Scott Barnett & Associates Blog
A Night at the Restaurant

December 12, 2019
The other day I was talking to a guy who lives down the street from me. He was telling me about the dinner his son had at a restaurant in La Jolla called George's at the Cove- arguably the most highly regarded eatery in town.

Seems his son took his date down to the beach near the restaurant where they split a bottle of wine before heading over to George's. He even had some Triscuits and cheddar cheese on a little plate.
I told my neighbor that his story was surprisingly romantic for a 23 year old guy I had last seen playing high school football.

"It was romantic but he saved a ton of money too," he said. He went on to explain that his son had figured out that he could get by with only buying a glass of wine each at dinner ("I have to drive") and no appetizers if he did his "romantic" thing. I wondered if he thought it through so thoroughly that he would know crackers and cheese are filling so he probably escaped ordering two salads ("let's split a Caesar").

Let's assume that he had not done all of this. A normal appetizer at George's is about $17, a bottle of wine would be no less than $75, two salads about $28, two entrees about $80, one dessert $12. The total would be about $200 before sales tax. With his $15 investment in wine and cheese and two $14 glasses of Cabernet, my neighbor's son saved himself a minimum of $50. He became known to his date as a romantic in the bargain.

The restaurant world is reeling from being hit with minimum wage increases, living wage legislation, health care, paid leave and the list goes on.

The industry's normal response to these kinds of things in the past was to simply pass the cost on to the customer by raising prices and it has usually worked.
Incremental labor costs have always been part of the landscape and our ability to increase prices may have been briefly stalled for six months to a year due to a recession or something similar but eventually we could always do it.

The problem today is the customer is feeling strapped already and they rebel against the higher prices as they never have before.
Moreover, they are doing it in new and inventive ways that are even more costly to restaurants than they might normally be.

My neighbor's son chose a creative way that brought him other benefits but the customers are using more mundane methods as well. How about "I'll just have water", splitting desserts, having a pre-dinner cocktail at home (or I have heard even in the parking lot) as some of those ways? The point is that after several years where significant numbers of Americans still believe we are in a recession and baby boomers woke up to this concept called "retirement," passing on those incremental costs has gotten a lot tougher.

What my neighbor's son did was have the "George's experience" at a cost he was able to manage down to an acceptable level. This is happening at every level and segment of the restaurant business to one degree or another and it is not overstating it to say that it is dangerous for all but particularly for full-service restaurants of any stripe.

It has always been my way to run against the grain- to question the accepted wisdom of certain ways of doing business. For example, contrary to what almost everyone thinks, I believe you can almost always lower your labor P.C. by adding a server or staying open an extra half hour. But I must admit that we are running into something we have not seen before these days.

A soft drink or coffee has always been a high margin bonanza for restaurants. The loss of the profit associated with them is very damaging to a restaurant's bottom line. It may be time to calculate the point where the profit gained from dropping the price on beverages in order to spur demand exceeds the current profit on lower unit sales. The fast feeders typically have less of a problem here with the free refills but is still exists for them as well.

The steep entrée price increases of the last few years in full-service have really put off customers and they have devised ways around it that would have been unthinkable not too long ago.
Operators have to get smarter to meet these changes in consumer habits. This requires some new thinking and acceptance that the old ways are not going to be applicable any longer.
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