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Will Diners Still Swallow This? - New York Times

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Will Diners Still Swallow This? - New York Times
Topic: Markets & Investing 2:06 pm EDT, Mar 26, 2007

Restaurant chains that want to reduce portion sizes also face considerable skepticism from Wall Street. Investors want to see steady growth in sales from what are called comparable stores, those restaurants that have been open for at least a year. To get that growth, a company has to increase the number of people coming through the door or what they spend.

“If you shrink portion sizes, you kind of have to reduce prices,” said John Glass, an analyst at CIBC World Markets. “A lower check drags down comp-store sales. What you hope is, you offset the check with higher traffic.”

Mr. Glass added: “It’s been a difficult sell on Wall Street. It does work but it takes time, and we all know that investors are focused on the short term.”

I thought I'd highlight this article from PNW's Sunday NYT roundup that offers a sober look at America's obesity problem. It interacts in interesting ways with liberatrian idealism about market economics. Ideally, you'd like restaurants to increase same store sales by increasing the variety and quality of the food they offer, but its much easier to simply increase the sizes. In fact, many retaurants define themselves as fitting a particular quality and genre niche, and can't easily tweak that variable. Consumers are, however, willing to buy more food than they need, mostly because an evolutionary deficiency in our nervous systems fails to rapidly communicate fullness to our brain. Essentially, consumers are irrational with regard to food qualities, and the market has met this irrationality, and the result is a national health problem. Now this article seems to indicate that consumers, after 20 years, are starting to become more rational in this regard, and the market is attempting to respond, but it is finding it difficult, as the maximally efficient solution is not in the interest of shareholders. Is this a market failure that requires government intervention? I'm not convinced that it rises to that level, but at the same time, I think its an interesting illustration for those who think that market failures do not exist.

Will Diners Still Swallow This? - New York Times



 
 
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