Trend away from alcohol causes restaurants to rethink strategies. As bar profits fall, restaurants stress elegant dining out
At T.G.I. Friday's you can wash down your pasta salad with a Peach ``Smoothie'' for $2.35. Of course, you could have ordered a Pineapple Sunshine ``Fling.'' And at other dinner restaurants there's the ``Nada Margaritas,'' and a slew of generic ``Specialties,'' and ``Mocktails.''
By any other name, nonalcoholic drinks.
The proliferation of these ice, fruit, and soda concoctions is just one response by restaurants nationwide to counter a drop in the highly profitable sales of alcoholic beverages.
The anti-drunken-driving movement and changing drinking habits have put a sizable dent in liquor profits, say industry analysts. A hike in the federal excise tax on distilled spirits in October could further trim the margins on this revenue source.
``Alcohol accounts for a fairly significant percentage of profits in the dinner house market,'' says Richard Pyle, restaurant stock analyst at the brokerage firm Piper, Jaffray & Hopwood in Minneapolis.
Specifically, anywhere from one-half to one-third of their revenues come from alcoholic beverage sales.
From the big chains to the family-run local dinner restaurants, liquor sales have been flat to down in recent years. The 180-unit Bennigan's chain, a Pillsbury subsidiary, has been one of the hardest hit. In less than two years, Bennigan's alcohol revenues fell from 45 percent of total sales to 35 percent now, says analyst L. Keith Mullins at Dean Witter Reynolds.
``Without a doubt, restaraunts are worried about this issue,'' comments Mr. Mullins.
To make up the revenue shortfall, restaurants have been responding in a number of ways.
Developing and pushing nonalcoholic and low-alcohol drinks has been a common strategy. In May, Bennigan's shifted such beverages from the back to the front of their menu.
While some restaurants are scrambling now, in the long run they could benefit from this change. Mixed drinks without alcohol are priced about the same as drinks mixed with alcohol. As a result, profits are higher on nonalcoholic mixed drinks.
But one restaurateur noted that customers are also ordering bottled mineral water, nonalcoholic beer, and nonalcoholic wine. And here the profit margins are thinner than on mixed alcoholic drinks.
Another tactic restaurants are using is to beef up and promote their food selection. ``In the past, Bennigan's was known as a gathering spot, a watering hole. But now we're really emphasizing our food,'' says a company spokeswoman.
This summer, Bennigan's added 26 items to its menu, and recently rolled out a selection of Cajun dishes, including Crawfish Etoufee and Jambalaya.
Mr. Pyle at Piper, Jaffray & Hopwood says T.G.I. Friday's management saw the changes coming years before most and began emphasizing food and nonalcoholic beverages.
``Five years ago, we were more of a singles place,'' says Joel Hayhurst, vice-president and treasurer of the Dallas-based restaurant. ``Friday's has evolved with the -- I hate to use the word -- Yuppie movement.''
``Now those people are 30, 35 years old, maybe they're married, and now want a nice restaurant to take their children to.''
Another reason for a wider food selection is that it develops repeat business. This is important, since the profit margins on dinners are lower than on drinks. To compensate for fewer drink sales, retaurant owners must do a greater volume of dinner business to maintain their earnings growth.
One company president remarked that he thought fewer drink sales could result in higher food prices. But others in the business say there is simply too much competition to raise prices.
Louisville restaurateur Michael Grisanti says he hasn't seen a decline in liquor sales, just a leveling off. ``But down the road, if alcoholic consumption decreases, we have to make up the sales somewhere, perhaps in additional dessert or appetizer sales.''
In Weymouth, Mass., Wade Federici says he has managed to keep drinks sales from declining at his restaurant, The Great Escape, by offering a complete line of nonalcoholic and low-alcoholic drinks and displaying them prominently.
And to maintain volume growth, ``we're getting away from the traditional, `Come on in and drink.' Instead we're saying `Come on in and be entertained,' '' says Mr. Federici.
He also owns a nightclub, adjacent to the restaurant, which offers live music every night. And he has regular theme nights -- such as an over-30s singles party and tropical luau. On Sunday and Monday nights (summers only) he closes the bar and has an ``Under-21 party.''
He admits these ``promotions are expensive. Profits are thinner. But it has to be done to keep the excitement level up. . . We make up in the number of indiv iduals what we may be losing in sales per individual,'' he says.
Restaurants that serve alcohol are feeling the pinch on profits from another direction, too: higher insurance premiums.
The anti-drunken-driving movement is increasing the risks and costs of serving alcoholic drinks. Thirty-seven states now have laws that make the bar or restaurant owner liable if an alcohol-consuming patrons becomes involved in a motor vehicle accident after leaving the establishment.
In one year, the Friday's chain watched its insurance premiums rise 40 percent. ``Our insurance costs are up $150,000 per month over last year. That's a severe hit to our profit margins . . . and we're told that increase is relatively low.''
Indeed, at Legal Sea Food in Boston, the owner reportedly paid $8,000 in liquor liability premiums last year. To cover his four restaurants this year, he's paying $134,000.
The result: Some restaurants are forgoing insurance. Most are training their staff to notice and limit cases of overconsumption.
And there are various methods being adopted to reduce potential liquor liabilities. Some restaurants are offering free soft drinks to those in a group that don't drink.
Others offer free snack food to cut down on the amount of liquor absorbed. If a patron does become intoxicated, many restaurants will pay the cab fare to send them home, rather than risk being liable for a possible accident.
On the other hand, to counter the decline in drink sales, one restaurant owner said some liquor wholesalers are giving him free cab fare passes.