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Monday, November 23, 2009

A Food Cart can be a Disruptive Market Force but is it Free?

Food carts in Portland, OR are in the middle of a renaissance. They've come a long way from the days of street meat or porksicles or colon-bombing greasy goodness. According to the linked article, culinary school graduates are bypassing restaurants in favor of opening food carts. With assessments, and fees a lot lower than restaurants (a food cart license is around $300), it's the start-up of the food industry.

For established brick and mortar restaurants, this is not necessarily good news. The new technology of an infusion of highly trained chefs and interesting menus is turning food courts into potent competitors. With their lower cost structure, and higher quality food that is not typically served on a stick, restaurants are concerned. While this isn't exactly cloud computing dealing to a blow to operating systems or the internet disrupting the media, food carts are becoming a disruptive force to restaurants. One of the only differences is that mobile refers to a Korean food truck that twitters its latest location as opposed to smart phones and Iphone applications.

Since this is America, the bastion of the free market, how do restaurants respond? Do they review their marketing strategy? How about a segmentation study to understand how to attract their most profitable customers? Do they work on the variety of the menu and cleanliness to highlight areas that a food cart on a rainy street corner with a small kitchen cannot? No, in America, we now look to the government or at regulations to address new competitors.

Restaurant owners instead talk about how they face more regulations and fees which makes opening a restaurant more expensive to start and operate. They don't want to drive the food carts out of business but they want a break with their own fees and requirements.

Comments like these are why I struggle with the demand for free market solutions when there are strategies aimed at convincing the government to change the playing field. These same regulations, like having a bathroom, initially built up barriers to entry for restaurants. The purpose was public health not to define the business model. Now, the message is to deregulate in order to lower the cost structure to help compete.

This is probably the least effective and mostly costly strategy for restaurants to pursue. As a disclaimer, I am viewing this from the lens of the new competitive force of food carts. The real agenda may be to get rid of fees, assessments, or regulations that the restaurants have always disliked and the food carts are really just Trojan food courts. My other disclaimer is that I have always liked eating at food carts so that's the horse I'm riding.

The restaurants' government intervention strategy faces an uphill battle since localities are cash strapped themselves, this will take years, and this strategy is largely outside their control. A review of their own internal capabilities or market would probably be more successful and a better use of their time. For example, are restaurants really competing for the same customers as food carts? They may be looking or a cheaper or quicker meal than restaurants could provide. Families with young kids are more likely to eat at restaurants since they need that bathroom. Business deals will be done over a full meal as opposed to a corner waffle sandwich. Finally, there's the liquor license. With these differences, restaurants will not be driven out of business. Since restaurants are having a tough year, additional competition is not a good thing. However, why the call for government interventions? It's not like restaurants could compete on cost no matter how many fees were cut.

In reality, this is an example of how I wrestle with calls for deregulation as a free market solution. Government regulations and decision should be made to protect consumers, the environment, or for use of public resources. If it's a good idea to have bathrooms in restaurants before food carts started serving duck than it still should be a good idea. Restaurants were given media space and attention which they could have touted their smoke-free environments, healthier food options, video poker machines, or any number of features. Why did they use their media opportunity to call for a government intervention?

A free market economy vs heavily regulated economy should be more straight forward. Instead it's starting to feel like Me and Bobby McGee song where "Free [markets] is just another word for nothing left to lose"
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