Delivery Costs Were Crushing This Restaurant–Until They Tried This Clever Hack
Norm Brodsky advises a popular fast-casual chain on dealing with rising costs.
Michelle Gauthier and Justin Schwartz in her apartment, from which they run Mulberry & Vine. CREDIT: Celeste Sloman
Recently, Inc.'s legendary Norm Brodsky visited Michelle Gauthier and Justin Schwartz, founders of the thriving New York City-based fast-casual chain Mulberry & Vine. Mulberry & Vine has carved out a niche in a hotly competitive market with its healthy fare--but like many city-based restaurants, it faces challenges with rising costs and the advent of delivery services like Grubhub. Luckily, Norm was there to lend an ear--and weigh in.
Norm: So, in the restaurant business, it boils down to percentages. What is your rent as a percentage of your total costs?
Michelle: It's less than 10 percent at all of our locations.
Perfect. Ten percent is the magic number. What about food costs?
M: About 27 percent. With packaging, though, we're probably at 30, 31.
OK. That's an acceptable rate.
M: Other costs are the problem. Delivery, which is 30 percent of our business, has really taken a chunk of the profits.
We have that problem at our restaurants too. Everybody does. It's expensive. I see you use multiple delivery services.
M: We outsource it. But we are very close to doing it ourselves, because it's super expensive. With those services, we're giving away close to 35 percent of revenue on deliveries.
One of my partners says, "Delivery stinks. We don't want it." But if you're staying within your percentages for everything that you're doing, then delivery should really be an add-on to your profit. It won't make your rent go up, and you're not adding any extra help to do it. Do you have a catering menu?
So, here's a trick most people don't know. At my fast-casual restaurants, we use our catering menu for delivery, because, even though it's the same as the in-store menu, the prices are much higher.
M: That's so smart. Seamless won't let you charge a different price, but that lets you get around it.
Our catering menu is probably 20 percent higher than our regular menu. Is that about what yours is?
M: Yeah, roughly that.
So that will let you offset most of the cost of the delivery service charges.
M: Have your customers ever questioned your delivery prices?
It's hard to know. The people who are ordering have the prices in front of them. I guess if they didn't like them, they wouldn't order.
What about your in-store prices? How often do you raise them?
M: We raised them about two months ago, but that was the first time in about five years.
A tip on that: Even if it's just pennies, you've got to do it every year. When you wait longer, you raise them big, and everybody complains. Nobody sees it if it's a nickel or a dime or a quarter.
J: I agree 100 percent. We just did a pretty big menu change. Our prices before were very static. No matter what protein you bought, for example, it was the same price. It was really hard to feel like we could change the prices because it was really noticeable. Now that's not the case. So, in six months, we can raise something a little bit and it's not going to be a big shock.
Now, what about the cost of your food versus what you sell it for? Say, for these gluten-free baked goods?
J: They're huge sellers, but, unfortunately, not a huge profit generator. We buy them from an outside vendor.
This is a great way of differentiating yourselves. What I'd do is, instead of selling something as is, rebrand it. Buy this same doughnut and call it whatever you want. The Vine Nut, or something. You could become known for it. How many locations do you have?
M: Three. And we're opening a fourth in about two months, and a fifth about a month after that.
J: We're either doing well or we're crazy. We're not sure which.
Well, you've got to be a little crazy to be an entrepreneur. That's part of the mystique.