Episode Transcript
[00:00:00] Speaker A: So your restaurant only makes money when customers come in and sit in your dining room. But what if you could generate revenue 24 7? What if your customers could buy your products, your experience and your expertise, even when your restaurant was closed? Direct to consumer revenue streams let you leverage your brand, your recipes and your customer relationships to create income beyond traditional dine in service or even takeout service. Today, I want to talk about meal kits and retail products. Cooking classes, private events, private chef services. These are all ways to diversify your revenue to leverage your key assets. All of that on today's episode of Restaurant Strategy.
There's an old saying that goes something like this. You'll only find three kinds of people in the world. Those who see, those who will never see, and those who can see when shown. This is Restaurant Strategy, a podcast with answers for anyone who's looking.
[00:01:03] Speaker B: Foreign.
[00:01:10] Speaker A: Chip close. Here we are talking about revenue diversification today, specifically how to create multiple income streams that leverage your existing assets and customer relationships. This isn't about replacing your restaurant revenue. It's about supplementing it with additional streams that can improve your profitability, reduce your risk, your risk, and ultimately strengthen your customer relationships. Let me start with a story. I've been doing this a lot. P3 member. This guy runs a farm to table restaurant out in Nashville, right? Great food, great reputation. But like many restaurants, he was vulnerable to all those external factors. Right? Bad weather, hurts sales. These economic downturns we are seeing, right. Leads to reduced customer spending. Right. The pandemic nearly killed his business. And I know you know that.
So he came to me, he said, hey, I can't control when people come to my restaurant, but I need more predictable revenue streams. I need ways to generate income that aren't dependent on dining room capacity. This conversation happened almost two years ago. And today Michael's Restaurant generates 35% of its revenue from direct to consumer streams. I want to repeat that. 35% of the revenue comes from direct to consumer streams. Revenue streams that did not exist before we started working together.
Avi, you love to go out to eat. So, as a guest, what's your biggest pet peeve when you're trying to choose a place to eat? Yeah.
[00:02:31] Speaker C: As the father of two children, I can't leave the house for less than $30 an hour. My wife has celiac. So when we're going to make a dining decision, I live and die by that menu. I'm in there researching what's available. What can my wife eat? What can we share? What do I get to eat off of her Pleat.
And so that menu is just a crucial part of all decision making for me as a consumer. It's why at Marquee, we focus so much on our menus, our menu integration, so that as operators, your menu that lives in your point of sale that you want customers to see is available and up to date everywhere.
[00:03:04] Speaker A: To learn more about Marquee, go to marque.com, m A R Q I-I.com to learn more about this and all of the incredible features they have.
Let's start with the meal kits, right? This is what he does for me. It's the most obvious direct to consumer opportunity for restaurants, right? You're already making food, why not let customers take it home and finish it themselves? But here is where most restaurants get these meal kits wrong. They try to replicate their full menu in kit form, which is complicated and expensive, or they create generic meal kits that don't leverage their brand and their expertise. The key is choosing three to four signature dishes that will translate well to meal kits and full focus on those. These are dishes with simple preparation, ingredients that will travel well and clear competitive advantages. Also really easy ways for people to heat up the food at home. The take and bake stuff, right? Which is what we talk about so much, right? So I worked with another restaurant out in Madison, Wisconsin and they created meal kits for their three most popular pasta dishes. Fresh pasta, housemade sauce, pre measured ingredients, and detailed cooking instructions. They had these little cards made. They sell the kits for like 25 to 35 bucks, which is about 70% of their dine in prices. Kit cost them about 8 to 12 bucks to produce, giving them 60 to 65% margins. They sell like 200 kits per week, generating thousands and thousands of dollars in previously unrealized revenue every week. If you're doing the Math, it's like $25,000 every month in additional income with relatively minimal additional labor. But here's the key. They don't try to serve everyone. They are focusing on their existing customers who want to sort of recreate the restaurant experience at home. And they market the kits through their email list, through social media, through in restaurant promotion. They have their servers talking about it. They drop postcards, they sell them at the tables. Simple, focused, and ultimately very profitable. Retail products can also be incredibly profitable if you choose the right items. So you make your own pasta sauce or hot sauces, spice blends, dresses, dressings, marinades, sometimes desserts that can be, that can travel well. Anything that customers already love at your restaurant or is sort of adjacent to your restaurant and would want to use at home will work. The key is starting small, focusing on products that have a long shelf life.
[00:05:37] Speaker B: Right.
[00:05:37] Speaker A: So the spice blends, the oils, the marinades, the things like that, these will also have, because they have a high, long shelf life, they're high margin. Then they will also have strong brand connection to your restaurant. Right. You know you're labeling your logo right on there, right? So there's a barbecue restaurant I work with out in Ohio. They started selling their dry rub and their barbecue sauce retail. They invested $2,000 in packaging and label. They started with just 500 bottles of sauce and 500 containers of rub. They sold these products in their restaurant for like, I think it was like $10, 15, 70% margins. Words spread through their customer base. They started getting orders from people who had away from Ohio but wanted to recreate their barbecue at home the way they had come to love it.
[00:06:23] Speaker B: Right.
[00:06:23] Speaker A: And today they sell over $15,000 per month in retail products. They started with just 500 bottles and 500 containers of the Rub, and now they do over $15,000 a month in retail revenue, both in restaurant and guess what? Also on their website, through online orders. And now they've expanded to include a bunch of different sauces, two different spice blends, and of course, even the branded t shirts, aprons.
Cooking classes. Let's talk about it. Cooking classes and other unique culinary experiences can generate significant revenue while building deeper customer relationships. Because it's like a behind the scenes tutorial, right? This works especially well for restaurants with like a strong chef identity or a unique cuisine. Don't just offer generic cooking classes. Create experiences that actually leverage your specific expertise and, and your brand.
Meaning if you're known for pasta, yes, you're going to do pasta making classes. If you're famous for cocktails, you're going to do a mixology class. If you specialize in a particular cuisine, offer cultural cooking experiences. So I'm working with a Thai restaurant out in New Mexico and they offer monthly Thai cooking classes, right? And they're 75 bucks a person. They cap it at 12 people per class. They teach three dishes, they provide all the ingredients, and the participants get to eat what they cook at the end. And you can buy an optional wine pairing if you want.
Again, the classes cost 25 bucks per person in ingredients and labor. I mean literally all in. It generates $50 in per person in profit, right? That's the contribution. 12 people per class, two classes per month, that's like $1,200 a month. In monthly profit. The real value, and this is what they came to realize is in the way they were able to deepen their relationship with their customers. Did you know, maybe this won't surprise you. It sort of surprised me. And then I, I realized that it makes sense. But 80% of those class participants became regular customers at the restaurant. We determine a regular customer by three visits or more every month.
Think about that. So if they do two classes a month, that's 24 people. 80% of them come at least three times per month. And guess what? They don't come alone. They bring their family, they bring their friends, they bring their spouses.
[00:08:39] Speaker B: Right.
[00:08:39] Speaker A: Let's talk about private events and catering. I spent a lot of time talking about this, so we deserve to talk about it here.
[00:08:45] Speaker B: Right?
[00:08:45] Speaker A: These can be incredibly profitable. I know you know that. Especially if you have a space that's underutilized during certain hours.
[00:08:51] Speaker B: Right?
[00:08:52] Speaker A: You can do corporate meetings, birthday parties, anniversary dinners, wine tasting, these mixology classes or cooking classes, holiday parties. The key is creating packages that are easy to sell and easy to execute. You don't try to customize, not bespoke events every time out. What you want to do is standardize your offerings. You have to productize your room to reduce complexity, increase profitability, and make it very easy to execute. So I work with a restaurant that was struggling with slow weeknight sales. They started offering a wine and dine private events on Tuesdays and Wednesday nights. 60 bucks per person for a three course menu. It came with the wine pairings. Minimum 15 people, maximum 40 people. And they would market these events to corporate groups. Right. Sometimes they would even do birthday parties, doing these special dinners. They would do social clubs, book clubs, things like that. What happens to those events? Ended up generating like a thousand to $2,500 in revenue per night with guess what? Higher margins than their regular service because there was no menu choice complexity. And they were had very predictable guest counts. They now host six to eight of those events every month, generating an additional something like 14 or $15,000 a month in previously unrealized revenue. Right. These times that were previously slow, they figured out a way to get blood from a stone.
Let's talk about subscription boxes, man.
We used to do this, we did this at Gotham for a little while when I was at Gotham Bar and Grill. And it worked really well. This can work for other restaurants. Again with a strong brand like Gotham and very loyal customer bases. What this is is monthly deliveries or pickup of signature products, seasonal items, unique ingredients, those spice blends, the Sauces, things like that. Items that your customers can't find just anywhere because you are curating a very special collection every month.
Subscription boxes do require some logistics, right? They require customer service infrastructure. Do not underestimate the complexity of sourcing the ingredients, packaging, shipping, managing your inventory, and yes, customer support. When boxes go missing or people want to, you know, the stuff was broken or they need to order a new one or they want a refund, right? There's a pizza place. So I've talked about Gotham, how we did that, did that years ago, pre pandemic. But I know pizza place out in Chicago. They created a monthly pizza night subscription box. 35 bucks every month gets you pizza dough, sauce, cheese, and premium toppings for two pizzas, right? There was a recipe card that showed how to make these specialty pizzas. There was even wine pairing suggestions. Kudos to them. They even partnered with the wine shop right down the street and they said you should be able to find these, you know, most places, but the place right down the street specifically stocks extra of these. Here's their number to go call them, right? Or here's the QR code to go order them online. It was awesome. What happens, they have like 4,000 subscribers on their list. They turn that into 400 Pizza Box subscribers generating $14,000 in monthly recurring revenue. That's recurring every single month. If you're doing the math, 10% of their list jumped on this. The boxes cost about 818 bucks to produce and ship, which gave them about 50% margins, give or take. But most importantly, again, the subscribers visit the restaurant to pick up the things. And we found there is a correlation between those 400 people who buy the things and repeat visits, what we call those regulars, three visits or more. The majority of those 400 subscribers who you know get the pizza night box end up coming to the restaurant three times or more every single month.
Create a safer, more efficient kitchen and better protect your bottom line with restaurant technologies. Its total oil management solution helps minimize the dangers that come with traditional oil management, such as oil burns, spills and slip and fall accidents. The end to end automated oil management system delivers filters, monitors and recycles your cooking oil. Taking one of the dirtiest jobs out of the kitchen and no upfront cost. Control the kitchen chaos with restaurant technologies and make your kitchen safer while maximizing efficiency.
Visit RTI Inc.com can email customer care at RTI Inc.com or call 888-796-4997 to get started.
All of those links will be in the show notes online Ordering and delivery optimization. It is another revenue stream. It's not just about third party platforms. You can create your own direct to consumer delivery and pickup programs so that you can keep more of the revenue and give you better customer data because you got all the information.
So if you invest in online ordering systems that integrate with your POS, or for a lot of you guys, your POS can handle this. What you do is you sometimes want to create exclusive online menu items, stuff that's only available there. You might offer pickup incentives so that you can avoid delivery fees.
[00:13:45] Speaker B: Right?
[00:13:45] Speaker A: You can build your own customer database instead of relying on those third party platforms. It's incredibly helpful. Digital content and experience became huge during the pandemic, right? So we're talking about like zoom classes, things like that. Virtual classes, recipe video instructions, online wine tastings, chef consultations, all of that.
[00:14:02] Speaker B: Right?
[00:14:02] Speaker A: And these almost have zero marginal cost once created, and they can reach customers anywhere in the world. So I'm talking about like, like an online cooking classic, a mini course that you'd host somewhere, right? It's an online thing that you create. Once you sell it, you put it up on a, on a website. So a virtual pasta making class can serve 50 people as easy, five people. You can keep selling it over and over and over. So you don't necessarily do it live in person, but you sell like an online course for it, right? So I obviously have my own online course. I know a bunch of chefs who are doing it. There's one out in Seattle that actually I don't work with. But what he does is brilliant. He offers a monthly virtual cooking class, 25 bucks per household. Participants get a shopping list ahead of time so that they can go get all the, you know, all the items, all the ingredients for the recipe. And then what happens? They cook along with the chef via zoom. And he regularly has 40 to 60 households participate. I asked him, I said, is this still going on? He obviously started it during the pandemic and he said it's still going strong. It generates like $1,000 to $2,000 per class, and it's hardly any cost now. He's got his like, sous chefs doing it, but again, it's like, you know, he pops in every once in a while. Sometimes he'll like, you know, be the guest star. But. But it's another revenue stream. It helps keep the sous chefs engaged, it leverages their personality, all of that.
[00:15:21] Speaker B: Right?
[00:15:22] Speaker A: And yes, guess what? Those classes also end up driving restaurant visits. About 30% of the virtual class participants visit his restaurant within 60 days of taking a class, which is sort of incredible when you think about the fact that there are people who can take this class from all over the world.
Now, branded merch. This can generate revenue and marketing value simultaneously. Of course, we're talking about T shirts, hats, mugs, aprons, anything that customers will be proud to wear or use as a way of promoting your restaurant. Don't just create generic merchandise. Create items that, number one, reflect your restaurant's personality and number two are things that your customers will actually want to own and use. One of the things I love, there's a client I work with. They run a.
It's a brewery and they create a limited edition hat and a limited edition T shirt every single year. So they have their standard hat and T shirt and then every year they do a limited release. So there's tons of scarcity. It creates real urgency to get jump on it and buy that year's hat. They work with local artists. It's like the very definition of community. And it just really breeds a sort of brand loyalty that couldn't be found anywhere else.
[00:16:31] Speaker B: Right.
[00:16:32] Speaker A: Gift cards, we've talked about this. Gift experiences are often underutilized revenue opportunities. So yes, traditional gift cards, but not just that. What about experiential gift cards, right, for these cooking classes or for wine dinner packages or a chef's table experience or a private chef experience.
These can generate immediate cash flow and often result in higher spending when redeemed because recipients typically add to the gift card value, meaning they had a $200 gift card, and they say, well, let's then let's splurge on that really nice bottle of wine. You know, we'll spend an extra $100.
Corporate partnerships are another revenue stream you can create.
You can partner with local businesses to provide employee meals, catering services, corporate event experiences. And yes, these relationships can generate predictable monthly revenue with higher value transactions and will breed greater loyalty. Between this right now for a second, let's just talk about what doesn't work in DTC retailing or direct to consumer retailing. Do not try to do everything at once. I just shared a whole bunch of stuff. You should not be doing all of them. I want you to pick one or two revenue streams that align with your brand and your customer base and execute them flawlessly before you even think about adding more.
Do not underestimate the operational complexity that comes with some of these things. Each new revenue stream will require an additional system or process or staff training. Make sure you can execute your core restaurant business excellently and then Add these things on. Right? Don't add too much complexity. Make sure to focus on profitability. You know, I care so much about this. Some direct to consumer streams look attractive in terms of revenue, but actually have very poor margins after you account for all of the costs. So I'd recommend you focus on streams that improve your overall profitability, not just your top line revenue. Now let's talk for a second about implementation strategy. I want you to start with your existing customers and your proven capabilities. If your customers love your salads and your salad dressing, start there. If you're already doing some catering, just expand that program. If customers ask for recipes, then create the meal kits. Build on your strengths instead of trying to create entirely new capabilities based on skill sets you may not even possess.
And test small before scaling. If you want to launch a meal kit program, then just start by saying, you know, for the next three weeks we're going to do or like one time only. Start small and just offer it to the first 20 people. So before you invest in a big, large scale production, just see what it takes to execute 20 of these suckers. Offer cooking classes to your existing customers before you market it broadly, meaning before you start running ads and make a big deal, just send a thing to your email list. Just say we're offering a pasta making class for the first 10 people who respond to this.
[00:19:25] Speaker B: Right?
[00:19:26] Speaker A: Start with one retail product before you create an entire product line. Again, what we're doing is reducing risk and it allows you to refine your processes and see if it even works before you make any major investments. So now you know, I love to do this. Your homework for this week. First, survey your customers about their interests in direct to consumer offerings.
Find your best 10 or 15 customers and just ask them. Say, hey, can I pick your brain for 10 or 15 minutes? Set up a time to talk on zoom or phone and just ask them some questions. Would they be interested in any of this?
[00:20:00] Speaker B: Right.
[00:20:00] Speaker A: What products would they buy? What experiences would they be willing to pay for? What problems could you solve for them outside of your dining room?
Second, identify your top three signature items that could translate to retail or a meal kit format.
Consider shelf life, shipping requirements, the preparation complexity, the profit margins, the operational stumbling blocks that could, that could trip you up.
[00:20:26] Speaker B: Right?
[00:20:27] Speaker A: Third, calculate your potential profitability for one of these streams and include all the costs, right? The ingredients, yes, but the packaging, the labor, the marketing, the fulfillment. Make sure the margins justify the additional complexity.
[00:20:42] Speaker B: Right?
[00:20:42] Speaker A: As you go through this, right. Understand that directing consumer revenue streams aren't about replacing your restaurant business. They're about leveraging your existing assets, meaning your people, your space, your ingredients to create additional value for your customers and additional revenue for your business. The key is choosing streams that align with your brand.
Revenue streams that serve your existing customers and can be executed flawlessly, efficiently and yes, profitably.
[00:21:09] Speaker B: Right?
[00:21:10] Speaker A: That's it. That's all I wanted to talk about today. There's a lot we talked about. I shared a lot of ideas. Again, you're not going to do them all. I want you to pick one or two.
The retail items, the sauces, the spice blends, the oils, the salad dressings, I found those to be really helpful. And the take and bake meal kits, I found those to be really easy to execute. Those you can ship, the shelf stable stuff you can ship or you can offer for pickup. And the meal kits, I would strongly recommend you only offer them every Sunday night or every Friday night. And it's pre order so they prepay. You can then shop and prep appropriately and then they pick them up as it at a designated time from your restaurant. Those are the easiest ones to get started in my opinion. But explore. Maybe one of these resonated with you. In fact, I hope they did. That's it guys. I appreciate you taking time to sit here and hang out with me every single week. Again, my name is Chip Close. This is the Restaurant Strategy Podcast Podcast. Have a great night.
