It's back on the menu: All you can eat

Limited time only!

Though some types of restaurants make all-you-can-eat meals their raison d'être, most of these recent promos are limited-time offerings, or LTOs in industry parlance. According to an industry analysis by Technomic, LTOs -- which include all-you-can-eat offers as well as new or seasonal menu items -- are at a five-year high.

Restaurants like LTOs because the format lets them test a new pricing format or menu item without a long commitment. LTOs also work because they rely on scarcity theory, according to Brian Wansink, the author of "Mindless Eating: Why We Eat More Than We Think." Creating an artificial sense of urgency is a successful gambit used by businesses ranging from car dealers to electronics retailers.

There are other psychological factors at work, too. Even if diners don't avail themselves of the all-you-can-eat option, they still perceive the brand as one that offers a good value, Wansink says. It's a way for restaurants to brand themselves as value-conscious without lowering their prices.

It doesn't always work

Dropping prices is a risky move because, unless you're a fast-food giant, there's always going to be someone selling a meal for less. What's more, a lowball strategy might get people in the door, but it also sets up expectations in consumers' minds that are difficult to rewrite.

The hospitality industry offers one recent cautionary tale: Hotel companies that slashed their rates after the attacks of Sept. 11, 2001, to lure back travelers encountered stiff resistance when they tried to raise them again. Even in relatively flush New York City, it took four years for hotels to get back to pre-9/11 levels.

The other big risk with all-you-can-eat pricing is a sudden spike in commodity prices. Darden Restaurants' Red Lobster brand is the poster child for this squeeze; in 2003, an all-you-can-eat crab promotion turned into a loss for the company after the wholesale price of crab nearly doubled unexpectedly. Now, though, with wholesale food prices down by nearly 2% in October, restaurant operators' collective concern is shifting from food prices to the effect of the slumping economy on their bottom lines.

Diners pull a few tricks

Customers have their own bottom lines in mind, too. Analysts say a growing number of diners are using all-you-can-eat offerings as the opportunity to have two -- or even three -- meals in one by stuffing themselves and skipping the next meal, then earmarking any leftovers for the next day's lunch.

Whether they follow through on their planned restraint is anyone's guess, but this "binge today, fast tomorrow" line of thinking can be profitable for the restaurants that feed it.

Indeed, most restaurants no longer refer to their gluttony fests as "all you can eat." Instead, they prefer adjectives of abundance: bottomless, endless, unlimited. It's a small switch but psychologically significant.

In an atmosphere where everything from job security to credit is limited, there's a strong gut-level appeal for the promise of something -- even if it is only flapjacks or fettuccine -- that stretches on forever.

This article was reported and written by Martha C. White for The Big Money.

Published Dec. 15, 2008

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