finance

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Spending on eating out

At first blush, in consideration of where households spend more money in regards to either eating in or dining out, one's judgment might be betrayed by remembering any individual dining experience in which a meal for a family might easily cost $50-100. This bias of a recently remembered and costly event, even though perhaps comparatively infrequent, might lead one to guess that the average household indeed may spend more eating out than dining in. Perhaps surprisingly, despite the high and rising cost of eating out, such is not actually the case though, on average, most households spend approximately 50% more on dining at home with $3,347 spent compared to dining out at $2,434. Though consumers spend more at home, they are still spending more at restaurant food than ever before and these expenses are increasing faster than spending on home dining (Dolliver 2005; Tufts University 1999).

In terms of dining out, though there is indeed a rich variety of choices, with 78% of the market share split between the “fast food” and “full-service” with the fast food category slightly greater at 40% of all establishments (Stewart, Blisard, Bhuyan & Naygo 2004, p. 1). In addition to other niche categories, an additional growing category that seems to blend the convenience of fast food with fare more typical of a ‘sit-down' establishment is the comparatively recent appearance of the “fast casual” restaurant such as Applebee's, Chili's, or Friday's among popular US businesses (Stewart, et al, p. 14).

In addition, recent times have seen the emergence of something of a additional hybridized category in which one would purchase a meal or meal component out but prepare the meal at home. These “meal-in-box” or ready-to-cook attempt to bridge the gap between eating in, dining out, or even “take out” in which one would bring a fully prepared meal home. The addition of this type of product has the effect of blurring the lines between FAH, or “Food at Home”, and the intentions and outcomes of eating out.

In summary, while on any given meal, a person will spend more eating out than the traditional preparing and consuming food in the home, US consumers overall still spend more on groceries than restaurants though restaurant spending is increasing.

  • Ask yourself why this statement is true and write down your
    explanations. You can go as deep as you like, but make sure that there
    are no substantial overlaps in your explanations.

The trend of increasing spending at FAFH or “Food Away From Home” is likely due to the combination of a number of factors such as time pressures of work and family life and attempting to juggle ever more hectic schedules (Datamonitor 2005, p.69). It is these types of pressure coupled with the factor of convenience that has caused the acceleration of the growth of fast food establishments as they emphasize convenience and speed (Stewart, et al, pp. 1-2). Contrary to the need for a speedy meal, the numbers of full-service restaurants are also expected to grow. This is possibly due to demands for a broader menu selection typically found in “sit-down” establishments or as a contra-trend to the need for speed, diners may consciously choose to sit down for a meal yet not want the hassle of preparation and clean-up.

In addition to the above named ‘mega-trends', other societal factors are moving to reinforce the current direction of increased spending on FAFH. For example, since the 1980's, women have delayed getting married until later in life, the birthrate has decreased and, combined with an increase of women gaining education and professional status, there is likely to be additional disposal income (Roberts 1981, pp. 590-591). As such, it is very reasonable to assume that extra income may be allocated to the conveniences of eating out.

In addition, as both women and men have the means to afford eating out, it is likely that they will choose to do so due to the potential social implications. Even if eating alone, by doing so, they place themselves in a social situation in which they can observe if not interact with others. By deciding to eat out, they are putting themselves in a position to satisfy more than just the “food” component of Maslow's hierarchy of needs. By doing so, they gain the advantage of companionship and communication or, at least the possibility of such.

  • Develop a theoretical model explaining why this happens. The
    development of the theoretical model can culminate in a set of
    hypotheses and expressed as a "boxes and arrows" diagram.

As life accelerates with the continuing perfusion and adoption of technology throughout almost every demographic, the scarcity of time will continue to emerge as the likely chief complaint of the modern age. This trend is driven by any number of predictable factors but most importantly, it is a trend that presents certain complications in measuring as most people do not keep track of exactly how much they spend in grocery shopping or eating out. Further, the extent to which someone feels “pressured” by time is highly subjective. For example, if one were to survey a group of individuals, it is likely that at any given point in time, they “strongly agree” that they are “pressed for time”, there is no way to differentiate between being more crunched for time at any given point. Rather, to overcome this and to gauge the extent to which people perceive themselves to be affected by this almost universal dilemma, one must compare two points in time. Specifically, a valid question might be, “Take a moment to think about what you life was like 6 months ago…. To what extent are you more pressed for time than then”. In addition, it is recommended that specific broad topical areas be queried with this same approach. Areas such as “your home life”, “time for personal hobbies”, “time for spiritual considerations”, “time for enjoying life”, “time for spouse/significant other”, “time at work” and other likely common areas. By doing so, a better indication for an overall index can be created for which persons can report not only the perception of greater time pressure but the researcher can gain some understanding of direction.

Corollary to this are questions indicating the extent to which financial concerns are greater or lesser (or about the same) during the same period that was sampled for time pressure concerns. This data will be central to establishing the degree of choice and discretion that respondents feel they have with regards to financial concerns.

Finally, the dependent variable will be the extent to which people eat out, purchase ready-to-cook meals, or order take out. It is hypothesized that increases in either independent variable will produce an increase in the extent to which people modify their behavior to relieve this stress.

Thus, reported of time pressure and financial pressure are hypothezided to be the primary independent variables in the equation of eating out versus dining in.

Expressed in narrative form, the null hypothesis can be expressed as the money reported spent on food away from home is not a function of the extent to which respondents report increases in time pressure or the financial pressures. As a consequence of the literature review, it is expected that such an experiment would refute the null hypothesis and demonstrate that there is a statistically significant correlation between spending on FAFH and the extent to which people report time and financial pressures and, as a consequence of living the modern age of the increasing adoption of technology, the trend of increasing FAFH will continue.

  • Develop an alternative explanatory model that also has the original
    statement as a consequence.

As an alternative hypothesis with the same conclusion that FAFH will increase, it is conceivable that cooking is increasingly becoming a lost, manual art in an age of instant gratification. Taking time to cook and clean up following a home meal preparation may very well be viewed as a typical “make or buy” decision for which specialized knowledge, skills, and abilities are required. As such, the bundled activity of the hassle meal preparation and consumption would represent an opportunity cost for which consumers would have a comparative economic disadvantage when considered alongside the specialized equipment, facilities, and training of those businesses such as restaurants. Further, as restaurants seek to achieve efficiencies and economies of scale, a successful restaurant would thus be likely to do the entire meal production for less cost than the relative value of the consumer's time.

Certainly, there is more to the “experience” of dining out than can be readily expressed in dollars and cents yet the idea of “utility” is theoretically captured in price. If a certain experience is worth something and provides some useful function, whether it be purely nutritional or much less so, the value or “utility” of the experience in captured in the law of supply and demand. In the event that a restaurant could not produce a meal with less allocation of resources and could not recoup that in price, it stands to reason that it would not be in business for long. It is for these reasons that the assumption that restaurants submit a product or service to the market that is ultimately be reflected in broader economic terms.

In conclusion, as an alternative reason for which expenditures on FAH are greater than FAFH is that people do not make a sufficient income to offset the cost of FAFH. As income rises, so too does FAFH. This partly explains the division of the growth of comparatively cheap fast food for which there is smaller economic hurdle as well as the emergence of hybrid categories such as meal-in-a-box or fast casual establishments. As full-service establishments provide greater value, they also incur greater costs that are passed along to the customer. For this reason, it may be postulated that this category has a the smaller of the two dominant sectors of FAFH.

This hypothesis could be at least partially tested by examining the extent to which households with higher incomes frequented full-service establishments compared to other establishments and other income strata. In addition, the increase or decrease of the number of households exceeding the average should parallel the expenditures of FAFH.

  • For each of the models developed in c) and d) derive two strategic
    marketing implications/predictions/consequences (that is, a total of
    four implications). Make sure that you demonstrate the logical
    connection between your model and your implications. Also, whenever you
    are making assumptions concerning the world or the business
    environment, you should state them explicitly.

Hypothesis #1 - Increasing time pressures and increasing financial means will correlate with increases in FAFH.
    Strategic Implication #1 - Convenience and fast service will be key drivers of
    eating establishment success.
    Strategic Implication #2 - As income increases, demand for quality or nutritious
    content of meals will likely drive the growth of meal-in-box and fast-casual
    establishments to take some of the market share of full service restaurants.

Hypothesis #2 - Restaurants at each level of relative price reflect a market offering that offers a comparative economic advantage to consumers. Thus FAFH is at least partly a rational economic decision for which consumers cannot duplicate without incurring excess costs. Thus, it is likely that a meal will have a value that is less than the perceived value of a targeted market reported value of their time. As consumer's time becomes more valuable, either through time pressure or perhaps increased earnings, the extent to which they are willing to outsource this function will also increase.
    Strategic Implication #1 - Though speed and convenience should not be
    overlooked, in affluent areas, the opportunity for full-service establishments will
    be justified as people continue to seek higher “value” for a dining experience.
    Strategic Implication #2 - In areas in which there are significant working class
    populations, the emphasis for restrarants should be on a no-frills, speedy but tasty
    meal. One way to keep costs down is to embrace the concept of bundling “meal
    deals” that include a drink, entrée and a side for a less than about ½ hour of the
    average wage in the area. This amount would roughly reflect the opportunity cost
    of justifying eating out in terms of rationalized economic decisions.

  • How would you test your model?

Test of Hypothesis #1

As outlined in the initial explanation of the model, a survey would be given to at least 30 participants (preferably up to approximately 100 to ensure valid robustness) in which in addition to basic demographic information.

Test of Hypothesis #2

The second hypothesis could be tested by asking people how much they “usually” spend while eating out, both as an individual and as a family, if applicable. The responses would be categorized into bands into which they are likely to fall. For example, for an individual, these bands might be “less than $5”, “between $5 and $8”, between $8 and $11”, $11 - $14”, or “over $14”.

Central to refuting the null hypothesis by this theory will be the collection of accurate personal and household income in this section. In addition to asking for an estimate to the nearest $5,000 of household income, a query for their family, “doing better financially” may also reveal other circumstances unrelated to earnings that would show an experimental effect.

To score this test, one would look for a correlation of increasing expenditures on FAFH with increases in household affluence.