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The Future, According to Danny Meyer

From The Wall Street Journal's Katy McLaughlin: New York restaurateur Danny Meyer is witnessing a turning point in his industry, amid the deepest and most persistent downturn in fine dining in his 24-year career. In recent months, Mr. Meyer, who owns Gramercy Tavern and Union Square Cafe, has seen the closing of once high-rolling competitors including Atria, Town, Kobe Club, and Docks Oyster Bar on the West Side. Mr. Meyer says his margins in his casual restaurants are holding steady—that’s partly the result of lower wholesale costs of a variety of goods—but margins are “down slightly” in his fine-dining restaurants, primarily because fewer people are springing for a pre-theater meal these days, he says.

In a talk with Mr. Meyer about the recession, he told us why downturns have an upside and which trends are sure to die (hint: kiss the seven-course mandatory tasting menu goodbye).

The Wall Street Journal: The high-end dining industry has been aggressively discounting for the past six months. What is the long-term impact of this strategy?

Mr. Meyer: There is an enormous amount of discounting going on, which is highly unusual in our end of the business. I understand the rationale for discounting now because there is 20% to 25% less demand for restaurant seats than there was a year to a year and a half ago. Restaurants don’t want to lay people off, and there’s an opportunity to discount now, because the cost of raw goods has decreased by about 10% compared to six months ago.

But I don’t think it’s a sustainable business model. The bottom line is that there are too many restaurant seats relative to the number of people able to dine out. We’re seeing a shedding of restaurants. This has to happen. There will come a point when there are the right number of seats.

WSJ: Luxury retailers fear it will take years to regain pricing power, even when the economy recovers, because consumers have learned to expect a discount. You’ve been doing some discounting, too. Are you afraid of never being able to bounce back?

Mr. Meyer: No. The discounts we’ve been doing aren’t 15% off the same veal chop. It’s a different meal, that doesn’t cost me as much, sold at a lower price point. But the water will rise, and there will be a return of the meal that cost me more to sell and costs the diner more to buy.

Human nature doesn’t change. When enough people are comfortable enough financially there is going to be human nature that wants to spend more money on better quality and to some degree status symbols as well.

WSJ: So in the future we’re going to see fewer high-end restaurants, but those that remain will regain their pricing power. What other trends are we going to see in a couple of years in high-end dining?

Mr. Meyer: I don’t think there’s going to be sustainable demand for restaurants that force you to spend hours there. Long tasting menus will continue to be elected by some but cannot be legislated by the restaurant. We’re going to have more bistros and trattorias. People will have luxury items—caviar, foie gras, truffles—less frequently, having done without them for a year and a half, but they will come to appreciate them more because it won’t be at every bar and grill in the city.

WSJ: What kinds of new restaurants have a chance of success in the next few years?

Mr. Meyer: People are thinking about how much of their time they have to spend, how much of their stomach they are going to fill and how many of their dollars they will have to part with. Restaurants with small courses that give the customer choices, and that don’t obligate them to spend a fortune, are going to do very well. 

Go to Full Interview

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