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I had a strange dream the other day. I dreamed that I had died and gone to heaven.
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I spent a few blissful weeks there, watching movies, reading books, listening to music.
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After a while though, all that bliss began to unnerve me.
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All the films and books had happy endings. All the music was upbeat.
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I am by nature a dark brooding sort. So much cheerfulness almost seemed like hell.
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Especially when you consider that I was an atheist on earth before I died,
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and finding myself in heaven alone was a shock to my system.
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Also, the only food available was seafood platters.
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Now, on earth, I have been a big fan of seafood platters, but eating seafood every single day was a bit much.
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So one day, a few of us went to the head angel, a strict-looking elderly gentleman,
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in a white wishti and white wings, whose name was Seshadri.
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I said to him, Mr. Seshadri, Mr. Seshadri, please, can you do something about these seafood platters?
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I love seafood, but we are tired of eating the same food every day.
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Mr. Seshadri gave a genial smile and said,
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No problem. Please submit a complaint in triplicate, and I will do something about it.
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We duly submitted a complaint, and later that day we got a memo on the heaven WhatsApp group.
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This memo told us to get dressed and assemble at the main gate at 7.30 in the evening.
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I took a lovely afternoon nap, almost too lovely,
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and then assembled along with other denizens of heaven at the Ishwar Allah Chowk, where the main gate is located.
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There, Mr. Seshadri and a group of angels and apsaras herded us into a bunch of luxury buses.
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We drove out of heaven, and almost immediately we were at another large gate, which was painted in red and black.
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As the gate opened to let our bus in, I could hear sounds of screaming as if people were being tortured nearby.
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And then I saw a big billboard in the distance that said,
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Welcome to hell. He he he he, I exclaimed,
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What's going on? Why have we come here?
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Mr. Seshadri turned back from the front of the bus and said to me,
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This is a treat for you. You were tired of our seafood platters.
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So we decided to take you all to eat out for a change.
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And in heaven, the only place that is out is hell.
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Welcome to the scene and the unseen.
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Our weekly podcast on economics, politics and behavioral science.
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Please welcome your host Amit Varma.
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Welcome to the scene and the unseen.
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Indians don't eat out as much as the rest of the world does.
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This is baffling because there are many advantages to eating out.
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My friend Kartik Shashidhar has a chapter on this in his recent book, Between the Buyer and the Seller.
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And one of the reasons he offers took me by surprise.
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It was certainly unseen. I spoke to him a few days ago.
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Here's how the conversation went.
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Kartik, welcome to the show.
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Kartik, in your book on markets between the buyer and the seller,
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you have a chapter on why Indians don't eat out more.
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For example, there you cite a survey in 2011,
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which founds that, quote unquote, Indians spend only 9% of their food expense eating out,
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far lower than the world average of 29%, unquote.
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So I have two questions here.
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The first question is, why does it make rational sense for us to eat out much more?
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And the second question is, why don't we?
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Okay. So rationally, I mean, why it makes sense to eat out more is that it's simple economies of scale.
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So right now, what happens is that if every house decides to kind of make bread,
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just taking a very extreme example, which means that in every house you have an oven that gets heated every day,
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which is used to make, let's say, one loaf of bread per house.
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That's an enormous waste of resource of all those ovens that are being fired up in every single house.
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Instead, if you could have a small number of bakeries or restaurants
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where ovens would get fired up every day, where thousands of loaves of bread could be baked,
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that would get those breads at a far lower cost.
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So in that sense, it's an enormous cost that people bear by cooking at home.
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Because even if you account for all the people's margins and transaction costs and everything,
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I still think it ends up being far more expensive than eating out.
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And why don't Indians eat out more?
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I think the simple reason is that our restaurant industry has evolved
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to produce tasty food rather than healthy everyday food.
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At least a large majority of restaurants in India have evolved that way.
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That's a standard trade-off you make.
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Even when I think of eating out, I think of, oh, I can eat out,
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but the food that I'll get will be very oily or it'll be all those connotations.
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So there's a clear difference in health and quality between home-cooked food and restaurant food.
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But if there would be, and for the reasons you point out, economies of scale,
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if there was to be a demand, and certainly I would go for it,
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if you could just eat good, healthy food outside for very cheap every day,
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why hasn't that market come up?
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Why is all our food, like all our Indian food restaurants will give oily, greasy butter chicken
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rather than something simple that you can just have every day?
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There are two reasons. One is because of the way the market has evolved.
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I'll come to that in a bit. But the other is that it's like it's settled into that equilibrium.
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So the equilibrium that Indian restaurant industry has settled into is that
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people go to eat out on special occasions or as a treat.
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So when you are going out for a special occasion, you don't care about the health of the food
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because you are only eating out occasionally. You want really tasty food.
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And so you have all that butter in the butter chicken, which makes it taste really great,
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but may not be that great for your system.
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But because you are having it so rarely, you don't mind that.
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And the restaurants know that the majority of their customers are coming there to have it as a treat.
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So if they end up giving kind of food that doesn't taste as good, but is far more healthier,
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they're going to lose some business. So it's a kind of an equilibrium that is a little hard to get out of
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because it takes some really big investment by a bunch of restaurant groups to kind of move out of this and so on.
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So that's the equilibrium we've got into. So why have we got into this equilibrium?
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So I have this hypothesis that it's because of past.
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So because of the caste system, I think for a long time, until even in my childhood in the 1980s,
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people would kind of look at eating in restaurants as something dirty.
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And you know, I want to quote from this episode, from this comic Tinkle by Amachitra Katha,
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which used to come, I don't know if it still comes out now, it was stapled reading when we were kids.
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So in that, there's a story of a thief.
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And I clearly remember this late 80s, early 90s, a wife admonishing her husband saying,
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you have dirty habits, such as smoking, dandies and eating in hotels.
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Now, eating in hotels or restaurants was being compared to being as bad as smoking dandies.
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That was the prevailing wisdom in India back then.
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And it was seen as something that respectable people didn't do.
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And that's because you don't know the caste of the person who's preparing your meals in a restaurant.
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And given how strong the caste system was until a few decades back, I mean,
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it was really hard for the restaurant industry to develop
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because if only people from your own caste would eat at your restaurant, your market would be that much smaller.
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So now this equilibrium seems rational enough to me from a perspective of say India in the 1950s,
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where most people in the country were basically poor and couldn't afford to eat out too much.
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And it was like you save up for a month and then you go for a meal with the family.
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And then what you want is something tasty.
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And equally, the caste system was much more prevalent.
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So that factor would have played a part.
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But then what you would imagine is that as India urbanizes and as incomes rise,
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which is something we've seen in the last 20, 30 years, certainly since liberalization,
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that more and more of India has urbanized.
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Incomes have risen where people can afford to eat out more.
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And in any case, outside food, because of economies of scale, should get more and more affordable
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and actually cheaper than home-cooked food.
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But that equilibrium hasn't shifted.
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So why do you think that is?
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So one thing I must mention is that you say that people can't afford to eat out.
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I think it's a quirk of the restaurant industry that the way it's evolved to provide tasty food
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that people can't afford to eat out.
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I mean, if the restaurants were providing daily food, I'm sure for the reasons of economies of scale,
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it should actually be cheaper, especially if you were to take into account the labor costs of cooking
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and preparing meals, it should be cheaper to eat in restaurants rather than to eat at home.
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So cost is not that much of a factor.
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But in terms of the equilibrium, why it has not changed is because it's like,
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I mean, yeah, you have had liberalization, lots more people want to eat out now and stuff,
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but there's no incentive for the restaurant to change.
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I mean, unless you really know that significant, I mean, how do you decide when to change?
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Let's say you're making butter chicken today and tomorrow you can decide to make,
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your other option is to make saag paneer, which is like possibly a healthy food
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which people can eat every day and you have a choice between making these two, right?
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You can imagine this as being some kind of a game theory kind of a setup,
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where you have a choice as a restaurant to either make butter chicken or saag paneer.
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And you make a choice based on like what your larger set of clientele would prefer.
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And you have built your reputation so far as being a restaurant which makes great butter chicken.
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So most of your customers come there to eat butter chicken.
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So even if you were to have a small number of customers who would want to eat saag paneer,
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you would still not want to change because you are going to lose out on all these customers
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who are eating butter chicken. So it's a little, so you continue to make great butter chicken.
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People continue to expect great butter chicken from you and so it's hard to get out of the equilibrium.
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That explanation makes complete sense. So I should point out that for example,
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the restaurant I frequently order from Urban Tarka in Andheri near my house
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offers both butter chicken and saag paneer,
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but their saag paneer would also not be the homely healthy saag paneer,
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but sort of oilier and like, you know, pumping up the taste at the expense of the healthy.
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And the other thing that strikes me here is that the cost of doing business also plays a part.
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For example, few episodes ago there was an episode of The Scene in the Unseen
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where I spoke to our mutual friend Madhu Menon on restaurant regulations.
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And the cost of those regulations are insane.
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And as we discussed a while ago and I've had episodes on that also,
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the cost of real estate in a city is incredibly high.
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So if you start a restaurant, just the land it occupies is, you know,
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artificially more expensive than it should be because of regulations like FSI and rent control.
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So the result is that having invested so much in starting a restaurant,
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the entrepreneur is then sort of incentivized to go for the more expensive tasty kind of food, as you put it,
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rather than simple homely food because he has no way of knowing
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if that can reach the kind of scales that he needs to make a profit.
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See, one thing is, yes, I mean, of course, the regulation on restaurants is insane,
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as Madhu mentioned in his episode with you.
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But the thing is this, I mean, I think even if you were to take out the regulation,
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if you were to take out the real estate cost, if enough people in India were to eat out every single day,
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it would be profitable for a restaurant to operate in this regulatory regime
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and still be able to provide good daily food meals and still be profitable.
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The problem I would think is more of the equilibrium because like,
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though where the regulation plays a part is that if you want to start a restaurant today
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where you hope to provide daily kind of healthy meals and hope to make up for it with large volumes,
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the cost of the regulations might kind of hold you back from starting this kind of a restaurant or a chain
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and might kind of push you more towards something that's going to sell fewer plates,
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but like much more value added plates and kind of make more profits there.
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So there is a part where the regulation plays, but I think it's more of the equilibrium
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because I think if enough people were to eat out, this problem would get solved.
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Absolutely. But someone's actually, I guess, got to make that first step and showed the market.
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Is there one interesting…
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Yeah. No, no. What I'm saying is that it's like a very classic kind of a game theory kind of a setup
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because you don't want to make a move unless the other person also wants to make a move.
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But both of you know that if both of you make a move, both of you will be better off.
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So it's in that kind of an equilibrium, but yeah, there's no way for you to coordinate
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because you have on the one hand a large number of restaurants, on the other hand an even larger number of people
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and it's about people's attitudes and all that. So it's going to be…
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I don't expect this to kind of change too much.
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But one thing what I've seen is that if you were to look at areas which are heavy in migrants,
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so for example in Bangalore, Kormangala is one area where you have a lot of people who are not traditionally from Bangalore who have settled there.
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And there the restaurant market is incredibly vibrant.
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So you have restaurants which serve food from different parts of India.
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And the food there is at least based on my judgment of the taste.
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I don't know what is authentic Odia food, but the food I've had in Odia restaurants in Kormangala tells me
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this is probably what those guys eat on a regular basis.
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And like because you have so many young professionals living there who know the cost of time,
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the restaurant market is kind of developing there and in other similar pockets in other cities.
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And I'd speculate that as much as eating out habits are changing, so are eating from out habits.
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For example, in Mumbai, you have a bunch of places which provide dabba services,
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which claim to be and are to some extent good wholesome healthy food.
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Now they are made outside, they are made centrally, they take advantage of the economies of scale,
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but at the same time they don't have many of the associated costs that restaurants have.
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And they are convenient enough because delivery is really not an issue.
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So people can just order those, not have to cook at home and get good healthy food at a reasonable sort of price.
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But my next question to you is, so we are in that earlier equilibrium and that's not changing fast enough,
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though in pockets like Koramangalda and Bangalore, like you point out, it might be.
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But how have other countries made this sort of transition from the earlier kind of equilibrium
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we were stuck into the one they are in now where many more people eat out
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and many more restaurants give, you know, are on the other side of the healthy versus tasty trade off?
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So I don't know if other countries really haven't done too much research into this,
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but I don't know if other countries really ever got stuck in the kind of equilibrium that we have been stuck in
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because I think we got stuck into this unique equilibrium
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because our restaurant industry didn't grow along with our organization because of the cost factor that I mentioned earlier.
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In other countries, I think the way I see it is that it's always been a simultaneous thing.
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As you have more and more urbanization, you have more and more restaurants
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because like urbanization, as we spoke about in another episode, it creates that big enough market
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that you have enough entrepreneurs, that's big enough for restaurant entrepreneurs to want to set up restaurants,
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whether it's upscale sushi bars or if it is like basic dial travel restaurants.
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But it's like, so once organization happens, restaurant industry automatically follows
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and so like you'll have a significant proportion of people living in cities who will be eating out every day and so on.
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So that's how it normally happens.
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In India, I think because of the cost factor, you had a bit of lag
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and because of the equilibrium, that lag has been hard to overcome,
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even though like I think people are far more relaxed about where they eat from nowadays.
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I think cities because their networks of mutual benefit ameliorate cost to some extent.
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They're not a panacea, but it's certainly less of a factor in city, especially the more densely populated.
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You go now, you had given the example of Koramangala earlier where you have people eat out more
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and you have these specialized restaurants coming up.
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Is this a trend you see going up? Are we eventually going to break out of this equilibrium?
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It's likely. I mean, I think what's going to happen is that, I mean,
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as you see more and more migration direct within India from one city to another and so on.
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Like, I mean, when you have like young people living by themselves in a particular area,
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that they're automatically more likely to take risks.
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They see they're more likely to kind of see the cost and benefits of eating out versus eating at home and so on.
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So the restaurant industry is going to kind of develop there
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and then like people from other parts of the city will discover this and the market will kind of expand and so on.
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So I do see like this as one kind of some disruption that's happening in the market,
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but it will definitely take a while.
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I mean, the more we kind of mix in terms of people moving from one part of the country to another,
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the faster it will happen and the slower the restaurant industry is going to be.
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Well, that's a good note of hope to end on and I promise you that the next time you are in Mumbai,
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I'm going to take you out to eat at a place that is both tasty and healthy.
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Thank you so much for coming on the show, Karthik.
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Thanks a lot. Bye. Bye.
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If you enjoyed listening to the scene and the unseen,
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check out another show by IVM podcast, Simplified,
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which is hosted by my good friends Naren, Chuck and Shriketh.
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You can download it on any podcasting network.
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Good evening, ladies and gentlemen, this is your captain speaking.
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Sorry to say, but there's been a slight delay due to the apocalypse having suddenly begun.
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As you can see, there's death, destruction and chaos taking place all around us.
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But don't you worry, food and drinks will be served shortly.
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And I would recommend checking out IVM Podcasts to get some of your favorite Indian podcasts.
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We'll keep you going till this whole thing blows over. Thank you.
