May 10, 2011 by: Rosemary Slade

In the face of some of the highest unemployment and housing loss rates in the country, the Bay Area restaurant scene continues to excite and grow. While our restaurants are a major economic engine for the financial health of San Francisco, the operator's bottom line often diminishes. Maintaining our status as one the hottest restaurant cities for foodies may come at the expense of profit. While costs continue to soar due to gas prices, conscientious ingredients and health care costs, the restaurateur also carries the responsibility of maintaining a price point that diners will still deem reasonable.

The good news is that the economic outlook is inching forward - with fewer backward steps. Confidence in the job market, favorable international exchange rates, a budding rebound for conventions with stepped up marketing efforts by San Francisco's Visitors & Convention Bureau (SFVCB) is bringing an increase in visitors to San Francisco. Hotels on Union Square and Fisherman's Wharf are seeing higher occupancy rates than they've seen in the last two years. Hotel operators are veterans in the "price-based-on-demand" model. They are able to adjust prices immediately across all sales channels as demand ebbs & flows.

This sort of price "testing" would be tricky for restaurants. Can you imagine the havoc such a model would create? Although POS systems are more sophisticated, ever-fluctuating menu prices based on demand is outlandish, given the high number of dining transactions. Training restaurant staff and keeping the books sounds like fun, doesn't it? Industry experts are predicting that operators will raise menu prices this year - at least across the higher cost menu items - to help restaurants regain a reasonable profit margin.

So, how to put butts in seats and still resuscitate a profit margin? The answer is to broaden your universe of potential diners. If you raise prices without enlarging your circle of prospects, some diners will have reached their tipping point and will move their business to a lower priced option. Now your costs will be more in line, but sales will be down. Is there a diner who is relatively price inelastic? The corporate business traveler is one such demographic.

In March of this year The San Francisco Travel Association released the results of its year-long Visitor Profile Research and its annual estimate of the economic impact of the tourism industry in San Francisco. They found that the number of visitors to San Francisco for 2010 was up 6.2 percent over 2009. They stated that they expect 2011 numbers to continue to trend upward due primarily to more conferences and stronger marketing efforts - specifically targeted at the leisure traveler. I seldom take the time to complete surveys, so I am not always confident that surveys represent the population as a whole, but using their "reasons for visiting San Francisco" numbers: leisure purposes (74%), convention/group meetings (7.1%), business & government travel (18.3%) is a good starting point.

For argument's sake, let's say these visitors represent a significant number of your "enlarged circle of prospective diners". Of the groups of travelers to San Francisco, who are your best prospects? Those who have a high budget, seasoned travelers who have few demands, those who travel to San Francisco regularly? The bargain shopper? According to San Francisco Travel, 26% of San Francisco's visitors are corporate/government business travelers. Travelers who dine on "expense account" make up an estimated $40 billion dollar annual market in the US.

The average Fortune 1000 company spends 9% of their company's overall travel and entertainment budget on dining. Face-to-face meals remain a necessary component of conducting business. A small portion of this spend comes from a company's local offices, or from visitors attending a conference. The majority of this $40 billion market is generated by employees who travel to conduct company business. These employees are field representatives and executives who entertain clients and prospects, engineers that facilitate and manage client projects, employees attending goodwill events or team meetings, etc. This demographic consistently spends 20-25% more than the personal consumer diner. Is this the best visitor? If so, what if you could replace your lost customers that have been out-priced with these diners?

How can a restaurant take advantage of this steady stream of high value, incremental diner? One way is for this corporate traveler to dine more often at your restaurant, and less often at your competitors'.

Several restaurants already do some business with corporations who have a nearby office. The corporate traveler is much more elusive. How do you reach this major player who travels to San Francisco and has never heard of your restaurant?

Also, how do you make your restaurant stand out over the other 3,653 restaurants in San Francisco? I live here, so generally use Yelp or Google who offer comprehensive lists, and I understand the geography of our city. If I want to impress or entertain, I rely on word of mouth. Others use credit card/airline points programs, Zagat, or any one of the flood of "deal of the day" coupon/discount programs - all of which target the personal consumer/diner. Most of these programs connect consumers and small businesses. How many of these small businesses have been vetted? Are the page placements non-biased? The general model for consumer programs is quantity of lists, with little regard to quality or experience. If your restaurant's success is to be supported by our visiting diners, how do you reach the best ones?

Any company, no matter how large or small, understands the culture and value of volume-based purchasing; it leverages volume with price and terms. Major companies have "partnered" with specific airlines, hotel and rental car companies for decades. Why not restaurants? There are 6 major players to choose from for the airline or car rental industries. It is not uncommon, however, for a Fortune 500 company's employees to dine annually at over 50,000 random restaurants! Using their standard model to negotiate partnerships with over 50,000 restaurants would be resource and cost prohibitive. But what if there was a way to leverage the money a company spends on dining and entertainment, by using fewer restaurants more often (i.e., shift share)?

Dinova, a company headquartered in Atlanta, Georgia, recognized the opportunity to address this need for major companies by developing the "Corporate Dining Connection" program. Dinova does the heavy lifting required to connect restaurants to the decision makers who "own" the dining and entertainment budgets at a growing list of Fortune 500 companies. Dinova offers a "zero cost outsource approach", where they share in a client's savings given by their preferred partner restaurants. Vic Macchio, Dinova's Founder & CEO, explains, "Dinova examines a company's restaurant landscape to identify expansion opportunities." He noted there are restaurants with varying price points, geographic footprints and preferences in cuisine for different business units within various companies that are identified. "Our client companies authorize Dinova to invite and negotiate with their preferred restaurants on their behalf. They rely on us to build a network that offers convenience and choice for their travelers - across the full scope of business dining situations."

Macchio called Dinova "non-disruptive" to corporate clients and restaurants, and added that "Dinova's web-based engine offers our clients' diners a searchable listing of participating preferred restaurants, which is typically embedded within the company's travel portal." A Dinova Partner Restaurants Locator mobile application utilizing geo-location technology is expected to be released by summer 2011, making it even easier for client employees to find partner restaurants.

Vic Macchio explains, "Our current clients are spending over $300 million on dining in the US annually, and this number will grow as we add more clients." Over $20 million is spent in San Francisco Bay Area restaurants.

Dinova continues to cultivate a stable of preferred restaurants, from independently managed fine-dining restaurants, to multi-unit full service operators such as McCormick & Schmick's, P.F. Chang's and Outback Steakhouse, to quick-service eateries such as Au Bon Pain and Boston Market. Dinova expects to have over 5,000 U.S. restaurants in its portfolio of preferred restaurants by year-end, and international markets are on the horizon.

The San Francisco Bay Area is located in the epicenter of innovation. New challenges call for new approaches.

Maybe the solution is in the present rather than the past!

Ms. Slade is Manager of Restaurant Partnerships for Dinova in the Bay area and a member of the Golden Gate Restaurant Association