A Reader suggests a New Yorker article on Economies of Scale or comparing the world of medicine and healthcare to the efficiency of a restaurant chain.
August 13, 2012
An excerpt:…. Big (restaurant) chains thrive because they provide goods and services of greater variety, better quality, and lower cost than would otherwise be available. Size is the key. It gives them buying power, lets them centralize common functions, and allows them to adopt and diffuse innovations faster than they could if they were a bunch of small, independent operations. Such advantages have made Walmart the most successful retailer on earth. Pizza Hut alone runs one in eight pizza restaurants in the country. The Cheesecake Factory’s major competitor, Darden, owns Olive Garden, LongHorn Steakhouse, Red Lobster, and the Capital Grille; it has more than two thousand restaurants across the country and employs more than a hundred and eighty thousand people. We can bristle at the idea of chains and mass production, with their homogeneity, predictability, and constant genuflection to the value-for-money god. Then you spend a bad night in a “quaint” “one of a kind” bed-and-breakfast that turns out to have a manic, halitoxic innkeeper who can’t keep the hot water running, and it’s right back to the Hyatt.
Editor: Of course, the way we–as investors–judge economies of scale is by return on invested capital. Does the business have an advantage over its competitors or potential entrants in cost and customer captivity? The author may be describing efficiency rather than true economies of scale advantages.
Update on the VALUE VAULT
Unfortunately, I have been swamped so work on reorganization has been slow, but a pot of coffee and an all-nighter might do the trick this weekend. The VAULT has been slow due to the many key requests. There are many people trying to access and download simultaneously but it should die down/get faster once the frenzy fades.
Thanks for your patience.