Boy, I hate to say I told ya so, but...actually, I don’t really hate it... I sorta love it, to be honest.
If you are like me, you may be racking your brains to remember when the last time you heard good news was. The economy is tanked, I can’t bring myself to even look at my 401k, the world is melting down around us...I’m a bit overwhelmed by it all.
Actually, it’s all that plus the trifecta of having drama in my family and at work that has me down, so I may be a little more sensitive to the bad news that you may be, what with virtually everything I care about in a state of upheaval.
But the news IS bad. Our industry is down, foot traffic is down, sales are down, profits are down, people are getting laid off, restaurants that we practically grew up with, like Bennigan’s, are closing, Landry’s is on the table...Landrys!...and the unthinkable happened when InBev actually bought Anheuser-Busch! Did you ever think you’d see the day when THAT happened? Not me..
People I care about are freaking out because they are going to be casualties of all these mergers...people with families and mortgages and futures are losing their jobs in the 4th qtr, in an economy that just lost ANOTHER 700 points last week...and no one is hiring. Bye-bye health insurance, see ya security...you can’t even borrow from your home equity because a. no one is lending and b. HA!, good luck getting equity out of a house that is worth less than you owe for it!
This is really dire. And it’s taking us down.
It used to be that the bar business was considered ‘recession-proof’...paraphrasing a quote I read in Cheers magazine, when the economy is great, people drink. When the economy sucks, people drink. And so it is, but here’s the problem...or is it a benefit?
People ARE still drinking, but they are drinking down. Now, before anyone jumps all over me, I’m not quoting statistics; I’m talking about what I’m seeing in my own restaurtants.
My guests are trading down to cheap beer. We are actually seeing an increase in our beer percentage of sales, all of it attrition from both spirits and wine. And with our COGS being virtually the same as last year in the midst of some of the most egregious cost increases experienced in 2008, that, anecdotally, tells me that guest are drinking the cheap stuff. Sales and purchasing info bears that out.
So, is this good or bad? That depends on what point of view you are looking at it from.
Certainly, like all full-service restaurants, we carry a vast selection of fine spirits, interesting craft and imported beers and moderately priced wines. We want to sell these things. These offerings bring in good margins. But they are also fairly high in cost of goods. You can’t eat COGS, so we want these to sell and get that money in the till.
But, like it our not, we are generally judged in our performance within our companies on COGS.
The optimal scenario is low COGS with high margins. But if you can’t get the high margins because people are trading down, then let’s hope you can get profits up by going around through the back door and lowering your COGS so that more of whatever margin you get falls to the bottom line.
So in this case, with the trade down, we are at least getting a lower COG in the well and domestic macro boom going on right now...at least in our stores.
But that leaves us sitting on a lot of costly products that one must have in order to have a well-stocked bar. We have to keep the stuff around, but it’s not moving like it needs to. Oh, sure, we can brow-beat the staff into the aggressive upsell, but that’s not what they are doing. ‘They’ are us and they are suffering as much as anyone and, restaurant people being in the service industry, ipso facto, they want to serve the guest and the way they are doing it now is to point out the best ways to save money on a bill, against their best interests, since tips are based on total spend, but hoping that honesty will be rewarded by the saved money going into the server’s tip.
Not to mention that, as things slow down, like in any other industry, we are having to cut staff to save labor, resulting in the only way ‘trickle-down economics’ has ever actually worked...foot traffic is down, so we cut staff, so the staff has less time to sell to guests, resulting in less sales, requiring more cuts with less staff to sell...trickling down and spinning in circles all at the same time leaving us...well...screwed.
So, bottom line, we’re taking a huge hit in this economy, and that light at the end of the tunnel IS a train...things are going to get worse before they get better, I’m afraid.
So what do we do now?
Oh, you thought I had an answer here? Like some pontificating oracle, perhaps? A veritable Nostradamus, if you will?
Nope, I’m as flummoxed as you are as to what to do. I just presented my 2009 forecast and I’m PRAYING it’s only 6% inflation, after price events. Sadly, I think it will be more, not to mention that, even with gas prices dropping, we are still paying gas and delivery charges- charges that may go away on paper, but, once having that income, distributors will find a way to keep it, likely in increased broken case charges or just spread out into small across-the-board cost increases.
So, no answers here. You got any? If so, share them with me at Beverage.firstname.lastname@example.org. I will compile them and post them here. C’mon now, we are all in this together...share what you are doing so that, together, we can ride this financial tsunami and come out the other side whole.
In the meantime, I will be doing what any self-respecting Beverage Goddess would do...drown my sorrows in my favorite beverage, which, at the moment, is arsenic. Cheers.