Comments on: Cheap Eats: Aurora, Craft, Even Al Biernat’s Gift Certificates for Pennies

By: Amy S

Amy S — Thu, 19 Nov 2009 01:26:41 +0000

We’re all looking to fill available capacity right now. I just did a check of the 3rd quarter tax receipts for mixed beverages and several restaurants have seen business drop as much as 40% from 2008 to 2009 (now remember these figures only track liquor, beer and wine sales, not food, but there is a correlating relationship between the two). And that was after a strong drop industry-wide from third quarter of 2007. I dine out alone, alot being married to a chef. And I’ve noticed many busy bars but empty dining rooms in some of the best and most popular restaurants in the city. And employees of some of these restaurants have mentioned (without knowing I’m even in the biz – just a friendly person eating alone at the bar is all) that they are concerned about their job security. My heart goes out to them.

See the dining environment has undergone a dramatic changes in the last 15 years, from limited competition, to an explosion of growth and seating capacity, to shrinking dollars to be divided up between these large numbers of places. On my neighborhood corner (Preston/Forest) there are now over 25 places where you can find something to eat – an almost tripling of places in about 10 years. The closures at Victory weren’t just because the traffic there was poorly designed, they happened to open about 6 months before an economic $hit$torm took sales below their sustainable levels.

I don’t think the answer to how a restaurant is doing necessarily lies in how much money they are making (and how they go about bringing in sales), but more on how much they are spending. Those with bank debt are at a disadvantage to those who have none, those with high corporate costs or high rents are at similar disadvantages. And those who have majority owning partners who may decide the “high profile, high expense, high salary” chef is unnecessary to the success of a money losing chain are the ones most at peril.

As to the restaurant.com issue, back in the early 1990′s we were recruited by a company called Send.com, who spent millions on advertising and marketing for dinners that one could send to friends in other cities. When the dot.com bust hit, they closed their doors and many restaurants were never reimbursed for cashed-in dinners and many purchasers were out the cost of the Send.com gift certificates they were given. So I guess, buyer beware.

BTW, I love your blog.

By: Mike Hiller

Mike Hiller — Tue, 17 Nov 2009 13:57:03 +0000

Good points, Amy. Another way to think about the GC is as a dollars-off coupon, since some of the restaurants have a minimum purchase requirement that exceeds the value of the coupon. When I was at Fish, we used to think of BOGOs (buy-one-get-one-free) and Passbook as desperate last gasps of troubled restaurants to increase cash flow at the expense of profits. So here’s the thing: did you ever expect places like Craft, Aurora and Al’s to resort to a coupon to drive business? I didn’t.

By: Amy S

Amy S — Tue, 17 Nov 2009 01:58:20 +0000

Or, here’s another way to look at the transaction – and I have no way of knowing if this is how it happens or not, but it’s a possibility. Sample possible conversation:

RRdotcom: We’ll drive traffic your way, what deal can you give us?
RRowner: Well, how about if someone buys two entrees, we’ll give them $10 off – good for lunch only.
RRdotcom: Great!
RRdotcom: Get a $10 gift certificate for only $1.00!

As my business marketing professor taught me in college, sometimes it’s not about the amount of the discount, but the multiples that buy that discount. So they sell 100 gift certificates at $1, and it cost them $0. The restaurant benefitted from? $100 worth of marketing.