The Economic Logic of Restaurants Setting Their Lunch Prices

Japan is noted for convenience for shoppers, and the focus on convenience is also very much present when its legions of salarymen go out for their lunches on any working weekday.  In major business districts are arrays of different dining options, ranging from take-out microwaved meals in convenience stores, street carts serving up quick freshly cooked meals, and various fast food options ranging from noodles to burgers.  In such a competitive market to feed hungry workers quickly, traditional sit-down restaurants should have little advantage to speak of.

After all, the constraints posed by the salarymen's schedules and resources prevent sit-down restaurants from putting forward their usual value prepositions during lunch hours.  Workers tend to have one hour or less for their lunch breaks, so they have to order the food, get it, and then eat it fast.  Restaurants, with their focus on interior decor and a variety of available dishes, simply cannot leverage such benefits.  Instead, they must compete on the speed of service and low cost, things that fast food chains and food trucks are designed to excel in, achieved through sacrifices on looks and variety.

Indeed, because full-service restaurants cannot skimp on the larger number of staff and the relatively plushy seating, they are forced to operate with higher running costs and lower turnovers than their quick-service competitors.  The higher costs are logically reflected in the higher prices.  Whereas convenience store meals cost about 4 USD, those in quick-service eateries about 6-8 USD, lunch meals from full-service restaurants can easily go above 10 USD per person.  In a country where post-tax monthly income for the average non-management office worker is about 2000 USD per month and dinner is the main meal of the day, a 10 USD lunch is squarely in the "luxury" category.

Given that the available pool of potential consumers is already rather small, full-service restaurants serving lunches must come up with alternative value propositions to acquire enough clients to justify serving lunches in the first place.  One idea is to turn themselves into venues for lunch meetings that can be held in relative comfort and style.  Especially when entertaining external clients, salarymen would prefer dining in "nice" restaurants rather than grabbing cheap pre-packaged food and set up for lunch hastily in a meeting room within the office building.

But to do so requires consumers to forego one of the unwritten social norms of Japanese public spaces: people should not talk too loudly in public in case of disturbing others.  The same norm stipulates that Japanese people do not talk on the phone in trains or speak much in elevators.  A closed space like a restaurant near one's workplace would not be a good place to talk business anyways, considering that the likelihood of bumping into coworkers and workers from competing firms are just too great.  Only casual conversations, rather than serious meetings, can realistically take place inside sit-down restaurants.  

The alternative is to serve lunch as a loss-lead for brand-building and drive consumers into profitable dinner service.  And that is exactly what many sit-down full-service restaurants pursue.  By simplifying the lunch menu to what can quickly be served at prices only slightly higher than those for fast food joints, fancy eateries can target people who are too cheap or poor to go to nice places for expensive dinners but still want to experience what is like to eat in the nicer places.  The restaurants hit two birds with one stone: strengthen the brand among consumers who do not normally come, all the while getting rid of extra inventory.

What Japanese full-service restaurants do during lunch hours is certainly not unique.  Plenty of high-end restaurants in other countries also have "lunch specials" that are relatively low-priced, with a limited menu but quick service.  What differentiates the Japanese case, however, is the sheer volume of competition that each restaurant has to face in order to survive as a viable business during lunch hours.  Whereas in the US, for instance, people drive to a shopping mall with perhaps 4-5 similar places, densely populated Tokyo has double or triple that number within walking distance of an office building.  

Japanese restaurants have responded with aggressive marketing and pricing, combined with quick service.  Often considered "conservative" and "slow-moving" by international standards, Japanese businesses, when put in the food business, show some of the most aggressive, fast-paced way of doing business anywhere in the world.  It reflects not particularly on the Japanese mentality, but the fact that serving food to people as a business is much more competitive in Japan than perhaps anywhere else, with demanding consumers expecting the best food and service at fast speed and low price.  Ultimately, the power of the competitive market makes Japanese restaurants flexible and adaptable.