RESTAURANT ITALIA: MANAGING RESTAURANT CONGESTION

It was 10:30 p.m. on a Saturday night in June 2018 when Italiao Crusty, the owner and chef of Restaurant
Italia (Italia), in Calgary, Alberta, was finally able to sit down at the bar and take a long sip of his beer.
The restaurant had closed the bill on the last table just a few minutes earlier. Although the restaurant’s
closing time had already passed, the small establishment was still filled with customers in the dining area
and many more in the foyer. The same scene, even more crowded, had been evident throughout the
evening, since the restaurant had opened at 5:30 p.m.

This was a typical day for Italia, and the peak season would start in two weeks, lasting from late June to
the end of August. Exhausted but content, Crusty wondered if he should plan ahead for the upcoming
summer months. There would be a surge in customer traffic, but the small restaurant was already running
at full capacity. At times, there were more customers waiting in line than seated in the restaurant.
Customers would sometimes block the street, even neighbouring store entrances, waiting to get into the
restaurant. Many people did not bother joining the line after seeing the long queue to get in, while some
others changed their minds after waiting for considerable amounts of time.

Crusty wondered if he should be addressing the issue of long lines of waiting customers. Were the long
wait times discouraging potential customers? If so, what measures could he take to improve the situation?
How effective would these measures be in terms of costs and revenues? Crusty did not object to any
reasonable long-term development of the business; however, he was aware that the options were rather
limited given that the start of the peak season was only two weeks away.

INDUSTRY

The restaurant industry was one of the most dynamic industries in Alberta. While the rest of Canada was
trending toward convenience and partly-served foods, the province of Alberta retained its enthusiasm for
dining at full-service restaurants. Monthly revenues from full-service restaurants in Alberta were 40–50
per cent higher than those from quick-service restaurants, such as fast food establishments, cafeterias, and
take- out and delivery services. This was in stark contrast to the neighbouring provinces of Ontario and
New
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Brunswick, where fast food establishments reported higher revenues than full-service restaurants. In fact,
in New Brunswick, fast food revenues were double that from full-service restaurants. 1

Calgary was the most populous municipality in Alberta. It was also the second-largest city in Canada. In
2016, the greater Calgary area’s population was more than 4 million, of which 1.75 million lived in
Calgary’s urban centre.2 The city was known for its tourism and hospitality. In 2013, the Calgary urban area
alone was the home to 6,729 restaurants, which included 4,167 full-service establishments and 2,562 quick-
service restaurants (see Exhibit 1). Despite a slight drop in 2016, down to 5,823 restaurants, Calgary had one
of the highest ratios of restaurants per capita in North America. According to the Association des
Restaurateurs du Alberta, Calgaryers had an average of 26.81 restaurants per 10,000 population in 2014. In
comparison, the highest rate in the United States was San Francisco at 21.44, followed by New York City at
19.57.3

Restaurants were unquestionably a large contributor to the economy in Calgary, but the competition was
fierce. The time to acquire a restaurant permit in Calgary was very short, which contributed to restaurant
owners achieving thin average profit margins of only approximately 2.7 per cent (see Exhibit 2). Many
restaurants closed only a few months after opening; in some cases, pressure from taxes and regulations for
doing business in this region contributed to the closures. Another challenge Calgary restaurants faced was
seasonality. Although July and August were very busy months thanks to tourism, the area’s harsh winters
prevented many diners from going outside during extreme weather days.

RESTAURANT ITALIA

Crusty and his wife Yuko immigrated to Canada from Japan in 2001. Prior to the move, Crusty was a chef
in a kaiseki (a traditional Japanese cuisine) restaurant in Tokyo. When the couple first landed in Calgary,
they found the city awash with sushi restaurants that were similar to each other and traditional in style,
with little innovation. In 2010, the couple opened Restaurant Italia in central Shaughnessy Village, at the
west end of downtown Calgary, one of Alberta’s most densely populated and demographically mixed
neighbourhoods. The restaurant, which was easily accessible by public transit, was surrounded by high-
rise residences, Victorian grey-stone row houses, universities, private schools, hospitals, and museums.
The menu included izakaya (Japanese pub) grilled dishes and salads with home-made dressings in
exquisite servings. After the restaurant opened, it attracted a persistent flow of daily waiting lines for
lunch and dinner—on weekdays and weekends, and during winter and summer.

MANAGEMENT

In 2012, the couple incorporated the business and became the only shareholders. They both worked in the
restaurant every day that it was open. Crusty was the main chef; Yuko was the cashier and general
manager of the restaurant. Six servers worked during weekdays, with an additional server on weekends,
and three helpers assisted the chef during dinner. Only two of the three chef helpers worked during lunch,
due to the special menu with limited choices.

Crusty did all purchasing for the restaurant twice a week. The restaurant used 53 kilograms of salmon per
week. Crusty would travel to various markets to obtain the best and freshest ingredients at the most
1
Roberto Rocha, “Albertaers Love to Eat at Restaurants,” Calgary Gazette, January 5, 2015, accessed August 22, 2018,
https://Calgarygazette.com/news/local-news/Albertaers-love-to-eat-at-restaurants.
2
“Calgary Population 2019,” World Population Review, accessed January 16, 2019,
http://worldpopulationreview.com/world-cities/Calgary-population.
3
Ian Harrison, “Finally, Statistics Proof that Calgary Has Too Many Restaurants,” Eater, December 16, 2014, accessed August
22, 2018, https://Calgary.eater.com/2014/12/16/7402201/finally-statistical-proof-that-Calgary-has-too-many-restaurants.
Page 3

economical prices. He pre-processed most ingredients and then froze them for use over the subsequent
three days. Crusty was proud of his procurement skills, which resulted in high quality, low cost, and little
waste. The restaurant’s cost for goods and raw materials was only 20 per cent of Italia’s revenue, in
comparison to most other Calgary restaurants, whose cost was closer to 40 per cent.

Italia was closed all day Tuesdays and Wednesdays as well as Saturday at lunch for food procurement and
preparation. This was more closure time than the average, but the couple felt that it was necessary given
the pressure throughout the week. Lunch was served from noon to 3 p.m., and dinner customers were
accepted only until 9:30 p.m. In comparison, many Calgary restaurants operated four or five weekdays,
with extended dinner hours Thursday to Saturday and limited service on Sunday evenings. The couple
also took vacation time, during which Italia remained closed for extensive periods. Service hours and
schedule changes were communicated on the restaurant’s website and social media channels, such as
Facebook, where Italia had more than 6,000 followers.

SERVICE OUTLET

Italia adopted a humble aesthetic. The restaurant occupied a rented space with a narrow, inconspicuous
facade. The tiny and cramped interior dining area of approximately 65 square metres (700 square feet)
held six square tables along the windows and walls and 10 barstools facing the kitchen. The space
normally sat 27 customers, but it could host up to 30 diners without blocking the pathway or regular
service flows (see Exhibit 3). The restaurant decor was minimal, with seasonal posters on the wall. Crusty
had no intention of altering the layout or expanding the space. He even emphasized the necessity of high
density to portray an authentic feeling of dining in Tokyo.

MENU DESIGN

Italia offered a full menu for dinner: 12 appetizers, 11 main courses, 6 grills, 2 raw fish dishes, and select
dessert and drink options. Most appetizers were priced under CA$10, 4 and the main dishes were
approximately $15–$25 each. The lunch menu had seven main courses at an average price of $12.

In addition to providing the regular printed menu, the restaurant had hand-written information about many
ad hoc offerings on the walls. These offerings were seasonal and highly dependent upon the availability
of the raw materials discovered during Crusty’s weekly purchases. The restaurant hoped to attract
business customers with rare offerings such as a $39 tuna belly, while maintaining student patrons with
more economical choices such as the $9 pork bowl. At all price levels, Italia’s dish layout was impressive.

Italia’s pricing followed a generic markup of the market prices Crusty paid for ingredients. For popular
menu items, such as the Tuna Salmon Salad Rice Bowl (see Exhibit 4), with shorter preparation times, the
restaurant’s profit was lucrative. Crusty’s ability to achieve lower costs through skilful procurement
meant that the restaurant could enjoy substantially higher margins than many competitors.

For an additional source of income, Italia sold its home-made dressing as a frozen food item at $6 per
bottle, which could be stored for up to two months. More than 7,000 bottles of dressing had been sold at
the tiny restaurant over the previous three years.

4
All currency amounts are in CAD unless otherwise specified.
Page 4

WAIT TIMES

Italia appeared in various news articles, and they all mentioned the everlasting long waiting lines. Crusty was
well aware of the problem, but he had been too busy running the business to deal with the problem until the
most recent summer, when he met Ken Ling, a master of science (M.Sc.) candidate at the John Molson
School of Business. Ling agreed to examine the long waiting times problem more closely. With his assistant,
Ling spent one evening monitoring the arrival and service patterns of each Italia customer. Arrival times and
group sizes were indexed, as well as benchmark service times for such items as getting a table, ordering,
dining, and paying the bill (see Exhibit 5). The data also included customers who chose to leave because of
the long waiting line.

Crusty studied the data provided by Ling with great interest. He noted that when the restaurant had
opened earlier for one Saturday night, 159 customers had been served. This meant that with Italia’s
capacity of less than 30, the turnover rate in one evening was more than five, which far exceeded the 1.6
median identified by the National Restaurant Association and Deloitte in 2010. 5 However, 46 customers
had left without being served, which meant that Italia was losing one customer for every three served.
What were the implications for the business? Was this a major problem for Italia? Were the long waiting
lines discouraging customers? How sustainable were such wait times?

ALTERNATIVES

Seeing the current wait time and the volume of missed customers, Ling suggested several potential
solutions. Crusty could add patio seating along the pavement for the summer months, as many other
restaurants had done. The restaurant could add business on Wednesday and Saturday by training
additional chefs or procurement employees. The menu could be assessed for potential pricing
adjustments, which could reduce long waiting lines. Technology such as beepers could be introduced,
which could ease the waiting process. Clearly, Italia also had to be cautious of any operational
inefficiencies that may cause customers to be kept waiting even while the restaurant had vacant seats.
Ultimately, Italia may wish to consider expanding the current restaurant space or add a second location.

Prior to considering all alternatives, Crusty first had to determine his priorities. Was he prepared to
expand the current business, or did he prefer to stay in his comfort zone—a small, family- and
community-oriented business? Would he want to take a more marketing approach and increase the menu
price, or merely wish to look for an operational solutions? In the end, what both he and Yuko wanted was
for the business to remain sustainable. “As long as the customers are happy, we are happy,” they agreed.

5
National Restaurant Association and Deloitte & Touche LLP, Restaurant Industry Operations Report 2010 Edition,
accessed August 22, 2018, https://s3.amazonaws.com/s3.documentcloud.org/documents/291534/t288-nrarept2010.pdf.
Page 5

EXHIBIT 1: COMMERCIAL FOOD SERVICE ESTABLISHMENTS, CITY OF CALGARY

2012 2013 2014 2015 2016

Total 7,483 8,290 6,818 6,939 7,125
Full-service restaurants 3,883 4,167 3,438 3,487 3,492
Restricted food establishments 2,229 2,562 2,106 2,171 2,331
Special catering services 651 771 654 691 692
Contract catering services 192 194 198 192 192
Catering 394 486 380 413 418
Canteens and mobile counters 65 91 76 86 82
Drinking establishments 720 790 620 590 610

EXHIBIT 2: FOOD SERVICE AND DRINKING ESTABLISHMENTS—SUMMARY STATISTICS,

ALBERTA (IN CA$ MILLION)

Summary Statistics 2008 2009 2010 2011 2012

Operating revenues 9,492.9 9,453.0 9,791.0 10,040.1 10,490.5
Operating expenses 9,018.7 9,032.4 9,362.4 9,641.5 10,076.5
Salaries, wages, and benefits 3,182.4 3,025.5 3,153.5 3,209.4 3,348.2
Operating profit margins (%) 5.0 4.4 4.4 4.0 3.9

Full-Service Restaurants

Summary Statistics 2008 2009 2010 2011 2012

Operating revenues 4,839.7 4,731.1 4,767.3 4,919.0 5,189.3
Operating expenses 4,656.4 4,568.1 4,604.7 4,791.7 5,056.8
Salaries, wages, and benefits 1,731.3 1,593.0 1,603.9 1,640.3 1,725.8
Operating profit margins (%) 3.8 3.4 3.4 2.6 2.6

Limited-Service Eating Establishments

Summary Statistics 2008 2009 2010 2011 2012

Operating revenues 2,989.9 3,079.9 3,361.2 3,505.4 3,650.4
Operating expenses 2,799.8 2,901.6 3,162.7 3,338.1 3,465.8
Salaries, wages, and benefits 904.5 925.7 1,013.8 1,068.6 1,107.7
Operating profit margins (%) 6.4 5.8 5.9 4.8 5.1

Source: “Food Services and Drinking Places, Summary Statistics, Inactive,” Statistics Canada, accessed August 3, 2018,
www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=2110001801.
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EXHIBIT 3: RESTAURANT ITALIA FLOOR LAYOUT AND INTERIOR SEATING
IMAGES
Page 7

EXHIBIT 3 (CONTINUED)

Source: Company files.

EXHIBIT 4: BILL OF MATERIALS—TUNA SALMON SALAD RICE BOWL

180g ground tuna or salmon

60g salad
150g steamed rice
5g Italia topping
3 minute preparation

Note: g = gram.
Source: Company files.
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EXHIBIT 5: CUSTOMER ARRIVAL AND DEPARTURE DATA—DINNER, SATURDAY JUNE 2, 2018

Table Order Order

Group Arrival Menu Table Payment Departure
Index Size Number Taken Delivered
1 2 4:50 5:17 T5 5:19 5:22 5:56 5:58
2 2 4:55 5:17 B7–8 5:19 5:23 5:50 5:50
3 2 5:00 5:17 T4 5:23 5:26 6:10 6:11
4 3 5:07 5:17 T3 5:20 5:24 5:55 5:59
5 4 5:10 5:18 T6 5:26 5:31 6:25 6:26
6 2 5:11 5:18 B5–6 5:20 5:22 6:05 6:05
7 2 5:14 5:18 B3–4 5:21 5:32 6:05 6:06
8 3 5:21 5:21
9 2 5:22 5:22 B1–2 5:32 5:37 6:19 6:20
10 2 5:23 5:23 T2 5:25 5:33 6:04 6:04
11 2 5:25 5:25 B9–10 5:28 5:34 6:01 6:03
12 4 5:27 5:27 T1 5:31 5:38 6:15 6:22
13 3 5:33 5:37 5:58 T5 6:00 6:07 6:27 6:28
14 3 5:36 5:49 5:52
15 1 5:38 5:42
16 2 5:40 5:50 B7–8 5:51 5:55 6:07 6:07
17 2 5:42 5:49 5:55
18 2 5:42 5:49 5:57
19 3 5:44 5:45
20 2 5:45 5:49 5:59 T3 6:03 6:08 6:20 6:20
21 2 5:45 5:50 6:02 B9–10 6:04 6:08 6:35 6:35
22 4 5:47 5:50 6:05 B5–6–7–8 6:08 6:12 6:47 6:47
23 2 5:49 5:50 6:05 T2 6:07 6:10 6:35 6:37
24 1 5:54 5:55
25 2 5:59 6:05 B3–4 6:07 6:09 6:46 6:46
26 4 6:16 6:17
27 1 6:17 6:17 T4 6:18 6:28 6:58 6:58
28 2 6:19 6:20 B1–2 6:22 6:25 7:05 7:07
29 2 6:20 6:22 T3 6:25 6:28 7:07 7:07
30 2 6:22 6:23 T1 6:26 6:30 7:00 7:01
31 2 6:25 6:25
32 2 6:26 6:27 T6 6:33 6:35 7:03 7:04
33 5 6:27 6:27 6:28
34 3 6:27 6:28
35 4 6:30 6:31 T5 6:34 6:39 7:19 7:20
36 2 6:30 6:30 6:35 B9–10 6:36 6:42 7:23 7:24
37 2 6:30 6:30 6:38 T2 6:43 6:46 7:27 7:30
38 3 6:30 6:30 6:49 B3–4–5 6:50 6:53 7:16 7:17
39 2 6:32 6:40 6:47 B7–8 6:51 6:53 7:23 7:26
40 3 6:33 6:40 7:02 T1 7:03 7:05 7:32 7:33
41 2 6:36 6:40 6:58 T4 7:00 7:04 8:02 8:03
42 2 6:37 6:39
43 4 6:37 6:49 7:17 B3–4–5–6 7:21 7:23 7:45 7:45
44 2 6:40 6:49 7:03/7:08 T6/T3 7:05 7:09 7:34 7:35
Page 9

EXHIBIT 5 (CONTINUED)

Table Order Order

Group Arrival Menu Table Payment Departure
Index Size Number Taken Delivered
45 2 6:42 6:49 7:07 B1–2 7:13 7:15 7:43 7:44
46 5 6:42 6:54 7:09 T6 7:13 7:17 8:14 8:16
47 3 6:43 6:54 7:20 T5 7:25 7:32 8:01 8:01
48 2 6:45 6:54 7:05
49 2 6:49 7:24 B9–10 7:26 7:28 8:17 8:17
50 2 6:59 7:08
51 2 7:02 7:24 B7–8 7:26 7:31 8:25 8:28
52 2 7:05 7:28 T2 7:30 7:39 8:01 8:02
53 2 7:07 7:33 T1 7:36 7:43 8:13 8:15
54 2 7:20 7:33 7:35 T3 7:41 7:45 8:17 8:17
55 2 7:23 7:33 7:44 B1–2 7:49 7:52 8:42 8:44
56 2 7:26 7:33 7:45 B5–6 7:52 7:56 8:38 8:41
57 3 7:28 7:42 8:03 T5 8:04 8:07 8:41 8:44
58 2 7:30 7:45 B3–4 7:47 7:51 8:25 8:27
59 4 7:33 8:13 T1 8:14 8:20 8:51 8:53
60 2 7:42 8:03 T4 8:05 8:11 8:37 8:38
61 5 7:44 8:16 T6 8:18 8:23 9:04 9:05
62 2 7:49 8:03 T2 8:04 8:07 8:31 8:32
63 2 7:51 7:53 8:17 T3 8:23 8:26 9:22 9:26
64 2 7:54 7:55
65 2 8:10 8:15
66 1 8:12 8:17 B10 8:22 8:28 8:50 8:50
67 2 8:19 8:19
68 2 8:31 8:31 B8–9 8:34 8:40 9:05 9:06
69 2 8:36 8:36 B3–4 8:40 8:42 9:07 9:07
70 2 8:36 8:36 T2 8:41 8:43 9:21 9:22
71 2 8:38 8:38 T4 8:44 8:51 9:49 9:50
72 3 8:40 8:40 B5–6–7 8:43 8:49 9:24 9:26
73 2 8:41 8:42/8:45 T5/B1–2 8:54 8:56 10:10 10:11
74 3 8:45 8:45 T5 8:48 8:56 9:25 9:27
75 4 8:45 8:50 8:53 T1 9:00 9:03 9:53 9:57
76 2 8:45 8:50 9:05 B9–10 9:08 9:13 10:16 10:17
77 2 8:46 8:50 9:06 T6 9:07 9:11 9:51 9:54
78 2 8:53 9:07 B3–4 9:10 9:15 9:48 9:48
79 2 8:59 9:22 T2 9:24 9:27 9:48 9:49
80 3 9:00 9:12
81 2 9:00 9:25/9:28 B5–6/T3 9:30 9:35 10:23 10:24
82 2 9:03 9:25 B7–8 9:27 9:31 9:59 10:00
83 2 9:19 9:29 B5–6 9:29 9:32 10:23 10:24
84 2 9:21 9:27
85 3 9:27 9:29 T5 9:32 9:36 10:11 10:12

Note: Data in grey refers to customers who left without receiving service.
Source: Company files.