Good Morning! Today we are talking about how the numbers impact this industry that we all know and love. When things just continue to get harder on everyone’s wallets how can this industry find ways to survive and thrive?
As it turns out, some ways are easier than others. This week we talk about external and internal factors at play when it comes down to dollars and sense.
Sysco To Acquire Restaurant Depot
How This Could Spell Disaster For Independent Restaurants
Although food distribution companies aren’t exactly spirit related this story is worth covering for its potential impact on the bar and restaurant industry. Anyone who has worked in the industry likely knows the name Sysco. It’s one of three food distribution giants that together account for about a third of national (US) sales. According to Restaurant Business Sysco is “the country’s largest provider of food and other goods to restaurants and other foodservice providers”. Now they are planning to acquire Jetro Restaurant Depot (known more commonly as Restaurant Depot) which is causing many in the restaurant industry to sound the alarm bells.
Sysco claims that the consumer base for Restaurant Depot has “minimal overlap” with its current consumers but that claim is misleading at best. The Independent Restaurant Coalition (IRC) is calling for the U.S. Federal Trade Commission (FTC) to block the deal citing antitrust concerns.
Erika Polmar, executive director with the IRC, said in a statement that the deal could leave smaller restaurants with fewer choices.
“For decades, Restaurant Depot has been the great equalizer for independent restaurants, the place where a small operator could walk in and get the same price as everyone else, no contract, no negotiation, no leverage required,” she said. “Sysco’s acquisition of Restaurant Depot doesn’t just limit competition, it changes the playing field entirely in Sysco’s favor, leaving independent restaurants with fewer real choices.”
This isn’t the first time Sysco has been under scrutiny for monopolistic purchases. “In 2015, the Federal Trade Commission successfully blocked Sysco’s proposed acquisition of U.S. Foods, concluding that the merger would substantially lessen competition in the national market for broadline foodservice distribution to large customers. The court credited evidence that Sysco and U.S. Foods were each other’s closest competitors and that their head‑to‑head bidding imposed meaningful pricing discipline.” Although Restaurant Depot is not built on the same exact business model it is easy to see how this same argument to could be made now.
All this adds to another concern raised about a year ago by antitrust activist group More Perfect Union. When more and more restaurants source their ingredients from the same place will everyone’s food taste the same? Is this already happening? I’m including their video in which they explore this hypothesis for this week’s video so make sure you check it out.
Essentially at the heart of all this is local, small, family owned restaurants. When one company owns all of the channels for these restaurants to get their food and supplies they are at the mercy of their pricing, their stock, and their portfolio of products. Sysco claims that this merger will create price stability but if we remember our history there’s a reason monopolies are not remembered fondly.
Are Restaurants Contributing To Why People Are ‘Drinking Less’?
How Pricing Plays Into The Equation
As a newsletter writer I also tend to read a lot of newsletters. One such newsletter that I often read is Pre Shift (by Eater and Punch). The timing of this article was pretty perfect when I had already planned on writing about Sysco and Restaurant Depot because it too was centered around money and restaurants.
Most restaurant patrons know that going out may very well mean spending $15-$20 per cocktail which also usually means limiting the drink count. How is it then, that one of Chicago’s newest and most exciting bars is only charging $10 for the majority of its drinks?
Chicago’s The Radicle is doing the unthinkable and has a wide selection of cocktails - that don’t suck - for just $10. So how are they doing it? As it turns out some of it is math and some of it is faith in guests buying more when it costs less.
In the world of restaurant math, margins on food and drink are wildly different. Food actually brings very little profit which means the cost to the restaurant and the cost to the guest are very close numbers. Drinks, however, hold a lot more profit. Generally speaking a ‘good’ margin for a drink is 18-22% of the total price meaning if the drink costs $2 to make $10 is a good price to charge the guest. This of course has to be built into the design of the drink. Ingredients matter, including the ones made by the staff in the restaurant. Drinks that take more time and labor like milk punches inherently ‘cost’ more because of it.
Holding to the higher end of that 18-22% can mean slightly less profit per drink but if the system works as intended the guest will then order more than they might usually. It also helps with bartender/guest interactions. If you remember a couple of weeks ago we talked about how bartenders and guests were losing connection amid cocktail evolution and changes in the craft. When cocktails feel more approachable at the price level they also feel less intimidating to order and ask questions about. The door is then left open for more meaningful conversation and maybe even a geek-out moment for the cocktail nerds behind the bar.
Best Video We Saw This Week
In this video Alec Opperman tests his hypothesis that restaurants all over the country are starting to have the same food. He also breaks down how and why something like this is happening in America. It’s on the longer side but is definitely a great look at another facet of the issue with mega food distribution companies.
Quick Hits:
Another distillery closes facilities and lays off workers amid dropping sales in the spirits industry.
Talking about industry giants, Sazerac might be eyeing to purchase another spirits giant rumors say.
