Rory Sutherland’s Restaurant Would Break Every Rule (And Be Fully Booked)

0:00If you run a restaurant, where you make money and what people are paying for are often two separate things. There are always these really peculiar bits of reverse psychology in catering and hospitality. Menu design and choice architecture is really, really interesting. You can add a single word to the menu and you can charge more for things. Rory Sutherland is back in this exclusive podcast recorded at a Hungry Supper Club back in April, with an audience of the UK's hottest hospitality founders strapped into this deep dive with the godfather of behavioural science. Everything's kind of context-dependent.

0:31You can spend ages going, we can't possibly do that. If you change the psychological frame, actually you can. There's an amazing amount of money you can make just by explaining yourself very clearly. So, one of the things I always encourage people to do is think like a game theorist. You know, my argument is... What do you mean, what's a game theorist? Don't look at what's perfect, look at what's underrated. In a funny kind of way. And somebody came up to me at Google, of all places, and said, it's thanks to you we bought our house. Oh, weird. And my advice was, if you're buying a house, find something that other people hate that you don't mind at all.

1:12So most people don't like buying a house next to a pub, okay? To me, it's a bonus, right? So I'm actually winning there by exploiting my own eccentricity. And I nearly bought a house in Deal, which was on the seafront. It was half the price it should have been because it was next to a massive beer garden. And I was going to buy it, and I was just going to go to the landlord and go, right, here's the deal, OK? I'm never going to complain about anything you do ever, OK? On two conditions, you deliver beer on request and no techno. Those are going to be my two sort of red lines, OK? But no, so actually one great way to open a restaurant is to look for, I would say the opposite of a good idea is another good idea.

1:53And the point of bacon sandwich is noticing this thing, that there's a weird trade-off in restaurants between having a large menu and having a tiny menu in that if you have a tiny menu and you only do one thing, people not unreasonably assume you must be pretty good at that one thing. So actually having a massive... The whole idea was, by the way, bacon sandwich. We only sell bacon sandwiches. We have a deliberate perversity, which is you can't have ketchup. You can only have brown sauce, which is deliberately designed to polarise the audience. And there are only two drinks you can have, which is champagne or builder's tea.

2:26and that's all we do and the point is to be honest it's a thought experiment i don't for goodness say don't necessarily take this literally but the point is there are always these really peculiar bits of reverse psychology in catering and hospitality which always fascinate me i don't anybody here from chicago no interesting if you come from chicago you cannot put ketchup on a hot dog it's just the rules and it was all because this guy outside the white stock stadium um sold hot dogs and he put a big sign up saying no ketchup he believed that ketchup just disguised poor quality meat and the thing became a complete Chicago tradition which is even people who've only lived in Chicago for five years regarded as like a heinous crime and so those really peculiar little eccentricities building those into the menu always strikes me as things you refuse to do are kind of proof of sincerity in a way and how could these guys do that what are things you could Not do.

3:22I mean, one thing I love is Will... Sorry, sorry. In Will Godara's book, I'm a huge fan of the book. I think it's a wonderful book. We're going to try and bring him over to the UK. Yes, we are. It's that idea of going to the best restaurant in the world. Everybody then makes a list of all the good things they want to copy. And Will says, we're not going to copy any of those. We can't afford to. In any case, they're doing it already. And Will asks the secondary question, which is, what about the meal wasn't very good? Turned out, you know, it's the best restaurant in the world, so nothing's going to be atrocious, okay?

3:56Or according to San Pellegrino, anyway. And the verdict was the coffee was just average, and the beer drinkers in the party were given really short shrift compared to the wine drinkers. So Will goes back to his own restaurant, in 2011 this was, and he only does two things. He appoints one guy the coffee sommelier and says your job is to make this coffee experience amazing, and the other guy who I think was from the kitchens becomes the beer sommelier. So suddenly, not many people at a Michelin three-star restaurant probably ask for beer, but when they do, they're expecting, well, we've got Sam Adams on draft.

4:30And instead, a guy comes out and gives them a list of craft IPAs with tasting notes and food pairing suggestions. Now, if you're one of those people, as far as you're concerned, that's the best restaurant in the world because it's never happened to you before. And so that business of optimised for surprise, who is it? The gentleman here from Flatiron, is that right? What other finders? No? No, mate. The ice cream thing. Who was it? It's one of Osh's friends, isn't it? Charlie Carroll. Charlie Carroll, thank you. OK. The ice cream thing, where they give you a little token at the end and you go out onto the street with a little miniature ice cream cone.

5:05Those kind of things, they often seem a little bit gratuitous, even a little bit hokey. But the thing about the human brain is you notice what you weren't expecting much more acutely than things you were. That's the peak end rule as well. And that's also a really interesting question. So I've actually looked at that reverse benchmarking, as I call it, that Will Gadara did. And I realized that actually half of the world's most successful businesses either intentionally or accidentally did the same thing. So Apple, if you like, or Steve Jobs, who wasn't a – I mean, Steve Jobs couldn't even code, right?

5:40He wasn't a technologist at all. Everybody in Silicon Valley was going, what can a computer do? And Steve Jobs asked the 90-degree opposite question, which is, how does it feel like while you're doing it? So take something, take a variable or a component that everybody else has overlooked or underplayed, and then double down on it. It's a really interesting strategy. Find a weakness, find something that everybody else has missed, and double down on it. Now, we were talking about this the other day, and we said, in car rental, once you're driving around in the car, it's all the same shit, right?

6:15The thing that differentiates car rental is the journey from the arrivals hall to actually picking up your car and then the first five minutes of actually working out how the fuck the car works. All right? You know, in other words, how do I open the fuel filler cap or how do I let the handbrake off? And we said, you know, if you started a disruptive car rental company, you'd charge for it. It's£50. We meet you at arrivals. We hand you the keys. We walk you to the car. We push your luggage trolley, and we give you a laminated A4 sheet with any idiosyncrasies of the car. Now, if you did that, you'd be the best car rental company anybody had ever come across in their life, OK?

6:53Because you're looking at the bit that everybody else has neglected. And by the way, when you think about it, OK, what's a bit weird about car rental is if you book a£70 taxi to pick you up from Gatwick, they meet you at arrivals, and they push your trolley to the car. But when you spend 300 quid on car rental, even though you've typed in all your details three weeks before, including your driving licence number, you have to stand in a queue while someone types war and peace into a sort of antiquated computer. And then eventually they hand you some keys and say it's Bay 307, the other side of the coach park.

7:28And so what I'm saying is that actually Uber, by the way, since there are hosts this evening, my argument is that the Uber app is intentionally or not just a piece of psychological genius. Because it doesn't change the quantity of waiting time for a taxi. But by showing you your little car on a map, it changes the quality of waiting. Humans, just very, very simple instinct, humans hate uncertainty. And previously, you booked a cab, and you spent 15 minutes in a kind of limbo, going, is that it? No, I wonder, have they forgotten me? Maybe they can't find the house. Maybe they've already been and they've left.

8:05where suddenly what Uber did it also changed the experience of payment by the way at the end, you're talking about the peak end rule what Uber did, they didn't change the bit in the middle at all, that's just riding around in the back of a car, right? that's not significantly different from any other tax experience but the beginning bit and the end bit, where you just get out of the car and walk away, or the beginning bit where you go, oh look he's stuck at those traffic lights I'll have another pint rather than standing outside in the rain wondering whether this is your car or a serial killer who's escaped from jail, okay, whereas Uber tells you your license plate number.

8:38What that is is psychological transformation. You know, it doesn't really change the objective reality like the time. It just changes the emotional experience, the emotions you feel while waiting. And I think the reason I think your business is so fantastic is it understands that because if you don't understand that, you go to business to a large extent. There's a great Chinese proverb which says, if you find it difficult to smile, do not open a shop. And in the same way, in all service industries, it's as much about the social transaction in many ways as it is about the financial transaction.

9:18And the great thing about the restaurant business, because it's a fast feedback business, is if you get it wrong, you go out of business. And whereas, by contrast, I think a lot of conventional businesses are obsessed with metrics. You know, they're just measuring what's easy to measure, like time or cost or distance. And those things don't translate at all into actual customer enjoyment. What would you say, what's your thoughts on value for money as a strategy? Be really careful. I mean, obviously, I don't want to come across as some arsehole who goes, price isn't really important. But generally, I always argue that dropping the price is the last thing you should try.

9:57Right. Sometimes it's the right thing to do. there are lots and lots of reasons not to do it if you possibly can. One of which is it's very difficult to get back once you've done it. It's kind of irreversible decision. But I always think that value on is generally a better use of your time and effort than money off. In some senses, dropping your price is the most expensive way of appealing to a customer because it's effectively bribing someone to buy from you with real money rather than inducing, seducing, you know, So, you know, effectively reframing value. So the psychology of price is really weird because to economists, price is a number, but to customers, consumers, price is a feeling.

10:38And by the way, things can feel expensive or feel cheap, and it's got nothing to do with the headline price. It's what you're comparing it to. I mean, I always thought, by the way, Indian food was massively underpriced in the UK because people weirdly, people who'd happily spend£120 on a French meal would get really pissy if they went out for an Indian meal and had to pay£40, even though it's obviously better food. Okay, slightly controversial. But, you know, so what you'd actually find in that category is you just get these anchor points. And people don't really have an answer to the question, is it expensive?

11:19They always go, compared to what? And so this business of the price frame and price psychology, I mean, we all know this, okay? How many people use Klarna here? Come on, admit it. No one's admitting it. Thank you. There's one honest person in the room. The joke I always make about Klarna is that to an economist, it's like an interest-free three payments to purchase this thing. Now, actually, three payments of£100 feels completely different from one payment of£300. It just does. it's because whatever it does it triggers different neurons or whatever it may be and i know this i've been studying behavioral science for about 25 years and i was buying one of those dice snare purifiers and i get to the final bit where you had to pay and he goes 450 quid not fucking paying that fucking james is taking the piss and then it says or you can have three payments of 150 pounds i go oh yeah that's perfectly reasonable and i went and bought it okay now i've studied all these biases and things myself for ages but it still worked on me and so you know there i mean the by the way um menu design as the gentleman from hopper's said you're absolutely right to devote that much attention to menu design and also to experiment with it a lot because the way in which you present prices in some restaurants you obviously know this trick you have a disproportionately expensive item because it makes the other, some people buy it, but it also makes the other items seem good value by comparison, for instance.

12:49You know, that's one of the tricks in menu design. There are other ones like you spell out the price, you don't actually put it in numbers, you don't put a pound sign, you just put the words, okay? If you've been to the United States, you see all of these things that they've studied all deployed in the same way. and so menu design and choice architecture is really really interesting because if you get it right and you make a meal easy to choose fundamentally people now feel they've made a confident choice what effectively if you want to sum up human behavior in a very simple sentence people act to minimize fear of regret and so if you make a choice very easy and you make people very confident about their choice, generally they're now pretty happy.

13:37If you spent the whole meal wishing you'd eaten something else, totally different. And so the way in which you actually design a menu, and by the way, it's very strange because I've spent ages talking to KFC saying that the problem they have is that the choice architecture of their menu is a mess. You see what I mean? There isn't a kind of, now McDonald's is fairly structured. You probably have a burger, you have some fries, you have a drink, you might have a side or some extra item. Unless you're a man and ordering on a screen, in which case you actually order two burgers, because it's not embarrassing when you're not doing it face to face.

14:16This is one of the things McDonald's has actually found. If you order on a screen, there are certain behaviors which people are happy to do, as long as they're doing it anonymously. Does anybody want a really lovely story about Uber Eats, actually? Back on. I had a friend who worked in banking who had a boss who was actually Hong Kong Chinese. And his one huge indulgence was on Friday, he ordered a delivery of an absolute blowout Chinese meal. And the guy would arrive carrying three bags of food. And he'd open the door and shout up the stairs, guys, the food's arrived, even though he lived on his own.

14:53Okay, all right. what was even weirder is he admitted this to his colleagues okay um but i mean what's so fascinating about this is you know uh there is an all a huge amount of cycle i got really interested in this very early on about eight years ago working with diageo when i argued that all restaurants deploy massive um choice architecture biases to encourage people to order wine not spirits I don't know if anybody's heard me talk about this, but if you think about it, you arrive in a restaurant and there are already wine glasses on the table. In fact, if you say we're not having any wine, they take them away with a bit of a huff.

15:33And you've got a big arrow over your table in Neon going, these are the stingy people. It's exactly the same as choice architecture, still or sparkling, is a really, really profitable phrase because it makes it difficult to say tap. If you say, would you like water, it's quite easy to say just just a jug of tap water but if you say still or sparkling you've actually got a slightly transgress in order to say neither of the above i'll just have a jug of tap water and of course the jug of tap water is deliberately designed to be very visible as a mild act of humiliation that these are the people who are too tight to buy bottled water and then there are loads and loads of wine glasses around the table which basically say we're expecting you to drink wine And then they hand out a wine list, which is not called the drinks list.

16:19You know, it's called the wine list. And it has six pages of wine, OK? And then there's a back crappy laminated page full of the drinks that have actually been produced by skillful distillation, OK? Rather than just having people trample on some grapes. Being a bit mischievous here. Then finally, of course, it's even cleverer still because they hand the wine list to one person on the table. Now, if you think about it, there's only one drink, apart from a jug of Pim's, I guess, is the only other exception. There's only one drink that one person can order for a whole group. You can't order beers for all the group or cider for all the group.

16:56You can't say everybody here is going to have a martini. The only drink that one person can order for the group is either red or white wine. So effectively, by handing a wine list to one person, you've basically forced the table to drink wine, whether they want it or not. and so one of the things that's so fascinating is the extent to which humans respond to contextual cues of which they're not even consciously aware what are other biases these wagwan so literally no one knows about my newsletter hungry friday feast that i've been writing slash chundering out for the last four years every friday morning a free newsletter will land softly and smiling in your inbox it's stuffed with four life-changing lessons i've learned from trin wagging with food drink titans these lessons will categorically pour gas in on growth on your food and drink business link in the show notes to subscribe thank me later these guys can implement in their restaurants that you think is interesting the peak end rule is always interesting yeah i'm just detail what that is the peak end rule would be we disproportionately tend to remember an experience by how well it starts, how well it ends, and the most extreme thing in the middle.

18:15Other things are be really, really clear about what you are. Now, we had a really interesting question about this because they came to us. Is anybody from Oaxaca here? Nobody? No. So our brief was that the problem with Mexican food is that nobody can remember the difference between a chimichanga and a burrito and a quesadilla and a so-and-so, so-and-so. And I thought that was just because we're ignorant gringos. But it turned out I got a friend who speaks fluent Spanish. And he said, I can never remember it either. OK. And so we were having this long debate about, you know, effectively how on earth we could clarify the distinction between these various different things.

18:57There's a fajita as well, isn't there? And something else. Burrito, fajita, quesadilla. Anyway. And then we suddenly went, hold on. How many people, we're all sort of reasonably sophisticated foodie Londoners. How many random people even know that Oaxaca is a Mexican restaurant? I mean, there isn't even a W in Spanish, OK? They spell it like that because it's phonetic. It's actually spelled with an X in Mexican Spanish. Am I right? A few, thank you. OK. And so we suddenly realized that, I mean, anybody know a guy called Mark McCulloch? A few of you must. Must you? Yes, Scottish. Scottish guy, absolutely wonderful guy, I think.

19:34And I was on a phone call with him. And I think the guy's a genius. By the way, you know, get him in. One of the things he says is that one of the things that restaurants get wrong is they assume that passers-by and customers know much more about what they do than they really do. And his brilliant example was he chopped. You know the chain, chopped. He found a woman who had walked past Chopped every day on her lunch break for seven years, okay, to get a salad. Now, Chopped sells salads. But it doesn't say on the outside of the restaurant, Chopped, the salad place, or anything explicit like that.

20:18She, by some mental association, just associated Chops with chopsticks, thought she didn't like spicy food. So for seven years, walked past a salad restaurant to go get a salad further away because nobody had been explicit. And one of the things Mark McCulloch does is he says, there's an amazing amount of money you can make just by explaining yourself very clearly. What's the Bombay, the Chai Cafe one, the Chai Walla one? I was on the call with him. Yeah. Chai Walla. Anybody know that? And this is why I thought Mark McCulloch is, well, for many other reasons as well. I thought Mark McCulloch is a genius, which is we were having this discussion about what you put on the outside of Chai Walla.

20:59And the client said, quite intelligently. Oh, yeah, Chai Walla is like an Indian cafe restaurant. It sells chai. It also sells coffee. It sells typically it's sort of tikka sandwiches wrapped in naan. But it's Indian street food and a chai cafe very largely. And the client very wisely said, yeah, we're conscious of this. So we're going to put Indian street food cafe on the window. and Mark McCulloch bear in mind he didn't pause for a second and I was like we are not worthy no don't put that put Indian street food and cafe because if you add and you'll appeal to people who want a cafe and you'll appeal to people who want Indian street food rather than demanding that people like both and I was like whoa okay you know that was to spot that in one second I thought was genuine genius but I mean that there's a restaurant in Westroom where I live in Kent and I always say I'll tell you two stories actually when I first moved there there was a local handyman in the a village and he placed every year every month in the parish magazine there was an ad the size of a large postage stamp and it just said call Ron that was what his business was called he was called Ron and the name of the business was the call to action, call Ron, 01959561234.

22:17I do the small jobs the builders don't want. I went up to Ron and I said, you realise, Ron, that's basically a perfect ad, because it's how to get in touch with me, who I am and what I do. And everybody immediately can see, I can think of five of those jobs. In other words, I want shelves put up, I want this repaired, I want my washing machine taken to the dump. I can't ask a builder to do this. Looks like it's Ron. And he said, Well, it's funny you say that because he said it's been working really, really well for nine years. It never stopped working. And the restaurant, there's a restaurant called Brunch in Westrom, which I really admire, because they just have a sign outside.

22:53It's called Brunch. What kind of food do they do? Pretty self-evident, right? You know you're going to get an Eggs Benedict or whatever. It just says Brunch where dogs are always welcome. And I always go, it's absolutely perfect because it answers the two questions anybody might ask of a restaurant. What sort of food can I get and can I bring my dog? And so there are occasionally, you can find that way in advertising of just expressing what something is about in such a neat, elegant, and differentiated way that you can literally have, just as you said, there are tiny little butterfly effects at hoppers which can make you a fortune.

23:30Sometimes there's a single sentence or something of that kind which just has an absolutely transformative effect. Sometimes it's adding a single word. you know you can add a single word to the menu and you can charge more for things i mean you can charge they've done experiments if you describe them as succulent carrots or pembrokeshire carrots you add an adjective you can basically put the price up by 15 percent and so knowing all these things i think is really fascinating but this is what's so beautiful about this is this is the best this is the best environment in which to learn all about it i mean there are other really weird categories of marketing like cruise ships and luxury watches which are also really fascinating because they're like the Galapagos Islands because they're so extreme in terms of the conditions that you learn a lot more studying them than you would studying slower, more boring businesses.

24:22Final question, mate, then we'll open it up to the floor. I think your favourite business book is Obvious Adams. There's a copy in your goodie bags, I think. Yes, there is. Have I ruined that? You have ruined that, yeah. Cheers, mate. But it's a very short read. I think it's like 38 pages. Yeah, yeah. What are some of the lessons and principles when these guys hopefully read it that they can apply to restaurants? Because it's a very weird kind of short book. One of the great things is that one, notice things. Secondly, quite often, the reason for success or failure, what we tend to do is when we have a big problem, we post-rationalise big reasons.

25:03I think the most common one would be the economy or Munjaro, okay? You see what I mean? Everybody likes to go to these, what you might call category problems that make it sound, their problems seem big, insurmountable and kind of serious, you know, the kind of problem you can talk about on Newsnight. And in Obvious Adams, there's a story about a shop that isn't doing very well and Obvious Adams just turns up, looks at it and says, the door's in the wrong place. Nobody can see how to go in, okay? Now that sounds really, really silly and trivial in a funny kind of way, But it turns out that years ago, about 12 years ago, Taco Bell opened their first restaurant in London.

25:42And they've got a space right next to Trafalgar Square. Anybody else a bit of a secret fan? Come on, admit it. Nobody? Yeah, thank you. A few honest people in the room. I'll tell you the funniest story. When I first went to the US, by the way, I couldn't understand how cheap it was. And I assumed that it was like tapas. So I went into a Taco Bell. And I sort of had three other, because it was like bean burrito, 69 cents. OK, well, obviously it's only 69 cents, that's 40p. So it's going to be like that size. And I went and ordered about 15 things. And this tray arrived with a pyramid of food on it.

26:19But it turned out that they effectively opened in London on Trafalgar Square. And the restaurant failed. And I said, look, mate, I said, there are enough expat Americans in London to keep a Taco Bell going. There's no way. But they deduced from that that there is no London market for a Taco Bell. They basically said, we tried a Taco Bell in London. It didn't work. Therefore, the concept doesn't work. It turned out, actually, when I spoke to somebody, they said, everybody believed that, that we can't do Taco Bell in London because we tried and it didn't work. It was exactly the same problem as Obvious Adams.

26:53There was a huge sign in Trafalgar Square, a neon sign saying Taco Bell. But the entrance was in an alley around the back of the building. and so nobody could find the way in. And by the way, I think that's really, really important because it's very, very easy when someone fails to say the reason for our failure or the reason we've got problems must be something generalizable. You know, the environment, the so-and-so, the location. One of the things that really fascinates me about your business is in a way, if we're all being honest, no one completely knows anything. The only way you can find out is by trying it.

27:30because in two cases in my hometown, there was a restaurant which had literally been a graveyard. The location had been a graveyard for restaurants for 20 years, ever since I moved to the town. And the local kebab guy buys it and decides to open up an upmarket Turkish restaurant. And I was sort of going literally, please don't do this. I mean, look at the site. It's an absolute graveyard. Place is absolutely humming. There was a bizarre coffee shop which only sells gluten-free food on the outskirts of Seven Oaks, on a dangerous bend, on a largely sort of obscure road. And again, when the guy opened it, I didn't want to say it because I didn't want to be rude, but I said, you know, this is going to be a catastrophe.