Chowing Downscale

What savvy restaurateurs are doing to keep diners spending in penny-pinching times

Jul 1, 2009  

by Anthony A. Davis

It’s the morning after the Calgary Flames were punted out of the NHL playoffs by the Chicago Blackhawks, yet Wayne Leong has a surprising equanimity about him. You’d think if anyone would be tearing his hair out at the loss, it would be Leong, whose restaurant, the Melrose Café & Bar, is the throb at the heart of Calgary’s Red Mile along 17th Avenue.

The playoffs mean big business for the Melrose and, with the global recession nibbling away at Alberta’s restaurant industry, dollars count like never before. Pennies do too. And restaurant owners watch the pennies like hawks now. Leong’s chunky Graham Swordfish Grillo watch seems like a good metaphor for how the restaurant industry is sandbagging itself against the recession: the watch (you can get one on eBay for $7,864 if you were wondering) sports a bulbous magnifier bubble on the date window. These days, restaurant owners are applying a magnifier to their numbers more than ever, minutely examining every cost detail that goes into their business.

“Our business is basically a penny business,” says Leong, looking stylish at a table in the Melrose. “You have to watch every penny. So when I say that, I talk about, for example, the amount of straws we use for our guests. We won’t give two straws for a drink because it costs money. Our staff will not necessarily use straws when they have a drink, and I don’t use straws [yup, there isn’t one in his glass] because it costs money. So when you walk into your establishment, those are things you have to pay attention to.”

At his Cheesecake Cafe in northwest Calgary, owner Al Browne, one of the province’s better known restaurant honchos and a political force for the industry, is even counting the crayons. Pre-recession, kids got five crayons to colour with. Now they get three.

“You know, a crayon only costs a penny,” explains Browne, who also owns four Hooters restaurants and last year received SAIT Polytechnic’s Distinguished Alumnus award. “Now, most people think a penny is nothing. But you know what? It starts to add up and add up and add up over a year when you’re dealing with hundreds of thousands of customers.”

If that seems overly parsimonious, consider this: the restaurant industry as a whole has one of the slimmest margins around. According to a Statistics Canada report released last March, pre-tax profit margins in Canada’s commercial foodservice industry slipped to 4% in 2007, down from 4.3% in 2006. The decrease was primarily due to a 7.4% increase in labour costs and came before the recession started eating even further into profits. Alberta eateries actually had, in 2007, the healthiest profits at 6.7% (as a percentage of annual operating revenue).

To put this in perspective, with an annual sales volume of $586,269, the average Canadian foodservice unit earned a pre-tax profit of just $23,450, says Statistics Canada. Full-service fine dining restaurants have the lowest profit margins in the industry at 3% in 2007. It’s the burger and taco joints that are putting more money in the bank, with an average pre-tax margin of 5.1%.

Restaurants have always had their ways to get as many bums in their seats as they could and squeeze the most profits possible out of every customer in this highly competitive industry. As customers, we may not even be aware of these bits of culinary industry legerdemain. Do you miss the lemon slice from your glass of water? The fewer napkins placed at your table? Did you notice that, moments after you cleaned your plate, a waiter was there offering to fetch your bill right away? That’s not just good service; that’s turning tables so a restaurant can get a new, paying body in your seat and eliminate any lineup of increasingly irritated customers at the door.

The recession has amplified their necessity and forced restaurateurs to try new things to get new faces in the door at a time when more Canadians are choosing to eat at home. Yet restaurateurs know they walk a slippery tightrope between cutting their costs, maintaining quality and not ticking off valued customers. “Restaurant customers are very, very demanding of quality to price,” notes Andy Taylor, senior vice-president of Joey’s Only. The seafood chain, which started in Calgary as a fish-and-chips diner 24 years ago, now has 85 franchises across Canada. “I can’t think of another business where the consumer gets to consume the product before they decide if it’s worth paying for. That’s how it is in full-service restaurants anyhow. If your regular customers think that you are cheating them, you will be done like dinner.”

Joey’s Only is actually benefiting from the recession. “We are kind of countercyclical,” explains Taylor. “I think the effect is very dependent on what type of restaurant you have. If you speak to a white-tablecloth company, the fanciest places in town are probably hurting more than we are. Because we are sort of at the lower end of the full-service food chain, so to speak, we tend to get the people who are trading down from the more expensive restaurants. When times are tough we typically do a little bit better.”

Others are definitely feeling some pain. Melrose’s Leong has definitely seen a pullback in his first quarter. Browne has worked in the food and hospitality industry for 36 years and has served as president of the Alberta Restaurant Association and vice-president of the Canadian Food and Restaurant Association. He says he’s hearing that business at some fine-dining establishments in Alberta is down 40% to 45% this year. His restaurants are “down about 10%. But remember, we are down 10% from the best year we ever had.” In fact, all of the restaurants spoken to said their 2009 numbers so far were on par with revenue and profits in 2005 and 2006 – still relatively good years, just not the boom-time numbers they were getting happily used to.

While he thinks the impact of the recession in Alberta has been overstated by the media, places such as southern Ontario, Detroit and Las Vegas are getting walloped. Alberta restaurants are beginning to adapt a defensive posture, re-engineering menus, offering value-priced deals, trying to trim costs, concentrating on connecting with their immediate communities, intensifying up-selling, re-targeting their marketing. In a word, pulling out their arsenal of tricks while trying not to shoot themselves in the foot.

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