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Restaurantonomics

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(c) Johan Fourie

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.

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Written by Johan Fourie

October 7, 2012 at 09:29

7 Responses

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  1. Thanks for this post, Johan. I am a mom and live in Stellenbosch. After some desperate times in the world of a new mother of not knowing where to go and what to do with the kids I decided to start a blog on the kid friendly Stellenbosch, Since then I have attempted to add all the venues that are child friendly as well as adult friendhy, meaning that adults actually WANT to go there. I have thus far discovered that there is a lot of competition out there! So, just to confirm what you’re saying… The wine farms and restaurants (no matter how posh) are contending for the families-with-children market share. There are loads of places for families to visit.
    I suspected it started out with Spier and their beautiful dam and playing area… Nowadays every stunning wine farm has a play area or petting zoo. Some are even referring to the “kid friendly wine route”. Competition indeed is fierce and the wine farms are doing everything they can to draw customers and make a profit. But for now I think I’ll leave it to the economists to figure out how it got this way :)

    thestellenboschmom

    November 4, 2012 at 16:17

  2. I find very interesting and refreshing to read your article.
    What you also need to know is that Stellenbosch – with the most nominees – does not have a great clientele for fine dining amongst its inhabitants.
    Our fine diners come mainly from overseas in season, and from the surrounding towns off season. The wine making industry is a big support for our restaurant in this area and luckily keeps us afloat during the tough winter.

    Karine

    October 9, 2012 at 14:13

  3. Posted this on FinWeek, but more discussion here…

    Johan, you raise some interesting points – however I do think the role of the differing demands are worth a look (were this possible to do accurately). The Cape diners seem to “demand” a more sophisticated cuisine (judging by the many more “fine diners”) and this is likely influenced by the influx of foreign visitors over season. This in turn leads to competition amongst chefs, etc.

    What would be interesting is to find out whether the Cape and Gauteng have a similar number of restaurants per capita? I would hazard a guess that Gauteng actually has more – there is more demand – but not as much for “fine dining”.

    jprossouw

    October 9, 2012 at 13:37

  4. HI JOHAN… JUST IN RESPONSE TO YOUR POST I WOULD LIKE TO ADD MY 2 CENTS WORTH… 2 THINGS WE CANT USE AS AN EXCUSE IS PRODUCT AVAILABILITY AND LACK OF DEMAND… GUESTS IN JOZI ARE GAGGING FOR GREAT DINING EXPERIENCES.. THE PRODUCT WE HAVE ACCESS TO UP HERE IS VIRTUALLY THE SAME IF NOT BETTER… WE ARE ALSO CLOSER TO THE MIDLANDS WHERE AS WE ALL KNOW THERE ARE EXCITING DEVELOPMENTS AMONGST PRODUCERS OF MEAT AND CHEESE ESPECIALLY..
    LACK OF COMPETITION I WOULD AGREE WITH… RESTAURANTS IN CLOSE PROXIMITY TO EACH OTHER WILL DEFINITELY PUSH YOU ALOT MORE…. I GET ASKED THE QUESTION ON A DAILY BASIS… IM ACTUALLY STILL NOT SURE WHAT THE ANSWER IS BUT I CAN TELL YOU THAT GIVE JOZI A COUPLE OF YEARS AND WE WILL BE IN THE THICK OF IT… AGAIN! LOTS OF REALLY EXCITING RESTAURANTS POPPING UP ALL OVER THE PLACE AND GUYS ARE PUSHING BOUNDARIES A LITTLE…. I JUST CXANT WAIT FOR DOWNTOWN TO ERUPT… THEN YOU WILL SEE THE SOME SERIOUS ACTION IN THIS TOWN… MIGHT TAKE A COUPLE OF YEARS THOUGH… WITH THE INFRASTRUCTURE AND THE INSANE OLD BUILDINGS AND ARCHITECTURE YOU CANT BUT IMAGINE A NEW YORK TYPE DINING SCENE IN THE HEART OF AFRICA….. DAVID HIGGS

    david higgs

    October 9, 2012 at 13:11

  5. Johan,

    Let me try to make the case for the demand side: twenty years ago there was one good restaurant in Stellenbosch, Ralphs, and few even in the second league. So we have time variation here, not just cross-sectional variation to help us identify the causes of current culinary concentration in Stellenbosch.
    The sea is not much closer than it was 20 years ago and the setting no better. In fact that one fine restaurant I mentioned had an inconspicuous setting. With modern logistics a restaurant in Sandton can serve fish as fresh as any in Dorp street.

    I don’t think the chefs and competition explanation works either, as these are endogenous to the event you are trying to explain. Since the best restaurants are here it stands to reason that this is where the best chefs would be, where the new ones get rather apprenticeships and where the competition is the fiercest. But that is another way of saying that Cape restaurants are the best, not an explanation for why they are the best.

    Let me get to demand. I think the time series evidence suggests there is something to consider here. There are two major differences between the Stellenbosch of today and the Stellenbosch of Ralphs: tourists and (a lot) more wealthy South Africans. You observe that there are other poplar tourist destinations in SA without great restaurants. My hypothesis is that there are different kinds of tourists and that in the Cape we get many who are looking for a luxury holiday, which includes fine accommodation and fine dining. By contrast, you don’t travel to Machu Picchu for the food. I also argue that the reintegration of our economy with the world over the last twenty years (and the depreciation of the Rand) explains why we have more rich tourists filling restaurants in the Western Cape. The high concentration of wealthy South Africans in Stellenbosch sustains this industry in the off season.

    Whether the explanation lies on the supply or demand side we have the same policy perspective though.

    Stan du Plessis

    October 7, 2012 at 20:16

    • Thanks Stan. I agree that there are several reasons tourists travel. But if the supply-side had no role to play, and particularly the thickness of the labour market and knowledge spillovers to which Waldo refers below, we would certainly expect to see a more equal distribution of restaurants around the country. Take Sandton, for example, where local demand has grown faster than the Stellenbosch/Franschhoek region over the last two decades and which, as you know, is very much unlike Machu Picchu. The depreciation of the Rand is also as true for patrons in the North as in the South. Although demand certainly can explain the time-series variation, it alone cannot explain the cross-sectional variation.

      Johan Fourie

      October 8, 2012 at 07:24

  6. Nice post Johan. In Geographical economics we would have said it is about specialist suppliers of intermediate inputs, a thick labour market and knowledge spillovers. A large home market helps, but is not enough. Your story, however, makes these points much more elegantly. We should think about a Blue Skies project that requires us to eat at and interview people at these fine establishments, untangling the forces of agglomeration one wine farm at a time!

    Waldo Krugell

    October 7, 2012 at 10:56


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