What Restaurants Can Learn from the NY Times
What business('s) are you in?
(Audio by Eleven Labs can be a little wonky)
TL;DR
Restaurants are a 19th century business model struggling to thrive in the 21st century.
The New York Times is also a 19th century business model that was struggling to thrive in the 21st century.
The New York Times overcame this by recognizing that they were not just in the news business. They were in the passion, curiosity, entertainment, and attention businesses.
They used the insight from this reframing to pivot to ‘create a more expansive and connected product experience that helps people engage with everything The New York Times offers'- a quote from a March 2022 Time strategy document.
This pivot powered the transition from the ad based business model to the subscription based one.
Restaurants should also reframe the business they are in to overcome the challenges of the business model.
A restaurants’ core business is food, beverage, and hospitality but it’s also in the more businesses of entertainment, experience, content, services, and distribution.
Restaurants must look to monetize each one of those businesses in pursuit of better margins to support the important core work of hospitality.
Restaurants have always been a challenging business. Over the past 5 years, it’s gotten harder to achieve a sustaining level of profit for most restaurants. Since 2018, average profitability has dropped from 5.3% to 4.2% for single location full service operators. Inflation, wage increases, and costly digital services are primary causes of the decrease in profitability.
The restaurant business model is ill-suited to the modern economy – it is largely unchanged from its 19th century origins. The wonderful thing about restaurants, their local and in-person nature in a global and digital world, is also their biggest challenge.
The restaurant industry is not without comparison. The digital era has decimated print media, another 19th century business model that has struggled to adapt to 21st century economics. Google and Meta have taken much of this revenue while a myriad of other digital services have unbundled the classified section.
Despite all that, the adjusted operating profit at The New York Times, by their own reporting, increased by 62% in Q1 2024 against 2023. This is not a one-off for the Times How did they accomplish this and what can restaurants learn from it? At one level it was a pivot from an ad to a subscription-based model. At a deeper level though, the paper realized that to be in the news business, they also had to be in the entertainment and attention businesses.
The New York Times was founded in 1851. Up until 2007, the New York Times generated twice as much revenue from high margin advertising than it did from low margin circulation. For restaurants, profit came largely from affordable labor, urban real estate, and raw product.
Both business models worked, until they didn’t.
The New York Times is one of the few that pivoted in this digital era – they became a lifestyle brand, intending ‘to become even more valuable to people by helping them make the most of their lives and engage with their passions.’ as outlined in their 3 point strategy. Wordle, Wirecutter, Spelling Bee, and NYT Cooking are all examples of this pivot.
These speak to the fact that to do the painstaking and expensive work of the news has always required a higher margin, complimentary business to subsidize it. Historically, that was advertising, now it is entertainment.
Like newspapers, the painstaking and expensive work of providing food, beverage, and hospitality also now requires higher margin, complimentary businesses to subsidize it. Like The Times, restaurants exist in multiple businesses.
A restaurant is simultaneously in the food and beverage, experience, entertainment, distribution, and attention businesses. It must look to monetize each one of those businesses in pursuit of better margins to support the important core work of hospitality. Like newspapers, restaurants must also look to the companies who feed off the industry for their own profits. Again, I’m looking at you- ecosystem of technology providers, liquor distributors, food suppliers, and real estate developers- who build their businesses on top of restaurants.
Restaurants’ place in the food and beverage business is clear but what could monetizing other businesses look like? There are more specific examples below but these reframings offer far more opportunities than those I’ve listed.
Restaurant as Experience: A restaurant can help guests engage with their passions around food across a wide range of experiences outside its walls. As a food lover, if you want to know where to eat or have a worthwhile food experience, ask a passionate chef or restaurant manager. Restaurants influence travel decisions and associated purchasing behaviors, adding a value to their relationship with guests.
Restaurant as Co-Working Space: Working from home can be very challenging and isolating for some, especially younger people. There is a place and opportunity for restaurants in addressing this. At our restaurant in Boston, Shy Bird, we opened with Work from Shy Bird daytime packages and it has quickly become a driving force behind our weekday business. There are also early iterations of this in London and in some Hoxton hotels.
Restaurant as Content Creator: Restaurants exist as content on multiple platforms- reservations, delivery and even real estate developments. Just as Netflix pays for exclusivity with Shonda Rhimes or Spotify with Emma Chamberlain, compelling concepts can monetize their demand on their respective platforms.
Restaurant as Ad Platform: Reaching consumers is getting harder and restaurants command attention. From the liquor bottles on a back bar to the to-go bag, aligned brands should be paying restaurants for the eyeballs they can deliver.
Restaurant as Distribution Hub: Restaurants are literally everywhere. As Uber and Doordash expand non-restaurant delivery there is an opportunity for restaurants to use this ubiquity to bundle restaurant and non-restaurant orders. Doordash or Uber would either pay for this or offer discounted revenue share rates on restaurant orders. Expanding this idea to last ¼ mile fulfillment creates even more opportunity.
Restaurant as Influencer: If a restaurant generates tens of thousands of Instagram followers, that audience has value beyond their patronage to that restaurant. In many cases, a social media follower may not even be geographically close to a restaurant they follow.
Restaurant Hospitality-as-a-Service: Hospitality is a buzzword as landlords and their tenants look to get people back to offices. A restaurant with great hospitality has a unique ability to bring that hospitality experience throughout a building. Historically this high margin, asset light service business goes to institutional food service providers like Compass, Sodexo and Aramark. A more food obsessed consumer (employee) expects more now and this creates an opportunity for operators.
The work of both news and restaurants is critical. The weakening of journalism's economic model has been bad for democracy. Examples and implications of this are too numerous to describe here. The weakening of the restaurant economic model will also be terrible for society. There has never been a more important time to stabilize restaurant economics. Restaurants are places of real-world connection in a time of digitally-fueled disconnection and loneliness. Beyond their contribution to GDP and employment, restaurants play host to countless moments and memories for guests and offer accessible employment to many who need it most. We need our restaurants to be economically viable and our mid 1800’s sibling can offer some inspiration.