Freakonomics Radio - 171. There’s No Such Thing as a Free Appetizer

Episode Date: June 19, 2014

Is it really in a restaurant’s best interest to give customers free bread or chips before they even order?

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Mandy is a nursing student in Cincinnati. Tim is an engineer, also in Cincinnati. When the story begins, the two of them don't know each other. Mandy, however, is a big fan of Freakonomics Radio. I listened to the podcast on a Thursday morning on my way to work, and it was titled What You Don't Know About Online Dating or something along those lines. This was around Valentine's Day. And I had been single for a while and thought, hey, maybe I'll be able to date an NPR employee because that's whose profiles they were looking at on the show.

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And this is new. We are also giving away one 13-inch MacBook Air donated by TechServe, the Apple specialty store here in New York. You are automatically entered when you visit Freakonomics.com and make a donation. You don't have to contribute to enter, but we do hope you'll support our show with a contribution. If you are already a monthly supporter of WNYC or Freakonomics Radio, you're automatically entered to win. So please go to Freakonomics.com now and click the donate button so that we can keep turning your dollars into true love. They're fried and thin and crispy and super salty. Chewy and it's salty and they coat the top of it with olive oil.

So you've got kind of a crunch and a soft and then a bite of butter? I mean, how do you not love that? They like the idea of drinks and chips and salsa as even a meal. And it's endless, so they could definitely spend most of their stomach real estate there. Yeah, from a restaurant perspective, I don't think it makes much sense to do that. I'm not sure. You know, it really doesn't make much sense.

Hey, Freakonomics. This is Larry Tingen, a math instructor at K-Fear Community College in Wilmington, North Carolina. My fiancé, Kelly, and I went out to a Mexican restaurant, and the first thing that happened was a server brought us chips and salsa. Totally normal, happens every time. I didn't think anything about it. Suddenly, Kelly, my fiancé, asked me, why do they give us free chips and salsa?

This led to a long conversation, but no matter how hard we tried, we couldn't square the circle. To us, it seems to go against the restaurant's financial interests, because people always fill up on the free food, which leads them to order a smaller and cheaper meal. As we walked out of the restaurant, we were thinking, what's going on here? When we got back to the car, the last Freakonomics podcast was playing, and I said to Kelly, I know who we should ask. All right, Larry, we'll bite. Why do some restaurants immediately give you free food when their objective is to sell you food? Or, as Larry properly put it, what's going on here? I'm not sure it is good logic.

I try not to fill up on it because I want the rest of the food that's on the menu. I really don't know what it is, but I'm not a restaurant person. From WNYC, this is Freakonomics Radio, the podcast that explores the hidden side of everything. Here's your host, Stephen Dupner. On today's show, we will try to answer a listener's question about why it makes sense, or if it makes sense, when restaurants give you a free bread basket when you sit down, or chips and salsa, maybe some olives or pickles or other amuse-bouche. Say it with me. The amuse-bouche. The amuse-bouche.

Amuse-bouche. Amuse-bouche. The amuse-bouche. Amuse-bouche. Amuse-bouche. Something that makes the mouth happy. On the surface, this practice may appear to work against a restaurant's self-interest. They're trying to sell you food, not give it to you. But does it really work against their self-interest? And if not, why not? Let's say this from the start. It will be hard

to come up with definitive answers to these questions. We looked for good data and research findings on the topic and, well, we were left hungry. But we'll still do our best. We'll talk to a pair of professors, both of whom happen to teach at Cornell. My name is Mike Lynn. He's a professor of consumer behavior and marketing. You may remember Michael Lynn from our episode on tipping a while back. And we talked to Brian Wansink. I'm professor and director of the Cornell Food and Brand Lab at Cornell University. We also hear from a number of people who work in restaurants. I think that food definitely makes a lot of difference in people's moods, their energy

levels, everything. And I think as a server, you have to constantly be aware of that. Including Nancy Silverton, who just won the Outstanding Chef Award from the James Beard Foundation. I am the founder of La Brea Bakery, which is an international bread company now. And I am the co-owner of several restaurants. We also talk to a lot of people like you and me, people who eat in restaurants. They gave us chips and guacamole and salsa. They didn't give us bread for free, no. I guess they didn't give us anything for free.

And if it's good and if it's quality, I'm very willing to pay for it. Like, if I don't want it, don't give it to me. So let's get into the various explanations, shall we? One popular theory among diners for why it doesn't make sense for restaurants to give you free food at the beginning of the meal has to do with what happens at the end of the meal. It always seems stupid to me to bring a bread basket because they're just going to fill up and then they're not going to have dessert. I personally think it's kind of stupid because then people don't order dessert

and dessert's my favorite thing. But what if it may not be in the restaurant's interest to sell you dessert? That's Michael Lynn. After all, dessert is a relatively low-priced item. You're going to occupy a table. If they've got enough other customers who'd be willing to order entrees, they'd be better off turning that table rather than selling

you a dessert. And so I suppose you could argue maybe that's a reason to give away free chips. They'll fill up, they'll get their meal, and then they won't order dessert. And that's good from the restaurant's perspective because then they can fill that table with another person who's going to order an expensive entree. Brian Wansink, we should say, does not buy this explanation. That just isn't most restaurants in the world. And so if you have a restaurant that isn't full all the time and isn't dealing with table turns, to implement the strategy that was intended for a place that's, I don't know, serving food like it's an aircraft carrier, it's probably the wrong strategy. And at relatively high-end restaurants like Nancy Silverton's… A dessert can be as high as $12, right? So that's an item. We're making money on that.

Okay, so the dessert theory may or may not make sense. Here's another explanation for free appetizers. This one we heard especially from restaurant servers. Yeah, the free bread, it will keep them entertained for a couple minutes while you take care of anything you need to take care of. Then I don't have to deal with, you know, an angry, hungry person, hangry person. And the last thing you want is someone to be sitting at the table, irritable, hungry, waiting to have their order taken.

And all of that can be solved with just this little free carb on the table. Here's Michael Lynn again. And that also is a very plausible argument. We know from research, again, on waiting that perceptions of speed and service increase customer satisfaction. Although, why not have the customer order their own appetizer and pay for it? I mean, if the customer cares so much about that downtime while they're waiting for their order, then they're willing – they'll pay for it, right? And if they don't care enough to pay for it, it obviously isn't going to bother them that much. Why give them something free?

They can talk to one another. Nancy Silverton says that in her restaurants, which are in California and Singapore, they do serve free bread, but after customers have ordered. Why? Here's one reason. If someone comes in really hungry and there's nothing on the table, they'll order quicker, eat and leave, and then you can turn that table rather than if you give them something to sort of nosh on while they're reading the menu, they're not going to order as quickly. So it may be that free bread helps the servers get their job done, which is good for the restaurant. Or it may be that free bread slows down the ordering process, which is bad for the restaurant. You see how this is working out, don't you?

It may not be so simple to understand why restaurants give you free food. So, OK, here's another theory. How do you like this one? People are drinking, you know, margaritas and such. You know, that salty, like, chips or whatever might influence people to drink more, I think. If it's very salty, it does encourage them to order more drinks. You've probably heard this idea before, right? Many restaurants make a bigger margin from drinks than food. So anything that

makes you thirstier might work in the restaurant's favor. We asked Brian Wansink what he knew about this. Do you know anything very specifically about the relationship between, let's say, the free chips, let's say, at a Mexican restaurant and the number of margaritas at my table is likely to order if I have them or if I don't? You know, that would be a cool statistic. But, geez, it's got to be positive. The bar food they have, you know, often the little salty bar stuff, is often not cheap stuff. And so you think the only reason they're giving it away is they must be making up for it in $5 beers.

Michael Lynn, however, is skeptical. Your theory really needs to say, look, somehow getting this free thing of chips is likely to cause me to choose a beverage. Because I'm going to have some kind of beverage. But to choose a beverage that the restaurant profits from more than a beverage like water that they don't make much off of. Is there a good reason to believe that that happens? Okay. So whether or not the chips or bread let the restaurant upsell you on drinks, what about upselling you on food? That is, instead of thinking of the free bread as a substitute for the food you may buy, what if it's a compliment? By the way, the

technician in the other room here has another theory. And his theory is that, well, eating's addictive. Once I get started, it's hard to stop. Yeah, you prime the pump. And so if they do give you chips before you order, it's priming the pump and it's getting you started so that you'll then subsequently order more. In this scenario, it really helps that the food the restaurant is giving you is free. Why? Free has a special attraction and appeal to us. Dan Ariely and some of his colleagues did a study where they offered students on campus a choice. They could purchase a fancy Lindt chocolate for 15 cents or, alternatively, a Hershey's Kiss for one cent. Now, when given that option, roughly 70 percent of the students chose to buy the fancier chocolate. But then Ariely and his colleagues subtracted one penny from the price of each chocolate.

So the price difference was the same, but now the Hershey's Kiss was free. Preferences switched so that about 70% or two-thirds of the students in this condition chose the free Hershey Kiss. That's a nice study in demonstrating that there's just some special appeal to getting stuff free. So part of what may be going on is simply that by giving away free items, you're increasing the appeal of what you have to offer to the public. It absolutely is worth pursuing. That's Brian Wansink again. So I'll give you an example.

We wrote this really cool paper a while back called Find This North Dakota Wine. We took people that came into this restaurant and we gave them a complimentary glass of wine that was actually just two-buck Chuck, Charles Shaw wine that we'd taken the labels off and put labels on saying it was either from California, a place known for wine, or labels that said it was from North Dakota, a place not known for wine. And half the tables we said, hey, thanks for showing up tonight. We've got a complimentary glass of this new Cabernet from California. Poured it, you California, poured it.

It would be the same thing with the other tables. Well, people – again, it's exactly wine. But if people believe they're drinking California wine, they stayed longer. They rated the wine as better. They rated the restaurants better. They rated the food as better simply because of this halo of this initial experience. Conversely though, people who thought they were drinking North Dakota wine,

they didn't like the wine as much, they didn't like the food as much, they got out of there faster. When we asked people if they wanted to make reservations to come back, one guy even said, no, no, he says,

you know, I'm really busy for the rest of my life. Okay, so maybe North Dakota wine, even if it's not actually North Dakota wine, doesn't win you many fans. But free stuff generally does. You know, whether it be somebody gives you a silly mug or somebody gives you a terrible flower, you know, you like somebody who gives you a gift. So maybe we like the restaurant a bit more when they give us free food. And maybe we want to reciprocate somehow.

Maybe by ordering as much food as we would have ordered if they hadn't given us the bread basket. Wansink's research seems to show that the free food that restaurants give away doesn't seem to change how much food people order. Why not? Yeah, I think what's going on is that we have different scripts in our mind when we go to a restaurant. What we tend to order if we're a little bit hungrier, if it's a celebration meal or something, that script might be, you know, I order a salad or an appetizer, and I order an entree with some red meat, and I'm going to have two glasses of wine, and maybe dessert afterwards. You say, that's what I do.

And if all of a sudden you end up filling up on, I don't know, breaded mushrooms or on bread or chips or whatever, it's like, nope, nope, I'm not taking that into account because this is what I order when I'm in situations like this. And you default back to this consumption norm for that type of restaurant or that type of celebration experience. So maybe there's a consumption norm or an ordering script that people don't deviate from whether they get some free bread or not, which might indicate the free food isn't necessarily working in the restaurant's favor, which might lead you to wonder why they give it out. Here's Brian Wansink again. This is very simple. In some ways, it's a prisoner's dilemma in that if every place offers free chips and all of a sudden you're the place

that doesn't do it, well, you know, boy, you're looking pretty bad. That's the reason there's fry wars and drink-sized wars in fast food places. Michael Lynn agrees. If there's going to be an arms race, then there's some economic benefit to giving it

as long as no one else is. So, let's assume everybody's charging for chips. If I start giving them away free, am I going to get some competitive advantage? Absolutely, I think. And that's then going to put pressure on other restaurants to start doing it because my competitive advantage is their competitive disadvantage. Now, if you are giving away food for free, you do have to have some faith that customers won't simply gobble up the free stuff and leave. It would be kind of awkward to go into a restaurant, eat the chips and salsa, and then say thanks.

My friends would go to a restaurant just to get their free chips and salsa and then leave. Really? Yeah. I wouldn't do it, though. I promise. But, of course, some people just can't help themselves. Oh, yeah, definitely. As a college student,

I definitely overindulged in bread baskets at restaurants. There was those people who would come in all the time that we'd recognize, and they'd sample everything and then leave. It's like red lobsters. Cheese biscuits are awesome. Cheesy biscuits. The cheesy garlic biscuits.

Oh my god. Put that shit in your purse, you know? Just keep getting cheesy biscuits and just stuff them suckers right down in there. So we've talked through some of the reasons why many restaurants give away free food. But coming up on Freakonomics Radio, there are some deeper questions we haven't gotten to yet. Are you really getting it free or is the price of those chips, that bread, being built into the menu cost? And then the question is, why would you build it in to the menu price rather than charging separately for it? And maybe this whole free appetizer thing is the result of nothing more than an accident

of history. So free bread becomes a part of that tradition. It was food that you could snack on between courses, but also meant that you were eating less of the expensive fishes and meat. From WNYC, this is Freakonomics Radio. Here's your host, Stephen Dubner. Today on Freakonomics Radio, we are wondering why restaurants give you free food the minute you sit down, before you spend a penny. That bread basket or the chips and salsa, that little shot glass of kale and melon smoothie. Gosh, Italian restaurants, Mexican restaurants, some of our favorites.

In fact, I think we fuss when they charge for such things. I don't like the charging. It should come with it, you know? It should come with the meal, like, yeah. Being in the restaurant industry, I did have a couple, a few weeks ago, actually tell me because we did not do bread service where I worked, they wouldn't be back. We try to offer it because that's what people expect.

And from personal experience, when that doesn't happen, people get really mad. You know, a lot of restaurants in Europe, they do have, like, a table charge, which covers things like bread. We don't do that here. And actually, when we first opened, we didn't serve bread and there was such an outrage or angry guests. So I kind of caved and said, I guess we have to serve bread. All right, so we've come to expect that free bread when we sit down. But why? Where does this expectation come from? We need to ask someone who knows a little food history. How about you? Yes, you, sir. Please tell everyone your name.

I am Andrew Haley. And what do you do for a living? I'm an associate professor of American cultural history at the University of Southern Mississippi. Do you have some particular area of research that's germane to our conversation today? I study the history of food and restaurants. Perfect. All right, then, Professor Haley, tell us what you know about the history of restaurants. People have been dining out for as long as they've been traveling, and so there have been taverns and hostels that provided food. But the modern restaurant has two early manifestations.

It appeared in China first, but that remained localized to China. More famously, it emerged in France in the late 18th century. Now, these early restaurants weren't serving free bread, were they? These early restaurants were serving free breads, but I think the free bread probably predates the restaurant itself. Before there were restaurants, there were taverns. Taverns served a set dinner at a set time for a set price. And the accounts we have of these tavern meals suggest that bread, probably prepared by a local baker rather than the tavern owner, was part of the meal.

And this made sense, after all. When you went to one of these taverns, you were paying for the meal with a single charge. And it was in the interest of the tavern owner that you filled yourself up with bread so that you would eat less of the expensive fishes and meats. Wow, that does make sense. Economic sense in particular. For a tavern, at least. But what about these early restaurants? Early restaurants pick up that tradition and they serve these table d'hote meals, these fixed-priced meals. And they have the same incentive as the taverns before them. Since the price of the meal is all-inclusive, they want you to fill

up on bread. And so free bread becomes a part of that tradition. And it's not just bread. They also sometimes provide crackers or pickles and olives. Andrew Haley, we should say here, is the author of a fascinating book called Turning the Tables, Restaurants and the Rise of the American Middle Class. In it, he makes the point that while fixed price menus are still around, it is the a la carte menu or a modified a la carte that most of us are familiar with. He attributes this to the explosion of the middle class. So over the course of the 19th century, restaurants initially served these table haute menus to the very wealthy, who were able to pretty much pay the set price and not worry too much about it. But by the mid and late 19th century, restaurants are trying to attract middle class diners,

and middle class diners are more cost conscious. They want to be able to kind of pick and choose from the menu so that they can dine out more affordably. You would imagine that these a la carte restaurants began to charge for bread, but it seems that the tradition of eating bread was extremely well established. And so when we look at these a la carte menus, we don't see bread listed. It's just assumed that the bread will be on the table. Okay, so the bread stays in the picture, for starters at least. But as Haley argues, more middle-class diners meant more restaurants. And what did that mean? Restaurants are facing a lot of competition in the early 20th century. There's just more and more of them, and they are eager to attract this somewhat frugal middle class. And so they're looking

for ways to keep their prices down. And one of the things that they do is they introduce some New York restaurants, especially New York hotel restaurants, in 1913, a cover, a cover charge of 10 cents, which is to cover bread and water and any of the other free things at the table. And this is met with resistance. When Haley says this was met with resistance, he doesn't mean just one or two grumpy customers. Coverage in the New York Times in 1913 of this is somewhat incredulous that restaurants would actually try to charge for bread.

Patrons are incredibly upset about the Kovar charge. These patrons claim that it is an un-American European import, and they complain about the charge and in some cases bring their own bread to the restaurant to resist the charge. And it appears that restaurants cave pretty quickly and stop charging for bread. And so I think that it's indicative of the fact that the tradition of free bread had become very well established in American restaurants. But you know what? Fast forward to today, and that tradition seems to be on the wane for a couple of reasons. One, now as before, is cost. We are one of the growing number of restaurants that do not give away free bread or snacks or food.

It comes down to cutting costs. I think the reason why they just don't do it anymore is the same reason why a lot of people started cutting back. Even at the fast food restaurants, you see food is getting smaller. It's the cutback cost, so they had to take the freebies. They had to take the freebies. A restaurant, as you have undoubtedly heard, is a notoriously risky business. Roughly 60% of them fail within their first three years. Here again is chef and restaurateur Nancy Silverton. A restaurant that struggles needs to

do everything to tighten their costs. You know, they have to cut down on labor. They might have to cut down on the types of tableware they use or the types of napkins they use, you know, and you start cutting those costs just to survive. And I would say that probably one of the first things to go is bread service. It's sort of an added value item, right? I mean, it's not something somebody's ordering. And so here is something that's on the table that people don't really appreciate. It is a food cost. But Silverton says there's another reason why people that are either, say, not eating carbs. A lot of people are trying to stay away from gluten, say. So there are a lot of people, I would say, that are not bread eaters these days.

I happen to be not one of them. Remember Brian Wansink? I'm professor and director of the Cornell Food and Brand Lab at Cornell University. But that's not all he does. So I had a really great experience a few years ago. I was in charge of the dietary guidelines for the U.S. Department of Agriculture. And? Prior to that, I'd written a bestseller called Mindless Eating,

why we eat more than we think. And I actually have a book coming out called Slim by Design, Mindless Eating Solutions for Everyday Places. What we try to do is we try to find, in my lab at Cornell, we try to find easy ways that people can make changes to their immediate environment to help them mindlessly eat less without thinking about it. Now, I would assume, which is probably a bad idea, that when it comes to mindless eating, which is your territory, that a big basket of bread or a big basket of chips before the meal is about as mindless as it gets. No, it's free. It's put there without your asking.

And you're doing all this other stuff like talking to your friends or family and starting to order and having a drink. I'm guessing those are some of the most thoughtless calories that are ever consumed. Am I right or wrong? You know, it's terrible. I think that the analog to this is, you know, how do you eat less on Thanksgiving? We eat 9% less on Thanksgiving if you don't eat the junk that is put out before the meal begins. And it's the same thing with these restaurants. We don't quite find it's 9%, but we find that somewhere between the range of 5% and 10% of the calories you eat are the calories you consume before you even look at the silly menu. So there's one way that restaurants could stop serving free bread or chips if it's costing them too much.

They could simply say, hey, people, we are helping keep you from getting fat. But that's probably not the message you ought to send if you are a restaurant. So here's another idea from Michael Lynn. Why aren't chips simply an item on the menu just like everything else? So as you said, there's a growing literature on free and what it means and what it accomplishes. And some of the effects are really strong and interesting there. I think what's different about this scenario is let's say I want to buy a car and the car dealer offers me a free something. If it's a really high-end car, maybe they offer me free tickets to a ballgame or whatever it is. That's nice, but it theoretically doesn't diminish

my demand for the product itself. In fact, it might increase it. I get a new car. It makes it easier to drive to the game. In this case, however, the free thing would seem to be working against the paid thing itself. So you're literally giving me some of the stuff that I'm prepared to give you money for, but you're giving me a portion of that stuff free. Another way of looking at this is, are you really getting it free, or is the price of those chips, that bread, being built into the menu cost? And then the question is, why would you build it in to the menu price rather than charging separately for it?

Okay? And there are a couple of answers here too. One is we know from research that people don't like being nickel and dimed and that if you add too many surcharges onto a bundle that people are purchasing, they become turned off and are less likely to purchase the bundle. So one reason that people may offer the free chips is to avoid this appearance of nickel and diming the customer.

What restaurants may be trying to avoid, Michael Lynn says, is too much of what is called price partitioning. What happens when we have separate prices? And how do people evaluate separate prices relative to one common price? Lynn says consumers generally aren't crazy about too many separate prices for one product, like an airline ticket, then a fee to check your bags and a fee to eat or watch a movie, then the pillow fee, the pillow insurance fee. Okay, I made that last one up. There's no such thing as pillow insurance yet, but you get the idea. So if a restaurant can bake the price of the appetizer into the menu prices, it might make perfect sense to give it away.

Nancy Silverton again. You figure that out ahead of time, what it costs to operate your restaurant. So that means what does linen cost? What does health insurance cost? What does bread cost? And you tag that percentage onto what you have to upcharge your food so that you make the amount of money you need to make to be a successful restaurant. And so it's true, that bread is figured into the cost. In other words, all the questions we've been asking today about why restaurants give you free food were probably the wrong questions, because the food isn't free. Or, as the late, great Milton Friedman might have put it, there ain't no such thing as a free appetizer. Hey, podcast listeners. On the next Freakonomics Radio, the first installment of our Think Like a Freak book club will answer your questions about the first three chapters. Questions

like, how can I get my brain off autopilot? Why are most companies so resistant to change? And what kind of questions should you ask job candidates to see if they are too prone to BSing? I would say what the interviewer is going to have for lunch that day. Because it's completely stupid and pointless. Totally unanswerable. Completely unanswerable. Welcome to the Think Like a Freak book club. That's next time on Freakonomics Radio.

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