Restaurantonomics

The recently released Eat Out Restaurant Award nominees show how Stellenbosch has become the gastronomy capital of South Africa: 7 of the 19 South African nominees for the title of top South African restaurant are based in or just outside Stellenbosch. A further 3 are located in Franschhoek, or on the road between Stellenbosch and Franschhoek (a town about 30 kilometres from Stellenbosch). A further 6 are based in Cape Town, which means that of the top 19 restaurants in South Africa, 16 are based in a radius of about 60km in the Western Cape, and only 2 are based in Gauteng. (The final nominee is located in the Kwazulu-Natal midlands.)

How would an economist explain this? It’s clear that it’s not only demand driving this: Gauteng, the wealthiest province of South Africa, has only 2 nominees (one in Johannesburg, one in Pretoria and zero in Sandton). Tastes may play a role – Capetonians may prefer more exquisite dishes while patrons in Gauteng prefer something else – but I think it would take a brave man to argue (and prove) this. In fact, I don’t think it has anything to do with local demand, except that there must be a minimum level of ability-to-pay, which both exist in the Cape and Gauteng. Tourism is perhaps a better explanation: Cape Town is South Africa’s favourite tourist destination and the surrounding Winelands is in the top 5 most popular South African destinations. But why so many in Stellenbosch, and why doesn’t Soweto, or the Garden Route, or the Kruger Park, also top ten destinations, have any nominees?

It is supply, rather than demand, that is key: the Cape performs better because it is better at supplying the inputs that is required to produce a quality restaurant establishment. As I am no food connoisseur and should tread carefully in discussing food inputs, but perhaps the Western Cape may have a climate conducive to producing the vegetables and other greeneries that are required for exquisite dishes (although, you’ll find the best meat in Gauteng, where there’s a much larger market). But Cape restaurants are close to the (very fertile) Atlantic Ocean, which provides ready access to a large source of fish and shellfish. And they often have a great setting: 6 of the 7 Stellenbosch restaurants are located on wine estates (although, scrolling through the criteria for selection for the Eat Out Awards, it doesn’t seem as though setting counts for anything.) They also have direct links with Europe and elsewhere – I’ve heard a rumour that a certain Cape Town restaurant imports fresh bread from France – but so does Johannesburg, of course.

My suspicion is that they have two things which Gauteng don’t. Chefs and competition. The Cape hosts a number of internationally accredited hotel and culinary schools that produce talented young recruits for the restaurant industry. These young chefs know that if they want to be successful, the Cape is the place to be: it’s here that they’ll have access to the best tutors, and the most up-to-date fashions, styles and trends. It’s here where a new idea or concept or taste will be noticed faster by the rest of the gastronomy community (such as food blogs). Firms (restaurants) benefit because they have a wider pool of possible recruits. Labour (chefs) benefit because the pool of possible job opportunities is larger, and the opportunities to do something new and exciting and brilliant greater.

It’s these same reason that industries agglomerate in certain areas. Demand is important, yes, but demand simply means cheap access to international markets (tourism in the case of Cape restaurants, or fast, reliable and affordable port services in the case of manufacturing). The Cape gastronomy industry is a good example of how, with little government involvement, the market creates agglomeration economies that lowers the costs for each individual firm. More importantly, no policy-maker or consultant would have spotted this trend a decade ago. My own (bad) advice would have been to focus on the fashionable districts of Sandton, where local demand is largest.

All that that shows is that our “predictive ability” about future trends is extraordinarily bad. Any policy-maker with a taste for involvement in the market economy (read: “industrialisation” or “beneficiation”) should carefully heed the lessons of the South African gastronomy industry.

PS: This post is now also available on Finweek.com.