It’s not all about price. Instead, rethink value, affordability, and how to balance rising food costs and shrinking margins.
Food that is accessible and aspirational is the goal, but throw affordability into the mix and the plot thickens: The farm-to-table sourcing model doesn’t come cheap, and neither do fresh, seasonal foods, robust wine collections, or multiple taps of seasonal craft beers. Meanwhile, the growing competition from chef-driven fast casuals makes it even more imperative for full serves to win consumers’ discretionary dollars. To accomplish this in our value-driven society—despite rising food costs and constricted margins—operators are increasingly seeking ways to offer “Cheap Eats” in creative ways, keeping books in the black and patrons flocking in. FSR reached out to its readers to learn the how and why of affordable food menus. The clear outcome: Cheap Eats is as much about business strategy as it is about price points. Here are successful strategies from a handful of operators that are representative of reader feedback:
Craft Your Own Margins
Around three decades ago, Michael Olesen held a blueprint of his future in his hands as he prepared to graduate from the University of Illinois. His independent study, “The Economics of Nightclubs in Today’s Alcohol Industry,” earned Olesen a degree six months ahead of schedule. But it wasn’t until 2002 that the plan had a chance to officially enter the real world.
In May of that year, Olesen realized his dream with the opening of Stockholm’s Brew Pub in his hometown of historic Geneva, Illinois, a modest-sized Chicago suburb first settled in the 1830s. Even decades later, Olesen remembered his college research as he began to chart a plan for the 11-table restaurant. First and foremost, Olesen wanted to conduct business “the right way,” which meant “no gimmicks, no fillers. We don’t short-change anything.”
Yet, as operators at all altitudes of the industry understand, good intentions alone don’t produce good margins. And what’s one of the first places people always sacrifice? “I wasn’t going to cut food cost,” Olesen says. Fourteen years later, the restaurant keeps food costs steady around 38 percent, which sounds more like a high-end steakhouse than a neighborhood brewpub.
Being able to thrive with those kinds of numbers, and ideals, is one of the full-service sector’s greatest challenges. Olesen’s success has myriad layers, but here’s the starting point: The restaurant brews its own beer, effectively erasing the distributor, or middleman, from the equation. In fact, the soon-to-be 54-year-old restaurateur, who also owns an investment brokerage company, Geneva Investment Group, is crafting batches of beer himself early in the morning. The small price of ingredients doesn’t dent his bottom line. Rather, the considerable savings enables Olesen to charge a competitive $4.50 a pint for one of his eight microbrews and three blends, and the money he saves by brewing in-house effectively lifts the cap off food restrictions. The restaurant enjoys a 70/30 mix between food and alcohol sales, respectively, with beer accounting for more than 10 percent of the total revenue. And Olesen cuts no corners.
“We actually have a custom-grind on our hamburgers so that our hamburger is a better burger than our competition. We hand-cut our own steaks. We do these extra things with our food, and we’re able to do this because of the fact that we produce our own beer and sell our own product. We’ve basically cut out the distributor,” he explains. However, he acknowledges the brewing equipment was much cheaper 14 years ago than it is today. Still, he believes this straightforward plan beats alternative options for dealing with food costs, like the marketing and pricing gimmicks he’s seen others employ, such as when operators offer discount coupons on over-priced items that have lower-quality ingredients. Bottom line, Olesen believes in making money, but doing so with integrity. “It’s the right way to be; I believe in being honest and forthright,” he continues. “People appreciate that.”
Waste Less, Profit More
Throwing out product is the same as throwing away money, suggests Laura Abshire, the director of sustainability policy and government affairs at the National Restaurant Association. “With sustainability a lot of the things can be a win-win: Like with energy savings, you’re saving energy and you’re saving money. But with food waste, it’s a triple win,” she says. “You’re saving resources, you’re saving money, and you’re helping the environment.”
In addition to the environmental and obvious big-picture concerns, restaurant owners grapple with the issue of food waste on a daily basis—but learning to manage that problem can actually boost profits. At Lineberger’s Cattle Company Steakhouse & Saloon in Sherrills Ford, North Carolina, which is located near the popular tourist destination Lake Norman and is three years away from celebrating its 50th anniversary, owner Ralph Starling is doing everything he can to avoid filling the trash with items from his pantry—and the effort is paying off. In fact, turning food waste into profit has allowed the restaurant to offer a few “Cheap Eats” dishes that help to broaden its consumer base and keep the tables turning. The 300-seat destination restaurant can hit 1,200 covers on its busy nights. “Our slower nights are on Tuesday and Wednesday, so if we can offer something around $15.99, well, those [prices] are rare these days. [Guests] can come in and get a filet mignon and beef tips for $15.99. It’s not a bad deal for folks,” Starling says.
The restaurant has a very reasonable check average of $31 and, despite operating only 25 hours a week, is producing enough revenue to keep 40 employees on staff and afford food costs between 38 and 40 percent. Minimizing what goes to waste is a significant part of the success metrics. One example is tenderloins, a cut of steak well known for its waste concerns. Starling and his kitchen brass, executive chef Joseph Alridge and sous chef Don Berryhill, devised a plan to prepare an Asian-style stir-fry with the meat. In another case, the restaurant found a vendor willing to unload lobster claw meat for $1.59 a pound.
But one of the concept’s biggest draws remains its 50-item salad bar, which is often populated with creative interpretations of unused food. A prime example that Starling points to is how the restaurant makes use of Prime Rib end cuts—a cut that guests rarely order. “A lot of times we have so many end cuts left over that we chop it up and make a Prime Rib salad for our salad bar. That’s a big hit for us,” he says. Baked potatoes have become potato salad. Leftover fried chicken, originally envisioned as a Mother’s Day special, became a chicken salad so popular it evolved into a regularly featured menu item.
Play The Market
For some operators, offering lower-priced food comes down to simple pros and cons. Curtis Beebe, the owner of three Florida restaurants—Pearl in the Grove, Local Public House and Provisions, and Rebecca’s City Market—understood he would be taking a hit margin-wise when he opened Local Public House around two years ago.
Compared to the Pearl, a fine-dining, 14-table venue that carries a check average around $50 and has food costs of 30 percent, Beebe wanted the average check at Local Public House to sit somewhere between $15 and $20. However, he was intent on maintaining the same ingredient-forward, locally sourced focus on the menu—a challenge that was compounded by the fact that food costs at Local Public House run 37 percent. “The only way we could meet our goals was to give up some margin on food cost,” he says. Other factors had to be taken into consideration as well. Local Public House is in San Antonio, Florida, just outside of Tampa, and the small city—although still considered a rural area with strong agricultural ties—will one day be absorbed by the spreading, surrounding metropolis. Beebe had to anticipate that a larger chain could be opening down the road sooner than people imagine. “I really wanted to have market share before that happens,” he says. “I’m willing to [have higher food costs] right now for a couple of reasons. One is that we’re really the only restaurant in a radius of probably 15 to 20 miles serving this kind of food.” A gastro pub done right he says, “with great craft beer, hand-crafted burgers, and sandwiches and salads, in a cool, kind of hip environment.”
For the concept to achieve lasting power, building market share is more important than quickly building his bank account, Beebe says. And on top of that, he’s unwilling to cut quality. The restaurant purchases hamburger buns from a local baker and grass-fed beef at $9 a pound from a nearby company.
The restaurant balances its affordable menu by keeping selections to a reasonable number and by working with ranchers and other local purveyors on bulk deals. “We have a good relationship with our ranchers so they can say, ‘Hey if you can take some beef liver, I can give you a better deal on these other things.’ Because every time [the rancher] kills a steer he’s got liver, and if he’s not moving the liver, he’s not making any money on it.” The strategy is working: Local Public House has enjoyed 20 percent organic growth in its first two years. The operation’s same price-friendly approach applies to craft beer: Beebe pours all selections at $6 a glass, but higher-alcohol beers get smaller glasses. In some cases, Beebe says they are “losing our shirt on” kegs. However, it’s all about the big-picture perspective—driving consistent foot traffic and creating a following is worth the trade-off.
A similar operational philosophy is practiced by restaurants that are working to build happy hour and bar crowds. The 39-unit Firebirds Wood Fired Grill offers a Bar Bites menu that presents portions of the restaurant’s top sellers at lower prices. Stephen Loftis, Firebirds’ vice president of marketing, says the menu was formalized just a little over a year ago. It continues to evolve based on trends and popularity, and currently features eight items, everything from Jalapeño Pimento Cheese Dip ($8 regularly / $5 at Happy Hour) to Crispy Mahi Tacos ($10 / $7).
These dishes provide a gateway into Firebirds’ larger menu for many guests. “It’s an introduction,” he explains. “Even, quite frankly, from a generational segment: With millennials, it’s a great introduction into Firebirds for them. They’ll come, have some smaller entrées, have a nice social glass of wine or a martini, and be exposed to the dining room and the balance of the menu as they progress. Then they become Firebirds loyalists, or fanatics, or lifelong fans with us.”
It also boils down to providing a restaurant with multiple uses for different consumers. The Bar Bites menu gives the “FireBar” and patio a purpose beyond serving as a holding section for waiting guests. “We’re all in business to make money,” he says. “So yes, we’re cognizant of the business itself, and the margins and food cost and labor that goes into it. We’re very cognizant of that. At the end of the day, we offer a tremendous value on the plate and tremendous food. So we want to make sure we provide a certain atmosphere.”
Roll with the Ages
Given that Bill Bonadio opened his Oklahoma City restaurant, Papa Dio’s, in 1979, it’s not uncommon to see second- and third-generation guests sitting down to dinner. Believe it or not, he proclaims, there’s only been one consistent complaint throughout the decades. “Bill you give too much food!” Bonadio laughs. “I tell them they get two meals for the price of one. How good of a deal is that?”
Five years ago, Bonadio came up with another idea—something that would help him offer a lower-priced, quality item, and one that would limit food waste while opening the door to a new category of diners. Basically, he answered the lone gripe with The Little Menu at Papa Dio’s, which comes as an insert, starts at $7.99, caps at $9.99, and has just five items. It provides a small window into the restaurant’s massive regular menu, which features more than 160 items and serves both the casual-dining room and the more upscale Wine Bar next door. “The Little Menu starts at $7.99 and you’re talking about an entrée, salad, and bread. You can hardly get a meal deal at McDonald’s for that,” he says, adding that he’s only taken two items off the menu in 34 years.
In addition to giving customers the option for large or small servings, the restaurant also manages to do well with its core products. Even when using a fine Italian imported product, pasta is one of the industry’s higher-margin, more profitable items. Papa Dio’s keeps food costs around 31 percent and garners a check average between $32 and $33.
“Margins are always good. I’m always considering that, but I’ll put quality before I put margin,” says Bonadio, who also sells his signature sauce and builds custom cars for his other company, Dio Cars USA Inc., on the side. “And I’ll put consistency and service in front of margins. Because if you have those three, then your margin will be there.”
Like many operators, Bonadio believes the restaurant business, no matter how you price it, always reverts to the basics. “Great service, you can’t put a price on that,” he says.