Why was El Bulli losing so much money?

Leigh Caldwell offers an analysis. Here is one bit:

…why is it losing so much money when demand is so high? The 48-seat restaurant has a six-month season with about 8,000 covers a year. It receives 300,000 applications for those seats [though this article says a million and this one two million], selling out the whole year’s reservations on the same day that bookings open for the season. Why wouldn’t they bump up the price from 230 to 330 euros, to simultaneously manage demand and eliminate the losses? Price elasticity can’t be that high.

My hypothesis is that the restaurant was never intended to turn a profit, but rather it was a loss leader for book sales, endorsements, lecture fees, TV contracts, cookware lines, and so on for Ferran Adria. Even if higher prices could bring in a twenty percent rate of profit, it wouldn’t — at this point — be worth keeping the place up and running. Adria already has a reputation as the world’s greatest chef, running the world’s greatest restaurant. It’s best to quit while ahead and branch out into food-related money-making ventures.

The low prices make going a hard-to-obtain event, open up the restaurant to more people than just the very wealthy, and maximize the publicity value of Adria’s name.

He won’t and can’t stop cooking forever, but cooking six months a year is probably not an optimum for him at this point. The real profit and loss calculation for El Bulli has to include the shadow price of his labor as an important variable.

Originally posted on Marginal Revolution – click to see comments and suggestions.

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