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Astute Restaurant Owners Embrace Barter To Stay Abreast Of The Ever-Changing Times. . .

Competition & Fickle Public Keep Restaurateurs On Their Toes!

Any situation that might utilize (even minimally) idle equipment, space or time would by its very nature spread out costs and increase business profitability.

New trade opportunities that would fill unsold radio time, empty hotel rooms, or idle printing presses, for example must be seen as a boon to these industries.

Restaurants, too, are an integral part of this segment of the barter economy, their meals being an eminently tradable commodity.

To the uninitiated, restaurants might seem to be unlikely candidates for trade. Their costs appear high: food, alcohol, salaries, linens, rent, gas and electricity, all figure into the cost of every menu item.

Further, the question is usually raised as to the ability of any barter group to match the restaurant�s established food purveyors in quality and price.

Jack Schacht and Joan Varner of the Chicago-based Illinois Trade Association, find that despite outward first-glance appearances, restaurants almost always prove to be particularly successful traders.

First, it is obvious that food and alcohol do not comprise all of any restaurant�s costs. Also, because barter promises to bring in customers when the restaurant is less than full, and is most successful when used to fill empty seats.

�You can�t count the cost of staff, electricity, linen or decor,� Varner and Schacht explain. �The lights are on, the tables are set, the waiters in place anyway. By utilizing this space barter simply spreads costs more optimally.�

�The actual cost of doing barter business is really limited to only the cost of the food and beverage,� Schacht points out, �and that cost usually runs somewhere between 30� to 35� on a dollar. What the restaurant is trading is its food, beverage, and empty space!�

Incorporated into many barter agreements with restaurants are certain exclusions. A restaurant always busy on Saturday night may want to exclude that night from trade. A restaurant packed at lunch may also exclude lunch.

Many restaurants choose, however, to trade across the board. They wisely find their barter business important enough not to turn away any of the potential.

The owner of a highly successful group of restaurants in the Chicago area views his incremental barter business income as virtually cost free. Here�s why: 

First, barter successfully furnishes essential  goods and services to the restaurants in return for meals. In contrast to the many varied situations in which restaurateurs �comp� meals, barter is not asking for freebies.

Trade exchanges regularly provide such peripheral but necessary items as advertising, printing, flowers, plants, window treatments, carpet cleaning, exterminating, painting, even roof repair, as well as sealing the striping of parking lots.

Second, in addition to paying restaurants back in kind for their meals, the exchanges might also take their fee in trade.

In return for their brokering services, they take meals back at a ratio of one and one-half to one in their favor, rather than in cash.

For example, for every $100 of printing the trade exchange provides to the restaurant, the restaurant gives back $150 in meals, but pays no cash fee.

This arrangement constitutes a particularly good deal for the restaurant. A quick comparison of the ratio to a cash fee deal illustrates why. It is safe to assume that an average restaurant�s cost of food is about 30� on a dollar.

Were the restaurant to pay a 10% cash fee for the barter services, a typical cash fee for the industry, it�s trade dollar would cost them 40�: 30� for the food and 10� to the exchange.

At a ratio of one and one-half to one the real cost to the restaurant would be 30� for the food plus half again for the fee--an additional 15�--or 45� on the dollar.

However, for the extra 5� the restaurant has realized, in addition to no cash outlay at all, the acquisition of real value: more people have come into the restaurant to fill the empty seats. And the possibility of future, cash spin-off business has risen.

Plus, if there are special exclusions to the trade, potential on-the-spot cash income.

The Illinois Trade Association (ITA) has developed a scrip program, which offers restaurants additional advantages. Identified in the non-barter world as coupons, scrip usually comes in $10 denominations.

It can be used to pay for food and beverage, excludes tax and gratuity, and has an expiration date. And, the proviso that no change can be returned in the event that the meal costs less than the face value of the scrip redeemed.

The expiration date is largely for the benefit of the restaurant owners; most of them like to know that there is some date after which they would not be accepting the scrip, should they decide to cancel the program.

Restaurants on ITA�s program soon learn to appreciate the extra trade or cash they receive.

Should a meal cost $44 plus tax and tip, the patron would usually give the restaurant four pieces of scrip with a face value of $10 each, plus $4 cash for the balance, plus tax and tip in cash.

Should the meal cost $47 or $48, the patron would probably pay with $50 in scrip and allow the restaurant to retain the barter profit. (No change is given when scrip is used.)

In the first scenario, which often occurs, the restaurant gets 10% of the bill back in cash. Since his real cost was only 30� on a dollar, he has received back full fully a third of his actual out-of-pocket expense for food and beverages.

Many times a patron will spend much more than the amount of scrip he has to pay for it with. Accordingly, he must make up the difference in cash.

To sweeten the deal even more for client restaurants, ITA�s scrip is good for 100% of the meal only for parties of up to five. For parties of six or more scrip is valid for only 70% of the bill.

So for all larger parties the restaurateur sees a return of his entire cash outlay. His barter income is virtually free.

Schacht and Varner both maintain that the barter income their member restaurants receive is virtually cost free. Varner estimates the actual net outlay for products and services purchased on trade by her restaurant clients is about 10-cents on the dollar.

The most important factor in securing restaurant clients and insuring the overall success of their trade participation is initial education coupled with on-going guidance.

ITA has made it a major priority to work closely with its restaurant clients from the moment of initial contact throughout the entire working relationship, to develop a sound understanding of every phase of the barter opportunities open to them.

Nothing works as well as face-to-face contact and so ITA�s representatives regularly visit clients, counseling them on new and better ways to benefit from membership in the organization.

Although nothing can be counted on 100% of the time, this procedure plus the development of specialized brochures and seminars (open to members and potential members), increases the trading volume of the client restaurants. 

Plus, these services encourage referrals to friends in the same industry who could also benefit from the growing service of ITA.

The education process has become one of the most important client services that can be offered to a restaurateur or any client firm, for that matter.

It plays an important role in increasing the trading volume of clients as well as the quality and number of goods and services traded or offered for trade.

Certainly, as ITA has discovered, the number of new restaurant clients rises in direct proportion to the increased awareness of the advantages offered by barter groups to the restaurant industry.

Restaurants, by their very nature, offer one of the most promising areas for new client development within the trade industry.

Illinois Trade Association has recognized this fact and through its unique marketing efforts, designed to fit the needs of the restaurant industry, has seen and will continue to see the positive results of its works.

For more information contact Jack Schacht or Joan Varner at Illinois Trade Association, 7449 N. Natchez, Niles, Illinois 60714. Phone (897) 588-1818, fax (847) 588-1570.

(This article was provided by Stuart Feiler of Feilcom Worldwide in Skokie, Illinois.)

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