An overview of the restaurant industry

4.1 An overview of the restaurant industry

The restaurant sector is the largest employer in the US outside of its government and accounts for 13 million workplaces (National Restaurant Association, 2009). The industry has added over 2 million jobs in ten years and sales total $566 billion, more than a doubling from 1990. In the EU, the sector employed more than 7.8 million people in 2004 (Eurostat, 2005) and the registered turnover was around 440 billion Euros (Eurofound, 2005) during the same year.

Also Sweden has exhibited substantial growth in the hospitality industry. Employment increased by 42 percent between the years 1997 and 2007 (see Figure 1). During the same time period, the real turnover increased by 52 percent. The figure illustrates that growth has not been linear. Rather, sales and employment grew steadily in the late 1990s, flattened soon after the millennium and has increased steadily since. The growth pattern closely reflects the development of the overall economy, which the important difference that the hospitality industry has grown substantially more rapidly than the overall economy.

turn over 120 employment

Figure 1: Turnover and employment in the hotel and restaurant sector in Sweden 1997-

2007, 1997=100 Source: Sveriges hotell- och restaurangföretagare ( http://www.shr.se ) The industry sector is characterized by low barriers to entry and exit. Accordingly,

competition is intense and entry and exit rates are notably high; higher than in any other sector of the Swedish economy. Also, the sector is totally dominated by small firms. For example, in 2006 almost half, or 49 percent, of the Swedish hospitality companies had less than 5 employees (Statistics Sweden, 2007). Overall, the Swedish hospitality industry has the characteristics of any highly competitive industry with low barriers to entry and exit, viz., productivity and wages are low and the probability of bankruptcy is high, whereas the probability of growth is low.

However, the restaurant sector is highly segmented and a useful categorization is: (a) fine dining/gourmet; (b) theme/atmosphere; family/popular; and (d) convenience/fast food (Kivela, 1997). In this study we are interested in the gourmet (high quality) segment only. The competitive situation is radically different in this sector, as we elaborate in the below.

It appears that the high quality segment of the Swedish restaurant sector has grown substantially in recent years and that the quality of gourmet restaurants has also improved. For example, the number of Swedish entries into Guide Michelin has increased as has the number of restaurants with more than one star. Sweden also has an entry on the list of ―The S. Pellegrino World ‘s 50 Best Restaurants‖. There are probably two driving forces behind this positive development: (a) general upgrading of the knowledge of Swedish chefs translated into quality improvement among the top restaurants; and (b) an increasing number of Swedish consumers that are willing to the premium associated with fine dining.

4.1.1 The Localized Nature of Gourmet Restaurant Competitive Advantage

The products of high quality restaurants are consumed at the place where they are being produced, i.e., at the restaurant, which has a specific geographic location. Generally speaking, places are centers for consumption, i.e., locations provide a context within which consumers compare evaluate, purchase and consume goods and services (Urry, 1995). Therefore, there is

a close connection between a high quality restaurant and its location. To a large extent, restaurateurs are aware of this fundamental relationship between their business and its location.

It is well established that gourmet restaurants offer meal experiences which speak to a wide range of consumers‘ senses (not only their taste for good food) including the atmosphere and ambience associated with visiting the restaurant (Auty, 1992). But the customer ‘s value of, and propensity to pay for, a meal at a gourmet restaurant extends also beyond the actual experience at the restaurant and is influenced by the location of the restaurant and its surrounding environment.

The local nature of consumers‘ restaurant experience is often deliberately utilized and emphasized by restaurateurs. Meals are often made from a combination of excellent ingredients found worldwide (global) as well as those found in close proximity of the restaurants (local). Of special importance are the ingredients that are unique to the location. Restaurateurs use these local ingredients to carve out the uniqueness of their restaurants and potentially create a competitive advantage relative to other restaurants. Many restaurateurs create sophisticated narratives that tell exciting stories about the location, the restaurant and the food, thereby using the association between the restaurant and the location as an important way of branding the restaurant.