Leverage What You Already Have: Add a New, Highly Profitable Income Stream With Catering
by Jennifer Foss and Kurt Allanson
For new restaurateurs, perhaps there is no more seductive siren call to diversify their growing businesses than expanding into catering. At first blush, what could make more sense?
You have the kitchen and culinary prowess. You have supplier relationships and food purchasing economies. People know your restaurant's name and enjoy dining in with you, so why wouldn't they enjoy your food and presence equally at their events?
Look around; that family Italian restaurant down the street just added its second catering van. Something must be going right for them. In fact, with the right concept, market and approach, catering is more than a profitable extension of your enterprise. It's a form of advertising and promotion that plugs your restaurant everywhere your catering van shows up. Sounds great!
"For us, catering was really a natural emergence," said Tim Stannard, owner of The Village Pub in Woodside, California, an upscale community in the San Francisco Bay Area. "The economy was improving and people started calling us in May to book holiday parties," he said. "By August we were completely sold out, so we decided to give our customers who started calling in the fall another option."
Adding catering services to a restaurant business also provides restaurateurs with an excellent, low-cost means of acquiring new customers. Catering provides business owners with an opportunity to get paid to market to potential new customers. "There's really no easier way to convert people to patrons of your restaurant than catering," says Michael Attias, owner of Corky's Bar-B-Q restaurant in Nashville, Tennessee, and a nationally recognized catering consultant. "It's better than free advertising."
But before you sign the line that is dotted for that new catering van, listen to the nervous little bean counter inside you, who looks under the hood twice before taking off on any new adventure. The article will explore some of the catering challenges as well as opportunities. It will also pass along some tactics you might consider when diving into a new catering operation.
A Scalable Enterprise
"There's just always someone catering something," says Attias. "It's also a very proactive business. For instance, when you own a restaurant, you generally don't go out and knock on someone's door and say, 'Hey, would you like to come to my restaurant for dinner tonight?' But in catering, if I find out that you are planning a wedding or a shower, it's easy for me to contact you and say, 'Congratulations, and by the way, did you need someone to cater your event?'"
Unlike restaurants, Attias says, the success of a catering business has nothing to do with factors that are sometimes hard for restaurateurs to control, like road construction that can reduce drive-by traffic. He believes that restaurateurs can expand into catering quickly, without a significant increase in overhead. Moreover, it's a "scalable" enterprise, in that as the catering business grows, you can add equipment and staff to accommodate your demand. In many cases, you can rent or lease the equipment you need, when you need it. To use a fishing analogy, you can put as few or as many lines in the water as you want to handle. Since your restaurant is your primary enterprise, you have the luxury of ramping up your catering services in your own time.
As a corollary, another benefit of catering is that you can expand your kitchen and administrative operations in less-than-optimal commercial space. When you open another restaurant, you still need to find a location that will draw from the community. It needs to be inviting to the public. With catering, you could expand your kitchen and office facilities almost anywhere if walk-in diners are not an issue. It doesn't have to be fancy or particularly convenient. That can mean lower overhead and greater margins.
"View catering as an opportunity to increase your restaurant's output and revenue without having to make major capital investment," says Dave Pavesic, Ph.D., a professor at Georgia State University's Cecil B. Day School of Hospitality. "Most of the time you can rent needed equipment and serving pieces and charge them to the client. You can do the food production in slow periods so it does not interfere with their regular restaurant business."
The immediate equipment needs to run a catering operation, Pavesic says, includes holding equipment to keep the food hot or cold as it is being delivered to the location of the event. "You may also have to lease a van with custom racks for holding the food containers. In addition, you will want to have your name displayed on their delivery vehicles as a form of advertisement. Eventually, as business grows, you will invest in chafing dishes, special risers for buffet tables, fountains, etc. Presentation is a major part of catering and the food must look good when it is served."
. . . View catering as an opportunity to increase your restaurant's output and revenue without having to make major capital investment.-- Dave Pavesic
"Having few variable costs — just the product and the labor — makes the profit margins for a restaurant owner just wonderful," Stannard says. He launched into catering in 2004, and said he began offering the service mostly as a means to accommodate regular customers who asked him to provide the food for their parties. Business blossomed around the holiday season, particularly among the late planners who weren't able to book reservations for corporate parties at The Village Pub (because the restaurant was completely booked through December by August 2004). It was during this time frame that Stannard realized how advantageous catering could be, to both his customers and his bottom line.
But cost management is a key concern, says Chris Tripoli, president of A La Carte Consulting, who has found that many operators are taken off guard by disappointing margins, because they have not considered all the costs involved in running a catering business. As with all decisions to expand your business, it doesn't hurt to bring your CPA in on the process.
According to Tripoli, the incremental costs of product and labor are not the only things to be aware of. Catering costs should include the rental of items, delivery costs (truck lease, insurance, maintenance, mileage, gas, etc.) and supervisory time. You also need to allocate costs that the catering business shares with the restaurant, such as administration and overhead. How much time is your restaurant's back office staff dedicating to the catering business? How much of your square footage and telephone usage is related to catering?
You will likely be faced with equipment lease or purchase decisions as you grow. If you are starting out small in catering, you probably do not want to carry the ownership and maintenance overhead of equipment that spends most of its time in storage (or in the case of a van, sitting in your parking lot). In the beginning, a good rule of thumb is to rent the most expensive gear when you need it, including transportation. With allowable deductions for depreciations, you may find that buying will lower your costs, with the benefit of having key equipment conveniently at your disposal.
In the meantime, you keep your lease and rental costs low by researching the market for the most competitive pricing. Stannard stresses the importance of interviewing several rental agencies before selecting one to use for a customer event, something The Village Pub team learned the hard way on an early catering job. "You've got to find someone that you can really trust and you think you'll really be able to work well with because they are absolutely vital to your success. And finding out that a rental agency isn't any good one minute before a catering event is not going to serve you well."
Just Don't Underestimate the Time Required
As suggested, Tripoli has witnessed both the upside and downside of catering. Among the notable pluses, catering allows restaurateurs to recoup business that they might lose during certain times of the year. For example, as everyone knows, during the Christmas season, a number of businesses offer office parties for employees and customers. Folks attending those events will not be dining in your restaurant. Catering recaptures a piece of the pie you might lose to other caterers.
"If it builds your restaurant brand, and promotes what you do at your restaurant, then you have a promotional vehicle that makes you money," says Tripoli. "It's a natural extension of your brand."
Nevertheless, Tripoli offers this warning to prospective caterers: Do not underestimate the potential time it takes to run a successful catering operation. Double-underscore this advice if you intend to offer "high-end" catering, i.e., serving large, custom, and/or very special events. "These types of operations require special attention and a personal touch," he says. "There will be meetings with clients, promotion, and significant customer preparation for each job ... people who are paying good money to have a wedding, bar mitzvah, or other special event catered don't want the exact same food they had at the last wedding they attended." Of course, this only adds to the amount of time and effort required.
According to Tripoli, restaurants that have been most successful in catering tend to be those that have a "concept that can be replicated easily" from event to event. A good example of a concept that works well for catering is Southern barbecue. In the Carolinas, for example, folks who pay for an old-fashioned, catered "pig picking" probably don't want surprises or frills. They want the same fall-off-the-bone pork, sauce, collards, hush puppies, coleslaw, black-eyed peas, banana pudding, and sweet tea available at your restaurant. Tripoli has also found that Mexican restaurants can offer catering with minimal customization to their cuisine.
. . . If it builds your restaurant brand, and promotes what you do at your restaurant, then you have a promotional vehicle that makes you money.-- Chris Tripoli, president of A La Carte Consulting
Regardless of how you might be interested in expanding your business, Tripoli suggests that restaurateurs consider the value of their time, and how it might be best invested for the "long-term value" of your business. Again, if your catering business is a high-touch service that can't be readily duplicated, it might not be something upon which you can build value. Consider that a restaurant that has a following in the community can be sold to another owner down the road. Its name and location has value to prospective purchasers. On the other hand, if your catering business doesn't have appeal in your market unless you are personally handling all arrangements, it is merely a revenue stream that can dry up as soon as you stop pumping water. Once you step out of the picture, there might be nothing left to sell or pass on. "You might be better off putting time and energy into building a second or third unit of your restaurant," Tripoli says.
The 'Golden Rule of Catering'
Who will you cater to? What types of business will you go after? What types of entrees will you make available? In marketing parlance, it's called "positioning." Attias calls it the "Golden Rule of Catering." "You have to be congruent with your concept and your specialty," he said. "Cater to where your strengths are and do what people think of you for. It's important to be where people think of you logically." Kelli Lewton, owner of Aunt Olive's 2 Go and 2-Unique Caterers & Event Planners in Birmingham, Michigan, agreed. Lewton, whose business is best known for it's homemade comfort foods (including recipes straight from her Irish grandmother), has been serving lots and lots of customers in this well-off Detroit suburb for 15 years.
"You've got to know who you are and keep your focus," she said. "There are lots of ways to make money in catering, but you have to stay true to your concept and true to your goals. You can be more things to more people (when you operate both types of businesses), but you need to realize that you can't be all things to all people."
Lewton said that many of the dishes that she serves are the same between her catering and her gourmet takeout business. Certainly the customer base is diverse, ranging from President George W. Bush and local celebrities to teenagers from the local high school who come by when they want a quick lunch that doesn't include greasy fries and a cheeseburger. But the food that they ask for almost always comes from Lewton's menu, which consists of entrees like macaroni and cheese, meatloaf and casseroles, as well as organic salads and gourmet sandwiches.
In this regard, you need to sell your catering services to prospects that might appreciate your food. Home-style organic cooking could lend itself to catered business luncheons in a variety of settings, but might fall flat for special occasions, such as wedding and retirement dinners.
Stannard, on the other hand, tends to customize his catering offerings. He supports the notion of keeping congruent with concept, and encourages his catering clients to select from suggested menus that he and his chef prepare. However, he says that it's also important for the client to have input beyond the menu. As a rule, Stannard and The Village Pub's chef, Mark Sullivan, will meet with a catering client before an event to discuss exactly what they want, and to make sure that it's feasible to create the menu items at the venue at which the meal will be served.
"Catering actually provides our kitchen staff with an opportunity to try out new dishes, so everyone enjoys it when we provide a certain level of customization in an event," he says. Caterers who thrive on customization may find a niche serving high-end and lavish affairs and occasions, as long as the service can keep pace with the cuisine, and the income justifies the effort.
Price Pointers
As with your sit-down service, it's important to create a pricing strategy. Catering pricing should be in line with the price ranges of similar food on one's restaurant menu so customers on both sides of the business feel that they are enjoying the same value in their meals. Stannard and Lewton both use standard formulas in calculating out their catering costs, with variables such as number of people to be served, cost of food and how much labor will be required. Stannard said that The Village Pub makes alcoholic beverages available to clients at retail cost instead of at a restaurant markup price as added incentive for customers to add beverages to their order.
Attias approaches pricing a bit differently. He recommends having multiple price points to accommodate a variety of budgets and catering occasions. He encourages restaurateurs to implement what he calls the "1-2-3" plan, with a low-priced and midpriced menu, and then a top-of-the-line option.
"There's a psychology behind it, kind of like the Sears 'good-better-best' or the fast-food 'small-medium-large' method," says Attias. "It makes it simple to have packages. And what you'll find is that about half of the people will go for the budget price, 10 percent or so will want the best no matter what it costs, and then the rest of your customers will be right in the middle."
Promo
As you build your business, says Pavesic, "you will want to assign an employee to be the catering sales manager. He or she will need to print up catering menus, and provide a list of services you can arrange. This might require developing contacts with reliable florists, rental supply companies, photographers, and musicians."
Catering differs from your restaurant business, in that you need an outbound sales effort to build business, even if you handle that function single-handedly. Since there is significant administration involved with each sale, including formal written agreements and deposits, it's a pretty responsible sales function. In fact, in the beginning, if you don't hire an experienced pro to take it over, you probably want to marshal those tasks yourself.
As with any sales program, you want a sound promotional program in place to grease the tracks. Successful caterers use most of the tried-and-true promotional tactics to build local awareness of their catering operations and generate prospective customers. They include: