit count decline 10.3% last year, according to Restaurant Business sister company Technomic, while sales fell 9.1%. That makes Golden Corral's performance fairly impressive. Sales last year increased 0.8%, though unit count declined 1.2%, according to Technomic.
Buffet Financial Model Excel Template. Get the Best Buffet Financial Plan. Excel template - robust and powerful. This is your solid foundation to plan your business model. Five year buffet pro forma for fundraising and business planning for startups and entrepreneurs. Key financial charts, summaries, metrics, and funding forecasts built-in ...
Explaining W. Buffet's business model and investing strategy. Warren Buffet is one of the most successful investors in history. He has the third largest net worth in the world with $86.2 billion. His track record is absolutely unrivaled.
Warren Buffet describes the Berkshire Hathaway business model as a two bucket approach. The first bucket involves business operations and the second bucket involves securities that are marketable. By taking this approach, each revenue generator can compensate for the other if one is struggling.
Here are five reasons why: 1. Variety and Volume Make a Killer Combo. "The purpose of a buffet is twofold: to feed a lot of people and to give them choices," says Shawn Bucher, a chef, author and host of the podcast Business Chef.
Best Buffets in Santa Clara, CA - Hokkaido Buffet, Milpitas Buffet, Tomi Sushi & Seafood Buffet, World Gourmet Buffet, Su's Mongolian BBQ, Noodle+ Mongolian BBQ, UlavacharU, Rangoli Flavors Of India, Red Chillies, What The Falafel
4. Dinah's Poolside Restaurant. "A great place for weekend brunch, we LOVED the view of the pool from the table." more. 5. Poolside Grill. "Beautiful mother's day brunch, plentiful food and dessert, rose for mom, and the pool side view was..." more. 6. The Ritz-Carlton, Half Moon Bay.
Best Buffet Restaurants in Santa Clara, California: Find Tripadvisor traveler reviews of THE BEST Santa Clara Buffet Restaurants and search by price, location, and more.